标题: Portfolio Management and Wealth Planning【Session17 - Reading 42】 [打印本页]
作者: ikoreaii 时间: 2012-3-24 14:09 标题: [2012 L3] Portfolio Management and Wealth Planning【Session17 - Reading 42】
FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2006. During the first quarter of 2006, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2006. During the quarter, the Euro appreciated by 2% against the U.S. Dollar. What is the dividend yield on the fund in local currency?
Dividend yield in local currency = 2.3/102 = 2.25%.
作者: ikoreaii 时间: 2012-3-24 14:09
FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the total return on the fund in local and home currencies?
Total return in local currency = Capital gains yield +Dividend yield
= [(105.10/102) – 1] + (2.3/102)
3.04 + 2.25 = 5.29%
Total return in home currency = Capital gains yield + Dividend yield + Currency effect
Currency effect = ej × (1 + CGj + Dj) = 0.02 × (1 + 0.0304 + 0.0225) = 0.0211 or 2.11%
Total return in home currency = 5.29% + 2.11% = 7.40%
作者: ikoreaii 时间: 2012-3-24 14:09
FQ global fund is a US fund with investments in European equity and was valued at 102 million Euros as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million Euros. The fund was valued at 105.10 million Euros as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the capital gains yield on the fund in local currency?
Capital gains yield in local currency = (105.10/102) – 1 = 3.04%.
作者: ikoreaii 时间: 2012-3-24 14:10
Which of the following is the most likely method of hedging currency risk? A)
| Selling a futures currency contract. |
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B)
| Selling a forward currency contract. |
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C)
| Purchasing a forward currency contract. |
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Currency risk can be hedged using either forward or futures currency contracts with the most prevalent method being selling a forward contract. If a manager purchased a foreign asset then they are long the foreign currency and if they believe it will depreciate in the future then by selling a forward contract on the depreciating foreign currency this will result in a gain on the short position.
作者: Bad5shah 时间: 2012-3-24 14:17
Which of the following would be considered an “active” currency management technique? A)
| A portfolio manager under-weights the amount invested in European stocks compared to the benchmark. |
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B)
| A U.S. portfolio manager purchases several foreign stocks paying euros equal to the amount in the benchmark. |
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C)
| A French portfolio manager sells a forward contract in dollars equal to the amount of the portfolio invested in the U.S. |
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Passive and active currency management can mean different things depending upon the context in which they are used. “Passive” currency management can be where a portfolio manager simply does not take a position on the currency movement and accepts whatever appreciation or depreciation of the currency in the portfolio. If their asset allocation differs from the benchmark this would be considered “active” currency management even though they may claim to be passively managing the currency. Thus passive currency management can be represented by not hedging the currency risk by investing in the foreign market in the same amount as found in the benchmark or hedging the currency risk of an investment by selling forward or futures contracts in the same amount as invested in the foreign asset.
作者: Bad5shah 时间: 2012-3-24 14:17
Which of the following statements is most correct regarding forward currencies? A)
| Selling a forward currency is equivalent to receiving the foreign currency risk free rate and owing the domestic currency risk free rate. |
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B)
| A forward currency purchase is equivalent to paying the foreign currency risk free rate and receiving the domestic currency risk free rate. |
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C)
| Purchasing a forward currency is equivalent to being long in the foreign currency cash and short in the domestic currency cash. |
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A forward currency purchase is equivalent to being long in the foreign currency cash receiving the foreign currency risk free rate and short in the domestic currency cash paying the domestic currency risk free rate.
作者: Bad5shah 时间: 2012-3-24 14:18
When the value of the assets to be hedged increases the amount hedged: A)
| does not need to be adjusted. |
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C)
| should also be increased. |
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The hedged amount needs to be periodically adjusted to reflect changes in the asset value so as the asset value increases (decreases) the amount hedged would also need to be increased (decreased).
作者: Bad5shah 时间: 2012-3-24 14:18
Which of the following is the most likely reason to hedge the foreign currency? The portfolio manager: A)
| believes movement in the currency may produce a loss relative to the benchmark. |
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B)
| wants to increase the currency exposure to certain currencies. |
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C)
| has no views about the currency but believes certain markets look more attractive than others. |
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Increasing exposure to certain currencies or markets are reasons NOT to hedge the currency but if a portfolio manager believes the currency movement by itself will cause a loss relative to the benchmark this would be a reason to hedge the currency risk.
