55) The following data are available relating to the performance of Long Horn Stock Fund and
the market portfolio:
Long Horn
Market
Portfolio
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 Treynor measure of performance evaluation for Long Horn Stock Fund?
A) 0.0133
B) 0.04
C) 0.0867
D) 0.3143
E) 0.3714
56) The following data are available relating to the performance of Long Horn Stock Fund and
the market portfolio:
Long Horn
Market
Portfolio
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%.
Calculate the Jensen measure of performance evaluation for Long Horn Stock Fund.
A) 1.33%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%
57) The following data are available relating to the performance of Long Horn Stock Fund and
the market portfolio:
Long Horn
Market
Portfolio
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%.
Calculate the information ratio for Long Horn Stock Fund.
A) 1.33
B) 4.00
C) 8.67
D) 31.43
E) 37.14
58) In a particular year, Razorback Mutual Fund earned a return of 1% by making the following
investments in asset classes:
Weight
Bonds
20
%
5
%
Stocks
80
%
0
%
The return on a bogey portfolio was 2%, calculated from the following information.
Weight
Return
Bonds (Lehman Brother Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
-1
%
The total excess return on the Razorback Fund’s managed portfolio was
A) –1.80%.
B) –1.00%.
C) 0.80%.
D) 1.00%.
E) 1.90%
59) In a particular year, Razorback Mutual Fund earned a return of 1% by making the following
investments in asset classes:
Weight
Bonds
20
%
5
%
Stocks
80
%
0
%
The return on a bogey portfolio was 2%, calculated from the following information.
Weight
Return
Bonds (Lehman Brothers Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
-1
%
The contribution of asset allocation across markets to the Razorback Fund’s total excess return
was
A) –1.80%.
B) –1.00%.
C) 0.80%.
D) 1.00%.
E) 1.80%
Equity
%
-0.9
%
Bond
%
-0.9
%
%
60) In a particular year, Razorback Mutual Fund earned a return of 1% by making the following
investments in asset classes:
Weight
Bonds
20
%
5
%
Stocks
80
%
0
%
The return on a bogey portfolio was 2%, calculated from the following information.
Weight
Return
Bonds (Lehman Brothers Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
-1
%
The contribution of selection within markets to the Razorback Fund’s total excess return was
A) –1.80%.
B) –1.00%.
C) 0.80%.
D) 1.00%.
E) 1.80%.
Equity
0
%
%
%
Bond
5
%
%
%
61) In a particular year, Aggie Mutual Fund earned a return of 15% by making the following
investments in the following asset classes:
Weight
Bonds
10
%
6
%
Stocks
90
%
16
%
The return on a bogey portfolio was 10%, calculated as follows:
Weight
Return
Bonds (Lehman Brothers Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
15
%
The total excess return on the Aggie managed portfolio was
A) 1%.
B) 3%.
C) 4%.
D) 5%.
E) 6%
62) In a particular year, Aggie Mutual Fund earned a return of 15% by making the following
investments in the following asset classes:
Weight
Bonds
10
%
6
%
Stocks
90
%
16
%
The return on a bogey portfolio was 10%, calculated as follows:
Weight
Return
Bonds (Lehman Brothers Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
15
%
The contribution of asset allocation across markets to the total excess return was
A) 1%.
B) 3%.
C) 4%.
D) 5%.
E) 6%
Equity
%
2.4
%
Bond
%
1.6
%
4.0
%
63) In a particular year, Aggie Mutual Fund earned a return of 15% by making the following
investments in the following asset classes:
Weight
Bonds
10
%
6
%
Stocks
90
%
16
%
The return on a bogey portfolio was 10%, calculated as follows:
Weight
Return
Bonds (Lehman Brothers Index)
50
%
5
%
Stocks (S&P 500 Index)
50
%
15
%
The contribution of selection within markets to total excess return was
A) 1%.
B) 3%.
C) 4%.
D) 5%.
E) 6%
Equity
16
%
%
1.0
%
Bond
6
%
%
1.0
%
64) In measuring the comparative performance of different fund managers, the preferred method
of calculating rate of return is
A) internal rate of return.
B) arithmetic average.
C) dollar weighted.
D) time weighted.
E) None of the options are correct.
65) The ________ measures the reward to volatility trade-off by dividing the average portfolio
excess return by the standard deviation of returns.
A) Sharpe measure
B) Treynor measure
C) Jensen measure
D) information ratio
E) None of the options are correct.
66) A pension fund that begins with $500,000 earns 15% the first year and 10% the second year.
