likaiba

 

11、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 = 1.06; Treynor measure = 0.12; Alpha = 0.02.

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

likaiba

 

The correct answer is D

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) x 1.1)] = 0.29

 

likaiba

 

12、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 → outperform; Alpha → outperform.

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

D) Sharpe measure → underperform; Treynor measure → underperform; Alpha → underperform.

likaiba

 

The correct answer is B

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.

 

likaiba

 

13、Which of the following measures used to evaluate the performance of a portfolio manager is/are NOT subject to the assumptions of the capital asset pricing model (CAPM)?

A) Jensen's alpha.

B) Treynor measure.

C) Sharpe measure.

D) Jensen's alpha and the Treynor measure.

likaiba

 

The correct answer is C

Both the Treynor measure and the Jensen's alpha assume that the CAPM is the underlying risk-adjustment model. The Sharpe measure on the other hand does not make this assumption. It uses total risk of a portfolio, unlike the Treynor measure and Jensen's alpha, which use the systematic (undiversifiable) risk as measured by beta to compute the risk-adjusted return of a portfolio.

 

likaiba

 

14、The following information is available for the Trumark Fund:

The Trumark Fund has an average annual return of 12 percent over the last five years.

Trumark has a beta value of 1.35.

Trumark has a standard deviation of returns of 16.80 percent.

During the same time period, the average annual T-bill rate was 4.5 percent.

During the same time period, the average annual return on the S& 500 portfolio was 18 percent.

What is the Sharpe ratio for the Trumark Fund?

A) 5.56.

B) 0.80.

C) 7.50.

D) 0.45. 

likaiba

 

The correct answer is D

Sharpe Ratio = Sj = (Rj – RF) / σj = (12 - 4.50) / 16.80 = 0.45

What is the Treynor measure for Trumark Fund?

A) 0.45.

B) 0.80.

C) -0.04.

D) 0.06.

likaiba

 

The correct answer is B

Treynor measure = Tj = (Rj – RF) / βj = (.12 - .0450) / 1.35 = 0.0556

 

likaiba

 

15、Jensen’s alpha for a portfolio measures the:

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

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

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

D) difference between the fund’s Sharpe ratio and Treynor measure.