34) Suppose you purchase one share of the stock of Cereal Correlation Company at the
beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more
share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and
sell the shares for $67.20 each. The time-weighted return on your investment is
A) 10.0%.
B) 8.7%.
C) 19.7%.
D) 17.6%.
35) Suppose you purchase one share of the stock of Cereal Correlation Company at the
beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more
share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and
sell the shares for $67.20 each. The dollar-weighted return on your investment is
A) 10.00%.
B) 8.78%.
C) 19.71%.
D) 20.36%.
36) Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B
earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return.
________ has the higher arithmetic average return.
A) Stock A
B) Stock B
C) The two stocks have the same arithmetic average return.
D) At least three periods are needed to calculate the arithmetic average return.
37) Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B
earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return.
Which stock has the higher geometric average return?
A) Stock A
B) Stock B
C) The two stocks have the same geometric average return.
D) At least three periods are needed to calculate the geometric average return.
38) The following data are available relating to the performance of Sooner Stock Fund and the
market portfolio:
Sooner
Market
Portfolio
Average return
20
%
11
%
Standard deviations of returns
44
%
19
%
Beta
1.8
1.0
Residual standard deviation
2.0
%
0.0
%
The risk-free return during the sample period was 3%.
What is the Sharpe measure of performance evaluation for Sooner Stock Fund?
A) 0.0133
B) 0.04
C) 0.0867
D) 0.386
E) 0.3714
39) The following data are available relating to the performance of Sooner Stock Fund and the
market portfolio:
Sooner
Average return
20
%
11
%
Standard deviations of returns
44
%
19
%
Beta
1.8
1.0
Residual standard deviation
2.0
%
0.0
%
The risk-free return during the sample period was 3%.
What is the Treynor measure of performance evaluation for Sooner Stock Fund?
A) 0.0133
B) 0.04
C) 0.0867
D) 0.0944
E) 0.3714
40) The following data are available relating to the performance of Sooner Stock Fund and the
market portfolio:
Sooner
Average return
20
%
11
%
Standard reviations of returns
44
%
19
%
Beta
1.8
1.0
Residual standard deviation
2.0
%
0.0
%
The risk-free return during the sample period was 3%.
Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.
A) 2.6%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%
41) The following data are available relating to the performance of Sooner Stock Fund and the
market portfolio:
Sooner
Average return
20
%
11
%
Standard deviations of returns
44
%
19
%
Beta
1.8
1.0
Residual standard deviation
2.0
%
0.0
%
The risk-free return during the sample period was 3%.
Calculate the information ratio for Sooner Stock Fund.
A) 1.53
B) 1.30
C) 8.67
D) 31.43
E) 37.14
42) The following data are available relating to the performance of Monarch Stock Fund and the
market portfolio:
Monarch
Average return
16
%
12
%
Standard deviations of returns
26
%
22
%
Beta
1.15
1.00
Residual standard deviation
1
%
0
%
The risk-free return during the sample period was 4%.
What is the information ratio measure of performance evaluation for Monarch Stock Fund?
A) 1.00%
B) 280.00%
C) 44.00%
D) 50.00%
E) None of the options are correct.
43) The following data are available relating to the performance of Monarch Stock Fund and the
market portfolio:
Monarch
Average return
16
%
12
%
Standard deviations of returns
26
%
22
%
Beta
1.15
1.00
Residual standard deviation
1
%
0
%
The risk-free return during the sample period was 4%.
Calculate Sharpe’s measure of performance for Monarch Stock Fund.
A) 0.01
B) 0.46
C) 0.44
D) 0.55
E) None of the options are correct.
44) The following data are available relating to the performance of Monarch Stock Fund and the
market portfolio:
Monarch
Average return
16
%
12
%
Standard deviations of returns
26
%
22
%
Beta
1.15
1.00
Residual standard deviation
1
%
0
%
The risk-free return during the sample period was 4%.
Calculate Treynor’s measure of performance for Monarch Stock Fund.