At the beginning of the second year, the sponsor contributes another $300,000. The dollar-
weighted and time-weighted rates of return, respectively, were
A) 11.7% and 12.5%.
B) 12.1% and 12.5%.
C) 12.5% and 11.7%.
D) 12.5% and 12.1%.
67) The Value Line Index is an equally-weighted geometric average of the returns of about 1,700
firms. The value of an index based on the geometric average returns of three stocks where the
returns on the three stocks during a given period were 32%, 5%, and –10%, respectively, is
A) 4.3%.
B) 7.6%.
C) 9.0%.
D) 13.4%.
E) 5.0%.
68) Risk-adjusted mutual fund performance measures have decreased in popularity because
A) in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the
market.
B) the measures usually result in negative performance results for the portfolio managers.
C) the high rates of return earned by the mutual funds have made the measures useless.
D) in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the
market, and the measures usually result in negative performance results for the portfolio
managers.
E) None of the options are correct.
69) The Sharpe, Treynor, and Jensen portfolio performance measures are derived from the
CAPM,
A) therefore, it does not matter which measure is used to evaluate a portfolio manager.
B) however, the Sharpe and Treynor measures use different risk measures. Therefore, the
measures vary as to whether or not they are appropriate, depending on the investment scenario.
C) therefore, all measure the same attributes.
D) therefore, it does not matter which measure is used to evaluate a portfolio manager. However,
the Sharpe and Treynor measures use different risk measures, so therefore, the measures vary as
to whether or not they are appropriate, depending on the investment scenario.
E) None of the options are correct.
70) The Jensen portfolio evaluation measure
A) is a measure of return per unit of risk, as measured by standard deviation.
B) is an absolute measure of return over and above that predicted by the CAPM.
C) is a measure of return per unit of risk, as measured by beta.
D) is a measure of return per unit of risk, as measured by standard deviation, and is an absolute
measure of return over and above that predicted by the CAPM.
E) is an absolute measure of return over and above that predicted by the CAPM, and is a measure
of return per unit of risk, as measured by beta.
71) The M-squared measure considers
A) only the return when evaluating mutual funds.
B) the risk-adjusted return when evaluating mutual funds.
C) only the total risk when evaluating mutual funds.
D) only the market risk when evaluating mutual funds.
E) None of the options are correct.
72) The dollar-weighted return on a portfolio is equivalent to
A) the time-weighted return.
B) the geometric average return.
C) the arithmetic average return.
D) the portfolio’s internal rate of return.
E) None of the options are correct.
73) A portfolio manager’s ranking within a comparison universe may not provide a good
measure of performance because
A) portfolio returns may not be calculated in the same way.
B) portfolio durations can vary across managers.
C) if managers follow a particular style or subgroup, portfolios may not be comparable.
D) portfolio durations can vary across managers and if managers follow a particular style or
subgroup, portfolios may not be comparable.
E) All of the options are correct.
74) The geometric average rate of return is based on
A) the market’s volatility.
B) the concept of expected return.
C) the standard deviation of returns.
D) the CAPM.
E) the principle of compounding.
75) The M2 measure was developed by
A) Merton and Miller.
B) Miller and Miller.
C) Modigliani and Miller.
D) Modigliani and Modigliani.
E) the M&M Mars Company.
76) Rodney holds a portfolio of risky assets that represents his entire risky investment. To
evaluate the performance of Rodney’s portfolio, in which order would you complete the steps
listed?
I. Compare the Sharpe measure of Rodney’s portfolio to the Sharpe measure of the best
portfolio.
II. State your conclusions.
III. Assume that past security performance is representative of expected performance.
IV. Determine the benchmark portfolio that Rodney would have held if he had chosen a passive
strategy.
A) I, III, IV, II
B) III, IV, I, II
C) IV, III, I, II
D) III, II, I, IV
E) III, I, IV, II
77) The Modigliani M2 measure and the Treynor T2 measure
A) are identical.
B) are nearly identical and will rank portfolios the same way.
C) are nearly identical, but might rank portfolios differently.
D) are somewhat different; M2 can be used to rank portfolios, but T2 cannot.
E) are somewhat different; T2 can be used to rank portfolios, but M2 cannot.
78) To determine whether portfolio performance is statistically significant requires
A) a very long observation period due to the high variance of stock returns.
B) a short observation period due to the high variance of stock returns.
C) a very long observation period due to the low variance of stock returns.
D) a short observation period due to the low variance of stock returns.
E) a low variance of returns over any observation period.