Q33. What is the M² measure for fund D?

A)   11.26%.

B)   7.66%.

C)   6.76%.

Q34. If the returns of each fund were plotted over a quality control chart using the market as a benchmark, the final point of the value-added line would be above zero, i.e., above the horizontal axis for:

A)   all of the funds except C only.

B)   all of the funds.

C)   none of the funds.

Q35. With respect to the reasons for Carter and Walters being skeptical of using the market as a benchmark:

A)   both Carter and Walters are wrong.

B)   Carter is wrong and Walters is correct.

C)   both Carter and Walters are correct.

36. With respect to the considerations that Carter and Walters put into preparing a custom benchmark, including a weighting for cash and not making modifications:

A)   Carter is wrong and Walters is correct.

B)   Carter is correct and Walters is wrong.

C)   Carter and Walters are both correct.

Q37. The firm that Carter and Walters work for have set up a null hypothesis for each manager. In such a case, the firm would make a type II error if it:

A)   keeps an unskilled manager.

B)   fires a skilled manager.

C)   hires a second manager to help a doubtful manager.

Q38. The following performance data for an actively managed portfolio and the S& 500 Index is reported:

Risk-free rate = 6%.

Determine the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio.

A)   Sharpe measure = 1.04; Treynor measure = 0.14; Alpha = 0.04.

B)   Sharpe measure = 1.05; Treynor measure = 0.17; Alpha = 0.04.

C)   Sharpe measure = 2.44; Treynor measure = 0.40; Alpha = 0.29.

Q39. Based on the results from determining the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio, does the portfolio manager outperform or underperform the S& 500 index?

A)   Sharpe measure → underperform; Treynor measure → outperform; Alpha → outperform

B)   Sharpe measure → outperform; Treynor measure → underperform; Alpha → underperform.

C)   Sharpe measure → outperform; Treynor measure → outperform; Alpha → outperform.

Q40. The Sharpe Ratio is correctly defined as a measure of a fund’s:

A)   excess return earned compared to its systematic risk.

B)   excess return earned compared to its total risk.

C)   return earned compared to its total risk.

Q41. Which of the following statements about risk/return investment manager performance measures is FALSE?

A)   The Treynor measure includes company-specific risk as part of its performance measurement.

B)   The Sharpe measure includes company-specific risk as part of its performance measurement.

C)   When measuring the performance of an equity fund, if the Sharpe ratio is 0.55, and the Treynor measure is 0.47, the difference is attributable to unsystematic (company-specific) risk.

Q42. An analyst has gathered the following information about the performance of an equity fund and the S& 500 index over the same time period.   Using Jensen’s Alpha to measure the risk/return performance of the Equity fund and the S& 500, which of the following conclusions is TRUE?  The:

                                                         Equity Fund            S& 500

                   Return                                  23%                     27%           

                   Standard Deviation                15%                     19%

                   Beta                                   1.09                    1.00

                   Risk-free rate is 3.50%

A)   Equity fund underperformed the S& 500 by 6.12%.

B)   S& 500 underperformed the equity fund by 2.67%.

C)   S& 500 outperformed the equity fund by 3.24%.

Q43. An analyst has generated the following information about risk/return performance using the Sharpe ratio and the Treynor measure:

                                                            Equity Fund         S& 500

                           Sharpe ratio                     0.47                  0.42

                           Treynor measure              0.31                  0.34

Which of the following statements about the relative risk/return performance of the funds is TRUE?  The:

A)   Treynor measure shows the fund outperformed the S&P 500 on a systematic risk-adjusted basis.

B)   Sharpe ratio shows the equity fund outperformed the S&P 500 on a total risk- adjusted basis.

C)   Treynor measure shows the fund underperformed the S&P 500 on a total risk-adjusted basis.

Q44. The Treynor measure is correctly defined as a measure of a fund’s:

A)   return earned compared to its systematic risk.

B)   return earned compared to its unsystematic risk.

C)   excess earned compared to its systematic risk.

Q45. Jensen’s alpha for a portfolio measures the:

A)   fund’s return in excess of the required rate of return given the unsystematic risk of the portfolio.

B)   fund’s return in excess of the required rate of return given the systematic risk of the portfolio.

C)   difference between a fund’s return and the market return.

Q46. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                         Equity Fund            S&P 500

                    Return                                -12%                    -16%        

                    Standard Deviation                15%                     19%

                    Beta                                  1.18                     1.00

                    Risk-free rate is 6.00%

The difference between the Treynor measure for the equity fund and the Treynor measure for the S&P 500 is:

A)   0.07.

B)   0.15.

C)   0.17.

Q47. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                         Equity Fund            S&P 500

                           Return                           32%                    26%           

                           Standard Deviation          41%                    29%

                           Beta                            0.98                    1.00

                           Risk-free rate is 6.00%

The difference between the Sharpe ratio for the equity fund and the Sharpe ratio for the S&P 500 is the:

A)   equity fund is 0.06 lower.