A) 0.0143
B) 0.088
C) 0.44
D) 0.50
45) The following data are available relating to the performance of Monarch Stock Fund and the
market portfolio:
Monarch
Average return
16
%
12
%
Standard deviations of returns
26
%
22
%
Beta
1.15
1.00
Residual standard deviation
1
%
0
%
The risk-free return during the sample period was 4%.
Calculate Jensen’s measure of performance for Monarch Stock Fund.
A) 1.00%
B) 2.80%
C) 44.00%
D) 50.00%
46) The following data are available relating to the performance of Seminole Fund and the
market portfolio:
Seminole
Average return
18
%
14
%
Standard deviations of returns
30
%
22
%
Beta
1.4
1.0
Residual standard deviation
4.0
%
0.0
%
The risk-free return during the sample period was 6%.
If you wanted to evaluate the Seminole Fund using the M2 measure, what percent of the adjusted
portfolio would need to be invested in T-Bills?
A) –36% (borrow)
B) 50%
C) 8%
D) 36%
E) 27%
47) The following data are available relating to the performance of Seminole Fund and the
market portfolio:
Seminole
Average return
18
%
14
%
Standard deviations of returns
30
%
22
%
Beta
1.4
1.0
Residual standard deviation
4.0
%
0.0
%
The risk-free return during the sample period was 6%.
Calculate the M2 measure for the Seminole Fund.
A) 4.0%
B) 20.0%
C) 2.86%
D) 0.8%
E) 40.0%
48) If an investor has a portfolio that has constant proportions in T-bills and the market portfolio,
the portfolio’s characteristic line will plot as a line with ________. If the investor can time bull
markets, the characteristic line will plot as a line with ________.
A) a positive slope; a negative slope
B) a negative slope; a positive slope
C) a constant slope; a negative slope
D) a negative slope; a constant slope
E) a constant slope; a positive slope
49) Studies of style analysis have found that ________ of fund returns can be explained by asset
allocation alone.
A) between 50% and 70%
B) less than 10%
C) between 40 and 50%
D) between 75% and 90%
E) over 90%
50) The following data are available relating to the performance of Wildcat Fund and the market
portfolio:
Wildcat
Market
Portfolio
Average return
18
%
15
%
Standard deviations of returns
25
%
20
%
Beta
1.25
1.00
Residual standard deviation
2
%
0
%
The risk-free return during the sample period was 7%.
What is the information ratio measure of performance evaluation for Wildcat Fund?
A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) 67.00%
51) The following data are available relating to the performance of Wildcat Fund and the market
portfolio:
Wildcat
Market
Portfolio
Average return
18
%
15
%
Standard deviations of returns
25
%
20
%
Beta
1.25
1.00
Residual standard deviation
2
%
0
%
The risk-free return during the sample period was 7%.
Calculate Sharpe’s measure of performance for Wildcat Fund.
A) 0.01
B) 0.08
C) 0.44
D) 0.50
E) 0.72
52) The following data are available relating to the performance of Wildcat Fund and the market
portfolio:
Wildcat
Market
Portfolio
Average return
18
%
15
%
Standard deviations of returns
25
%
20
%
Beta
1.25
1.00
Residual standard deviation
2
%
0
%
The risk-free return during the sample period was 7%.
Calculate Treynor’s measure of performance for Wildcat Fund.
A) 0.01
B) 0.088
C) 0.44
D) 0.50
E) 0.61
53) The following data are available relating to the performance of Wildcat Fund and the market
portfolio:
Wildcat
Market
Portfolio
Average return
18
%
15
%
Standard deviations of returns
25
%
20
%
Beta
1.25
1.00
Residual standard deviation
2
%
0
%
The risk-free return during the sample period was 7%.
Calculate Jensen’s measure of performance for Wildcat Fund.
A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) 55.00%
54) The following data are available relating to the performance of Long Horn Stock Fund and
the market portfolio:
Long Horn
Average return
19
%
12
%
Standard deviations of returns
35
%
15
%
Beta
1.5
1.0
Residual standard deviation
3.0
%
0.0
%
The risk-free return during the sample period was 6%.
What is the Sharpe measure of performance evaluation for Long Horn Stock Fund?
A) 0.0133
B) 0.04
C) 0.0867
D) 0.3143
E) 0.3714