作者: Bad5shah 时间: 2012-3-24 14:18
If a separate currency overlay manager exists how is the portfolio asset manager’s performance evaluated? A)
| The portfolio asset manager and the currency overlay manager are evaluated together based on the total return of the asset. |
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B)
| The portfolio asset manager is evaluated based on the return of the underlying asset without taking into consideration any appreciation or depreciation of the currency. |
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C)
| The portfolio asset manager’s performance is evaluated based on the percentage of the total return due to the asset return. |
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If a separate currency overlay manager exists then the portfolio asset manager is evaluated net of the currency return. In other words the asset manager is judged based only on the increase or decrease of the underlying asset value without considering the change in value of the asset’s currency.
作者: Bad5shah 时间: 2012-3-24 14:19
What kind of currency management is represented by a portfolio that closely tracks the benchmark but neither is hedged against currency risk? A)
| Active currency management. |
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B)
| No currency management. |
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C)
| Passive currency management. |
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When a benchmark is present then passive and active currency management are measured relative to the benchmark. Any deviation from the benchmark currency results in active currency management. If the portfolio is invested in the same assets as the benchmark this represents passive currency management.
作者: Bad5shah 时间: 2012-3-24 14:20
The two period active return for a portfolio can be determined by: A)
| compounding the individual one period active returns. |
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B)
| taking the active return on the portfolio in the first period multiplied by the return on the benchmark in the second period plus the active return in the second period multiplied by the total return on the portfolio in the first period. |
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C)
| maintaining the same security or market allocation proportions for each period, compounding the individual one period active returns for each attribute, and then summing the compounded returns to get an overall total active return. |
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To measure the overall return to active management we use the following formula:RA,2 = Ra,1(1 + Rb,2) + Ra,2(1 + Rp,1)
Where:
RA,2 = the two-period active return
Ra,1 = active return for period 1
Rb,2 = return of the benchmark in period 2
Ra,2 = active return for period 2
Rp,1 = return on the portfolio for period 1
The first term in the equation, Ra,1(1 + Rb,2), is the active return on the portfolio in the first period multiplied by the return on the benchmark in the second period. It shows the value added by the manager’s actions in the first period. The active return in the first period will compound at least at the benchmark rate of return over the second period, even if the manager pursues a pure indexing strategy in that period.
The second term, Ra,2(1 + Rp,1), takes into account the manager’s active decisions in the second period. It is measured as the active return in the second period multiplied by the total return on the portfolio in the first period.- The multiple-period return to active management for an individual attribute cannot be determined by adding or compounding the attribute’s contributions in each period.
- The multiple-period return to active management for an individual attribute cannot be determined by assuming it stays at the same proportion of the active return in each period.
作者: Bad5shah 时间: 2012-3-24 14:20
If the return on a portfolio over two periods is 8.6% and 14.32% respectively and the benchmark’s returns are 6.9% and 11.7% respectively what is the two period active return?
The active return is most easily determined by compounding the portfolio’s return over the two periods and subtracting the compounded benchmark’s return over the same period as follows:
Portfolio’s compounded return: (1.086)(1.1432) − 1 = 24.15%
Benchmark’s compounded return: (1.069)(1.117) − 1 = 19.41%
Active return = 24.15 − 19.41 = 4.74%
Alternatively, the two period active return can be determined using the following equation:RA,2 = Ra,1(1 + Rb,2) + Ra,2(1 + Rp,1)
Where:
Ra,1 = active return for period 1 = 8.6 − 6.9 = 1.70%
Rb,2 = return of the benchmark in period 2 = 11.7%
Ra,2 = active return for period 2 = 14.32 − 11.7 = 2.62%
Rp,1 = return on the portfolio for period 1 = 8.6%
RA,2 = 1.7(1 + 0.117) + 2.62(1 + 0.086)
= 1.899 + 2.845 = 4.74%
作者: Bad5shah 时间: 2012-3-24 14:21
In determining the two period active return for a multi-attribution analysis which of the following statements is least accurate? A)
| Each attribute’s contribution in the first period is compounded at the benchmark rate of return over the second period. |
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B)
| Each attribute’s contribution in the second period is compounded with the portfolio return from the first period. |
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C)
| The total active return for the portfolio is found by summing the compounded active return for each attribute. |
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The equation for a 2 period multi-attribution analysis is:RA,2 = Ra,1(1 + Rb,2) + Ra,2(1 + Rp,1)
Where:
RA,2 = the two-period active return
Ra,1 = active return for period 1
Rb,2 = return of the benchmark in period 2
Ra,2 = active return for period 2
Rp,1 = return on the portfolio for period 1
The equation shows that the two period active return for each attribute is found by taking its active return in the first period and compounding it at the benchmark rate of return over the second period and then adding this to the attribute’s contribution in the second period and compounding this with the portfolio return from the first period. This method would be repeated for each separate attribute in the portfolio such as security selection and market allocation. Then each separate attribution’s active return is added together to get the total active return for the portfolio.
