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1. A mutual fund with a beta of 1.1 has outperformed the S&P 500 over the last 20 years. We
know that this mutual fund manager _____.
2. The comparison universe is __________.
3. Which one of the following performance measures is the Sharpe ratio?
4. The
M
2 measure is a variant of ________________.
5. A managed portfolio has a standard deviation equal to 22% and a beta of .9 when the
market portfolio's standard deviation is 26%. The adjusted portfolio
P
* needed to calculate the
M
2
measure will have ________ invested in the managed portfolio and the rest in T-bills.
P
M
6. Your return will generally be higher using the __________ if you time your transactions
poorly, and your return will generally be higher using the __________ if you time your transactions
well.
7. Consider the Sharpe and Treynor performance measures. When a pension fund is large
and well diversified in total and it has many managers, the __________ measure is better for
evaluating individual managers while the __________ measure is better for evaluating the manager
of a small fund with only one manager responsible for all investments, which may not be fully
diversified.
8. Consider the theory of active portfolio management. Stocks A and B have the same beta
and the same positive alpha. Stock A has higher nonsystematic risk than stock B. You should want
__________ in your active portfolio.
9. Suppose that over the same time period two portfolios have the same average return and
the same standard deviation of return, but portfolio
A
has a higher beta than portfolio
B.
According to the Sharpe ratio, the performance of portfolio
A
__________.
10. Which model is preferred by academics, and is gaining in popularity with practitioners,
when evaluating investment performance?
11. The risk-free rate, average returns, standard deviations, and betas for three funds and the
S&P 500 are given below.
What is the Treynor measure for portfolio
A?
12. The risk-free rate, average returns, standard deviations, and betas for three funds and the
S&P 500 are given below.
What is the
M
2 measure for portfolio
B?
13. The risk-free rate, average returns, standard deviations, and betas for three funds and the
S&P 500 are given below.
If these portfolios are subcomponents that make up part of a well-diversified portfolio, then
portfolio ______ is preferred.
14. The risk-free rate, average returns, standard deviations, and betas for three funds and the
S&P 500 are given below.
Based on the
M
2 measure, portfolio
C
has a superior return of _____ as compared to the S&P 500.
15. Which one of the following is largely based on forecasts of macroeconomic factors?
16. Based on the example used in the book, a perfect market timer would have made _______
by 2008 on a $1 investment made in 1926.
17. The average returns, standard deviations, and betas for three funds are given below along
with data for the S&P 500 Index. The risk-free return during the sample period is 6%.
You want to evaluate the three mutual funds using the Sharpe ratio for performance evaluation.
The fund with the highest Sharpe ratio of performance is __________.
18. The average returns, standard deviations, and betas for three funds are given below along
with data for the S&P 500 Index. The risk-free return during the sample period is 6%.
You want to evaluate the three mutual funds using the Treynor measure for performance
evaluation. The fund with the highest Treynor measure of performance is __________.
19. The average returns, standard deviations, and betas for three funds are given below along
with data for the S&P 500 Index. The risk-free return during the sample period is 6%.
You want to evaluate the three mutual funds using the Jensen measure for performance
evaluation. The fund with the highest Jensen measure of performance is __________.
20. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the
following investments in asset classes:
The return on a bogey portfolio was 12%, based on the following:
The total excess return on the managed portfolio was __________.
21. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the
following investments in asset classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of asset allocation across markets to the total excess return was __________.
22. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the
following investments in asset classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of security selection within asset classes to the total excess return was
__________.
23. In a particular year, Lost Hope Mutual Fund made the following investments in asset
classes:
The return on a bogey portfolio was 12%, based on the following:
The total extra return on the managed portfolio was __________.
24. In a particular year, Lost Hope Mutual Fund made the following investments in asset
classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of asset allocation across markets to the total extra return was __________.
25. In a particular year, Lost Hope Mutual Fund made the following investments in asset
classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of security selection within asset classes to the total extra return was
__________.
26. Which one of the following averaging methods is the preferred method of constructing
returns series for use in evaluating portfolio performance?
27. The __________ calculates the reward to risk trade-off by dividing the average portfolio
excess return by the portfolio beta.
28. 28. In creating the
P
* portfolio, one mixes the original portfolio
P
and T-bills to match the
_________ of the market.