B)   S&P 500 is 0.04 lower.

C)   S&P 500 is 0.09 higher.

Q48. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                      Equity Fund            S&P 500

                  Return                                  27%                   29%        

                  Standard Deviation                33%                    20%

                  Beta                                    0.95                   1.00

                  Risk-free rate is 4.00%

The Treynor measure and the Sharpe ratio, in that order, for the S&P 500 are:

A)   0.33 and 0.97.

B)   0.25 and 1.25.

C)   0.18 and 1.11.

Q33. What is the M² measure for fund D? fficeffice" />

A)   11.26%.

B)   7.66%.

C)   6.76%.

Correct answer is B)

The formula for the M² measure is:

M²_{Portfolio D} = 7.659% = 3.5% + (7.6% ? 3.5%) × (3.55%/3.5%).

Q34. If the returns of each fund were plotted over a quality control chart using the market as a benchmark, the final point of the value-added line would be above zero, i.e., above the horizontal axis for:

A)   all of the funds except C only.

B)   all of the funds.

C)   none of the funds.

Correct answer is B)

Since all of the funds’ returns are higher than the benchmark for the period, all of the funds would have a positive end point for the cumulative value-added line.

Q35. With respect to the reasons for Carter and Walters being skeptical of using the market as a benchmark:

A)   both Carter and Walters are wrong.

B)   Carter is wrong and Walters is correct.

C)   both Carter and Walters are correct.

Correct answer is C)

Their objections are both justified. A benchmark should be specified in advance and deemed appropriate for the style of the fund.

36. With respect to the considerations that Carter and Walters put into preparing a custom benchmark, including a weighting for cash and not making modifications:

A)   Carter is wrong and Walters is correct.

B)   Carter is correct and Walters is wrong.

C)   Carter and Walters are both correct.

Correct answer is B)        

Carter is correct in that a custom benchmark should include an appropriate weight for cash holdings. Walters is wrong in that a benchmark should be modified on a preset schedule.

Q37. The firm that Carter and Walters work for have set up a null hypothesis for each manager. In such a case, the firm would make a type II error if it:

A)   keeps an unskilled manager.

B)   fires a skilled manager.

C)   hires a second manager to help a doubtful manager.

Correct answer is B)        

In this case, we assume a manager does not add value and try to gather information that the manager does. Without sufficient evidence to prove value is added, the manager would be fired. Random noise could lead to this conclusion even though the manager does add value.

Q38. The following performance data for an actively managed portfolio and the S& 500 Index is reported:

	Actively Managed Portfolio	S& 500
Return	50%	20%
Standard deviation	18%	15%
Beta	1.1	1.0

Risk-free rate = 6%.

Determine the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio.

A)   Sharpe measure = 1.04; Treynor measure = 0.14; Alpha = 0.04.

B)   Sharpe measure = 1.05; Treynor measure = 0.17; Alpha = 0.04.

C)   Sharpe measure = 2.44; Treynor measure = 0.40; Alpha = 0.29.

Correct answer is C)        

Sharpe measure for active portfolio = (0.50 ? 0.06)/0.18 = 2.44

Treynor measure for active portfolio = (0.50 ? 0.06)/1.1 = 0.40

Alpha for active portfolio = 0.50 ? [0.06+(0.20 ? 0.06) × 1.1)] = 0.29

Q39. Based on the results from determining the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio, does the portfolio manager outperform or underperform the S& 500 index?

A)   Sharpe measure → underperform; Treynor measure → outperform; Alpha → outperform

B)   Sharpe measure → outperform; Treynor measure → underperform; Alpha → underperform.

C)   Sharpe measure → outperform; Treynor measure → outperform; Alpha → outperform.

Correct answer is C)        
Sharpe measure for S& portfolio = (0.20 ? 0.06)/0.15 = 0.93

Treynor Measure for S& portfolio = (0.20 ? 0.06)/1.0 = 0.14

Alpha for S& portfolio = 0

Hence, the portfolio manager outperforms based on all the three performance evaluation methods.

Q40. The Sharpe Ratio is correctly defined as a measure of a fund’s:

A)   excess return earned compared to its systematic risk.

B)   excess return earned compared to its total risk.

C)   return earned compared to its total risk.

Correct answer is B)

The Sharpe ratio is defined as a fund’s excess return (fund’s return minus the risk-free rate) divided by the total risk (standard deviation).

Q41. Which of the following statements about risk/return investment manager performance measures is FALSE?

A)   The Treynor measure includes company-specific risk as part of its performance measurement.

B)   The Sharpe measure includes company-specific risk as part of its performance measurement.

C)   When measuring the performance of an equity fund, if the Sharpe ratio is 0.55, and the Treynor measure is 0.47, the difference is attributable to unsystematic (company-specific) risk.

Correct answer is A)

The Treynor measure does not include company-specific risk, it uses beta in the denominator, which only measures systematic risk. Note that the Sharpe measure uses standard deviation in its denominator, which is a measure of total risk.

Q42. An analyst has gathered the following information about the performance of an equity fund and the S& 500 index over the same time period.   Using Jensen’s Alpha to measure the risk/return performance of the Equity fund and the S& 500, which of the following conclusions is TRUE?  The:

                                                         Equity Fund            S& 500

                   Return                                  23%                     27%           

                   Standard Deviation                15%                     19%

                   Beta                                   1.09                    1.00

                   Risk-free rate is 3.50%

A)   Equity fund underperformed the S& 500 by 6.12%.

B)   S&P 500 underperformed the equity fund by 2.67%.

C)   S&P 500 outperformed the equity fund by 3.24%.

Correct answer is A)        

Jensen’s Alpha: 0.23 – [0.035 + (0.27 – 0.035)1.09] = -0.0612 or -6.12%. The negative means it underperformed the S&P 500.

Q43. An analyst has generated the following information about risk/return performance using the Sharpe ratio and the Treynor measure:

                                                            Equity Fund         S&P 500

                           Sharpe ratio                     0.47                  0.42

                           Treynor measure              0.31                  0.34

Which of the following statements about the relative risk/return performance of the funds is TRUE?  The:

A)   Treynor measure shows the fund outperformed the S&P 500 on a systematic risk-adjusted basis.

B)   Sharpe ratio shows the equity fund outperformed the S&P 500 on a total risk- adjusted basis.

C)   Treynor measure shows the fund underperformed the S&P 500 on a total risk-adjusted basis.

Correct answer is B)

With either the Sharpe or Treynor methodology, a higher number means a higher risk-adjusted return. Since the Sharpe ratio is 0.05 higher, it outperformed the S&P 500. Note that the key difference between the Sharpe and Treynor measures is that the Sharpe ratio measures return per unit of total risk, while Treynor measures return per unit of systematic risk.

Q44. The Treynor measure is correctly defined as a measure of a fund’s:

A)   return earned compared to its systematic risk.

B)   return earned compared to its unsystematic risk.

C)   excess earned compared to its systematic risk.

Correct answer is C)

The Treynor measure is defined as a fund’s excess return (fund’s return minus the risk-free rate) divided by its systematic risk (beta).

Q45. Jensen’s alpha for a portfolio measures the:

A)   fund’s return in excess of the required rate of return given the unsystematic risk of the portfolio.

B)   fund’s return in excess of the required rate of return given the systematic risk of the portfolio.

C)   difference between a fund’s return and the market return.

Correct answer is B)

Jensen’s alpha measures the return above the required rate of return based on the fund’s systematic risk. Said differently, Jensen’s alpha is the amount of return earned by the fund over and above the return predicted for the fund based on the capital asset pricing model, given the fund’s systematic risk.

Q46. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                         Equity Fund            S&P 500

                    Return                                -12%                    -16%        

                    Standard Deviation                15%                     19%

                    Beta                                  1.18                     1.00

                    Risk-free rate is 6.00%

The difference between the Treynor measure for the equity fund and the Treynor measure for the S&P 500 is:

A)   0.07.

B)   0.15.

C)   0.17.

Correct answer is A)

The equity fund: (-0.12 – 0.06)/1.18 = -0.15

The S&P 500: (-0.16 – 0.06)/1.00 = -0.22

The equity fund is (-0.15 – (-0.22) = 0.07 higher

Q47. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                         Equity Fund            S&P 500

                           Return                           32%                    26%           

                           Standard Deviation          41%                    29%

                           Beta                            0.98                    1.00

                           Risk-free rate is 6.00%

The difference between the Sharpe ratio for the equity fund and the Sharpe ratio for the S&P 500 is the:

A)   equity fund is 0.06 lower.

B)   S&P 500 is 0.04 lower.

C)   S&P 500 is 0.09 higher.

Correct answer is A)

The equity fund Sharpe ratio: (0.32 – 0.06)/0.41 = 0.63

The S&P 500 Sharpe ratio: (0.26 – 0.06)/0.29 = 0.69

The equity fund is (0.63 – 0.69) = -0.06 lower

Q48. An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.  

                                                      Equity Fund            S&P 500

                  Return                                  27%                   29%        

                  Standard Deviation                33%                    20%

                  Beta                                    0.95                   1.00

                  Risk-free rate is 4.00%

The Treynor measure and the Sharpe ratio, in that order, for the S&P 500 are:

A)   0.33 and 0.97.

B)   0.25 and 1.25.

C)   0.18 and 1.11.

Correct answer is B)

Treynor measure: (0.29 – 0.04)/1.00 = 0.25

Sharpe ratio: (0.29 – 0.04)/0.20 = 1.25

谢谢