29. The
M
2 measure of portfolio performance was developed by ______________.
30. Probably the biggest problem with evaluating the portfolio performance of actively
managed funds is the assumption that __________________________.
31. Perfect-timing ability is equivalent to having __________ on the market portfolio.
32. One hundred fund managers enter a contest to see how many times in 13 years they can
earn a higher return than their competitors. The probability distribution of the number of
successful years out of 13 for the best-performing money managers is
Out of this sample, chance alone would indicate that there is a ______ probability that someone
would beat the market at least 11 times out of 13 years.
33. The Treynor-Black model is a model that shows how an investment manager can use
security analysis and statistics to construct __________.
34. If an investor is a successful market timer, his distribution of monthly portfolio returns will
__________.
35. Recent analysis indicates that the style of investing is a critical component of fund
performance. In fact, on average about _____ of fund performance is attributable to the asset
allocation decision.
36. In the Treynor-Black model, the active portfolio will contain stocks with __________.
37. Portfolio performance is often decomposed into various subcomponents, such as the
return due to:
I. Broad asset allocation across security classes
II. Sector weightings within equity markets
III. Security selection with a given sector
The one decision that contributes most to the fund performance is _____.
38. The theory of efficient frontiers has __________.
39. In the Treynor-Black model, security analysts __________.
40. In the Treynor-Black model, security analysts __________.
41. Active portfolio management consists of:
I. Market timing
II. Security selection
III. Sector selection within given markets
IV. Indexing
42. A market-timing strategy is one in which asset allocation in the stock market __________
when one forecasts that the stock market will outperform Treasury bills.
43. In the Treynor-Black model, the contribution of individual security to the active portfolio
should be based primarily on the stock’s _________.
44. If all ______ are ______ in the Treynor-Black model, there would be no reason to depart
from the passive portfolio.
45. In the Treynor-Black model, the weight of each analyzed security in the portfolio should be
proportional to its __________.
46. The critical variable in the determination of the success of the active portfolio is the
stock’s __________.
47. Consider the theory of active portfolio management. Stocks A and B have the same
positive alpha and the same nonsystematic risk. Stock A has a higher beta than stock B. You
should want __________ in your active portfolio.
48. Consider the theory of active portfolio management. Stocks A and B have the same beta
and nonsystematic risk. Stock A has a higher positive alpha than stock B. You should want
__________ in your active portfolio.
49. The market-timing form of active portfolio management relies on __________ forecasting,
and the security selection form of active portfolio management relies on __________ forecasting.
50. Active portfolio managers try to construct a risky portfolio with _______.
51. In performance measurement, the bogey portfolio is designed to _________.
52. __________ portfolio managers experience streaks of abnormal returns that are hard to
label as lucky outcomes, and _________ anomalies in realized returns have been sufficiently
persistent that portfolio managers could use them to beat a passive strategy over prolonged
periods.
53. A passive benchmark portfolio is:
I. A portfolio in which the asset allocation across broad asset classes is neutral and not
determined by forecasts of performance of the different asset classes
II. One in which an indexed portfolio is held within each asset class
III. Often called the bogey
54. The correct measure of timing ability is ____________ for a portfolio manager who correctly
forecasts 55% of bull markets and 55% of bear markets.
55. It is very hard to statistically verify abnormal fund performance because of all of the
following
except
which one?
56. The term
alpha transport
refers to _____.
57. Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect
foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect
forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The correct
measure of timing ability for Krueger is __________.
58. Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect
foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect
forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The value of
Krueger’s imperfect forecasting ability is __________.
59. Douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68% of all
bear markets. Simmonds is a perfect forecaster. If Douglass is able to charge a fee of $125,000,
the fee that Roy Simmonds should charge is __________. Assume that both forecasters manage
similar-size funds.
60. A mutual fund invests in large-capitalization stocks. Its performance should be measured
against which one of the following?
61. Assume you purchased a rental property for $100,000 and sold it 1 year later for $115,000
(there was no mortgage on the property). At the time of the sale, you paid $3,000 in commissions
and $1,000 in taxes. If you received $10,000 in rental income (all received at the end of the year),
what annual rate of return did you earn?