作者: Bad5shah 时间: 2012-3-24 14:21
The total active return over multiple periods is most accurately determined by: A)
| compounding the active return for each period. |
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B)
| taking the difference between the compounded portfolio and benchmark returns. |
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C)
| summing the active return for each period. |
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Taking the difference between the compounded portfolio and benchmark returns will result in the true total active attribution analysis this can also be accomplished by taking each attribute’s contribution in the first period and compounding it at the benchmark rate of return over the second period and adding that to the attribute’s contribution in the second period which is compounded with the portfolio return from the first period. This process can be seen in the following formula:RA,2 = Ra,1(1 + Rb,2) + Ra,2(1 + Rp,1)
Where:
RA,2 = the two-period active return
Ra,1 = active return for period 1
Rb,2 = return of the benchmark in period 2
Ra,2 = active return for period 2
Rp,1 = return on the portfolio for period 1
作者: Bad5shah 时间: 2012-3-24 14:22
ABC fund earned a total return of 19.5% for calendar year 2003. Its benchmark return during the same period of time is 17.50%. The risk-free rate of return for the period was 2.0%. ABC’s standard deviation is 16% and the standard deviation of the benchmark is 12%. Did the fund outperform its benchmark based on the Sharpe ratio? A)
| No, the Sharpe ratio of the fund is 1.09 versus 1.29 for the benchmark. |
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B)
| No, the Sharpe ratio of the fund is 1.29 versus 1.09 for the benchmark. |
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C)
| Yes, the Sharpe ratio of the fund is 1.09 versus 1.29 for the benchmark. |
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Sharpe Ratio for the fund = (19.5−2)/16 = 1.09 Sharpe Ratio for the benchmark = (17.5−2)/12 = 1.29
作者: Bad5shah 时间: 2012-3-24 14:22
Advanced quantitative models (AQM) global equity fund has averaged a return of 12.5% per year over the last 10 years. The benchmark average return over the same period was 11% per year. The risk-free rate of return during the same period averaged 3.50%. The standard deviation of the fund’s return is 16.15%, and the standard deviation of the surplus return is 10.50%.What is the Information Ratio for the fund?
Information Ratio = (12.50−11)/10.5 = 0.14
What is the Sharpe Ratio for the fund?
Sharpe Ratio = (12.50−3.50)/16.15 = 0.56
作者: Bad5shah 时间: 2012-3-24 14:23
Sector risk is defined as the risk of: A)
| individual countries in a passive benchmark portfolio. |
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B)
| all the sectors in the portfolio. |
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C)
| assigning the wrong weight to a sector in the portfolio. |
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Sector risk is the risk of individual countries or sectors in a passive benchmark portfolio
作者: Bad5shah 时间: 2012-3-24 14:24
What is risk budgeting? A)
| Identification of sources of portfolio risk. |
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B)
| Determination of a risk measure that the portfolio can take. |
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C)
| Determination of the amount of risk the portfolio can take. |
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Risk budgeting is the risk counterpart of performance attribution. It identifies the sources of the portfolio risk.
作者: Bad5shah 时间: 2012-3-24 14:24
Selection risk is defined as the: A)
| additional risk taken by deviating from the benchmark portfolio. |
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B)
| risk of individual companies in a sector in the benchmark portfolio. |
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C)
| risk of all the companies in a sector of the portfolio. |
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Selection risk is the additional risk taken by deviating from the benchmark portfolio.
作者: Bad5shah 时间: 2012-3-24 14:25
For a global portfolio, the benchmark has to: A)
| have the same amount of risk as the portfolio under consideration. |
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B)
| be consistent with the investment objective of the portfolio. |
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C)
| be custom defined by the manager of the portfolio. |
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The benchmark should be consistent with the investment objective of the portfolio.
作者: Bad5shah 时间: 2012-3-24 14:25
For a global portfolio, why is a custom benchmark used? A)
| A custom benchmark is more suitable for thinly traded international stocks. |
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B)
| Published indices are not comparable to the portfolio. |
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C)
| Since the custom benchmark is created by the manager, it is more likely to be accepted. |
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Custom benchmarks are specified for a global portfolio because universally accepted indices may not be comparable to the portfolio.
作者: Bad5shah 时间: 2012-3-24 14:25
Which one of the following is NOT a consideration while forming a custom global benchmark? A)
| A currency hedging component. |
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B)
| Specification of the risk measure to be used for performance evaluation. |
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C)
| Specification of the industry weights worldwide. |
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Custom benchmarks involve a variety of considerations including a currency hedging component (if desired) and an industry weights component (bypassing the country weights).
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