Investment Analysis and Portfolio Management 9th Edition TestBank Chapter 16

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CHAPTER 16—EQUITY PORTFOLIO MANAGEMENT STRATEGIES

TRUE/FALSE

Question: Active equity portfolio management is a long-term buy-and-hold strategy.

Answer:

Question: A benchmark portfolio is defined as a passive portfolio whose average

characteristics match the clients risk-return objectives. Answer:

Question: The goal of a passive portfolio is to track the index as closely as possible.

Answer:

Question: An advantage of sampling is that portfolio returns will not track the index as

closely as with full replication. Answer:

Question: An advantage of quadratic programming is that it relies on historical

correlations. Answer:

Question: Tracking error is defined as the degree to which the portfolios returns deviate

from those of the actual index. Answer:

Question: Completeness funds are portfolios designed to complement active portfolios that

do not cover the entire market. Answer:

Question: Following an earnings momentum strategy, an investor acquires stocks that have

enjoyed above-market stock price increases. Answer:

Question: In backtesting, computers are used to examine the composition and returns of

portfolios based on historical data in order to determine if the investment strategy would

have worked in the past. Answer:

Question: Growth stocks consistently outperform value stocks. Answer:

Question: Style investing involves constructing portfolios in such a way to capture one or

more of the characteristics of equity securities. Answer:

Question: It does not make economic sense for portfolio managers to try to “time” between

different investment styles. Answer:

Question: The three basic techniques for constructing a passive index are: full replication,

sampling and linear programming. Answer:

Question: With dollar-cost averaging a manager purchases fewer shares when stock prices

are low and more shares when stock prices are high. Answer:

Question: Style identification allows an investor to select investment managers that allow

his overall portfolio to be properly diversified. Answer:

Question: Style investing allows control of the total portfolio to be shared between

investment managers and pension fund managers. Answer:

Question: Growth oriented investors focus on the price component of the Price/Earnings

ratio. Answer:

Question: Sharpe (1991) study reveals that active managers typically outperform passive

managers even after transaction costs and fees. Answer:

Question: There is a direct relationship between a passive portfolios tracking error relative

to its index and the time and expense necessary to create and maintain the portfolio.

Answer:

Question: Exchange-Traded Funds (ETF) are depository receipts that give investors a pro

rata claim on the capital gains and cash flows of securities held by financial institutions.

Answer:

Question: Which of the following is not a technique for constructing a passive index

portfolio?

Answer:

Question: Which of the following statements concerning active equity portfolio

management strategies is true?

Answer:

Question: In ____ strategy, certain economic sectors or industries are overweighted

relative to the benchmark in anticipation of the next phase of the business cycle.

Answer:

Question: Which of the following is not considered an active management strategy?

Answer:

Question: Which of the following is not considered a mainstream investment style?

Answer:

Question: Which of the following is considered a strategy for timing the market and

adding value to actively managed portfolios?

Answer:

Question: Which of the following statements about investment style is false?

Answer:

Question: Which of the following statements is false?

Answer:

Question: Which of the following is not considered an asset allocation strategy?

Answer:

Question: In ____ asset allocation, the investors risk tolerance and constraints are assumed

to be constant over time. However, changes in capital market conditions result in changes

in the portfolios stock-bond mix.

Answer:

Question: ____ is a strategy used because the market seems to reward companies that have

steady, above average earnings growth, or whose prices are rising because of market

optimism.

Answer:

Question: The asset allocation strategy that separately examines capital market conditions

and the investors objectives and constraints is called

Answer:

Question: In equity portfolio management, tracking error occurs when

Answer:

Question: The following are ways to implement index portfolio investing

Answer:

Question: Exchange traded funds

Answer:

Question: A portfolio management strategy that overweights a particular industry, relative

to the benchmark portfolio, based on the next expected phase of the business cycle is

called

Answer:

Question: The following are examples of a fundamental active equity portfolio

management strategy.

Answer:

Question: A fundamental tenet of the contrarian investment strategy is the notion that

Answer:

Question: Value stocks would have the following characteristics

Answer:

Question: Growth stocks would have the following characteristics

Answer:

Question: In returns-based style analysis a coefficient of determination of 95% would

suggest that

Answer:

Question: A Long futures positions in the S&P500 has the effect of ____ portfolio

exposure to equities, while short futures positions in the S&P500 has the effect of ____

portfolio exposure to equities.

Answer:

Question: A contrarian investment strategy is based on the belief that

Answer:

Question: Which of the following statements regarding 130/30 strategies is false?

Answer:

Question: Which of the following statements regarding momentum strategies is true?

Answer:

Question: A investor focusing on a growth strategy does all of the following except

Answer:

Question: If you have a portfolio with a market value of $100 million and a beta (measured

against the S&P 500) of 1.5, then if the market rises by 10 percent, what value would you

expect your portfolio to have?

Answer:

Question: If the annual geometric mean for the equity risk premium is 8.4 percent, what

percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Answer:

Question: The table below provides returns on a portfolio along with returns for the

corresponding benchmark index for the past eight quarters. The table also provides the

difference between portfolio returns and the benchmark index, the average of these

differences over the past eight quarters and the standard deviation of these differences.

The annualized tracking error for this period is

Answer:

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S) A

portfolio manager is trying to establish a strategic asset allocation for two different clients,

Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck

has a risk tolerance factor of 6. The characteristics of the three model portfolios under

consideration are provided in the table below.

NARREND

Question: Refer to Exhibit 16-1. The expected utilities of Portfolios A, B and C for Bob

Bowman are

Answer:

Question: Refer to Exhibit 16-1. The expected utilities of Portfolios A, B and C for Tom

Luck are

Answer:

Question: Refer to Exhibit 16-1. The recommended portfolio for Bob Bowman is

Answer:

Question: Refer to Exhibit 16-1. The recommended portfolio for Tom Luck is

Answer:

Question: An active portfolio manager sold $90 million of stocks in a year. If the portfolio

had an average value of $110 million in assets under management, what is the portfolio

turnover ratio?

Answer: