Chapter 18 – Evaluation of Portfolio Performance
should
a.
buy stocks A, B, and C.
b.
buy stocks A and B and sell stock C.
c.
buy stock A and sell stocks B and C.
d.
sell stocks A, B, and C.
e.
hold stocks A, B, and C.
60. Which of the following performance measures is the most rigorous risk-adjustment process separating systematic and
unsystematic risk?
a.
Treynor ratio
b.
Sharpe ratio
c.
Jensen’s Alpha
d.
Information ratio
e.
Sortino ratio
Exhibit 18.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. During the period under consideration, Rf = .03.
Portfolio
Return
Beta
A
0.16
1.0
0.15
B
0.22
1.5
0.10
C
0.11
0.6
0.08
D
0.18
1.1
0.12
61. Refer to Exhibit 18.1. Using the Sharpe Measure, which portfolio performed best?
a.
A
b.
B
c.
C
d.
D
e.
Two portfolios are tied.
62. Refer to Exhibit 18.1. According to the Treynor Measure, which portfolio performed best?
a.
A
b.
B
c.
C
d.
D
e.
Two portfolios are tied
Exhibit 18.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration,
Rf = .04.
Portfolio
Return
Beta
W
0.18
1.8
0.06
X
0.21
0.9
0.10
Y
0.13
0.7
0.03
Z
0.16
1.5
0.07
63. Refer to Exhibit 18.2. Using the Sharpe Measure, which portfolio performed best?
a.
W
b.
X
c.
Y
d.
Z
e.
Two portfolios are tied.
64. Refer to Exhibit 18.2. According to the Treynor Measure, which portfolio performed best?
a.
W
b.
X
c.
Y
d.
Z
e.
Two portfolios are tied.
Exhibit 18.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the data presented below on three mutual funds and the market.
Standard
Fund
Beta
Deviation (%)
Return (%)
Rf (%)
AAA
0.75
7.0
14
3
BBB
1.05
5.0
18
3
CCC
0.89
8.0
20
3
Market
1.00
8.0
12
3
65. Refer to Exhibit 18.3. Compute the Sharpe Measure for the AAA fund.
a.
4.49
b.
2.74
c.
1.57
d.
1.70
e.
1.27
66. Refer to Exhibit 18.3. Compute the Jensen Measure for the BBB fund.
a.
4.49
b.
2.74
c.
4.25
d.
5.55
e.
8.99
67. Refer to Exhibit 18.3. Compute the Treynor Measure for the CCC fund.
a.
14.7
b.
15.3
c.
19.1
d.
17.0
Chapter 18 – Evaluation of Portfolio Performance
e.
12.7
Exhibit 18.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
Standard
Fund
Beta
Deviation (%)
Return (%)
Rf (%)
AAA
1.05
4.98
16
6
BBB
1.00
4.04
15
6
CCC
0.92
3.13
11
6
Market
1.00
3.75
13
6
68. Refer to Exhibit 18.4. Compute the Sharpe Measure for the AAA fund.
a.
2.01
b.
2.74
c.
2.91
d.
5.43
e.
1.72
69. Refer to Exhibit 18.4. Compute the Jensen Measure for the BBB fund.
a.
2.10
b.
2.74
Chapter 18 – Evaluation of Portfolio Performance
c.
5.43
d.
2.00
e.
1.65
70. Refer to Exhibit 18.4. Compute the Treynor Measure for the CCC fund.
a.
5.43
b.
2.74
c.
2.19
d.
2.00
e.
1.65
Exhibit 18.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
Standard
Fund
Beta
Deviation (%)
Return (%)
Rf (%)
XXX
1.07
5.13
19
6
YYY
1.02
4.28
17
6
ZZZ
0.86
3.52
12
6
Market
1.00
3.80
13
6
71. Refer to Exhibit 18.5. Compute the Sharpe Measure for the XXX fund.
a.
6.98
Chapter 18 – Evaluation of Portfolio Performance
b.
2.35
c.
2.53
d.
3.86
e.
1.72
72. Refer to Exhibit 18.5. Compute the Jensen Measure for the YYY fund.
a.
6.98
b.
2.35
c.
2.53
d.
3.86
e.
1.72
73. Refer to Exhibit 18.5. Compute the Treynor Measure for the ZZZ fund.
a.
6.98
b.
2.35
c.
2.53
d.
3.86
e.
1.72
74. What is the Sharpe measure for the S&P 500 over the last ten years if the standard deviation was 8 percent and the
return was 14 percent?
a.
1.55
b.
1.69
c.
1.75
d.
1.99
e.
2.09
Exhibit 18.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for four portfolios, the market, and the risk-free rate (RFR):
Portfolio
Return
Beta
SD
A1
0.15
1.25
0.182
A2
0.1
0.9
0.223
A3
0.12
1.1
0.138
A4
0.08
0.8
0.125
Market
0.11
1
0.2
RFR
0.03
0
0
75. Refer to Exhibit 18.6. Calculate the Sharpe Measure for each portfolio.
a.
A1 = 0.40, A2 = 0.31, A3 = 0.65, A4 = 0.66
b.
A1 = 0.31, A2 = 0.66, A3 = 0.65, A4 = 0.40
c.
A1 = 0.66, A2 = 0.65, A3 = 0.31, A4 = 0.40
d.
A1 = 0.66, A2 = 0.31, A3 = 0.65, A4 = 0.40
e.
A1 = 0.54, A2 = 0.68, A3 = 0.65, A4 = 0.40
76. Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.
a.
A1 = 0.014, A2 = −0.002, A3 = 0.002, A4 = −0.02
b.
A1 = 0.002, A2 = −0.02, A3 = 0.002, A4 = −0.014
c.
A1 = 0.02, A2 = −0.002, A3 = 0.002, A4 = −0.014
d.
A1 = 0.02, A2 = −0.002, A3 = 0.02, A4 = −0.14
e.
A1 = 0.03, A2 = −0.002, A3 = 0.02, A4 = −0.14
77. Refer to Exhibit 18.6. Calculate the Treynor Measure for each portfolio.
a.
A1 = 0.0625, A2 = 0.0778, A3 = 0.0818, A4 = 0.096
b.
A1 = 0.096, A2 = 0.0778, A3 = 0.0818, A4 = 0.0625
c.
A1 = 0.096, A2 = 0.0818, A3 = 0.0778, A4 = 0.0625
d.
A1 = 0.0778, A2 = 0.096, A3 = 0.0818, A4 = 0.0625
e.
A1 = 0.086, A2 = 0.096, A3 = 0.0818, A4 = 0.0625
Exhibit 18.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Chapter 18 – Evaluation of Portfolio Performance
The last year’s performance for four mutual funds is presented below. The market return was 10.70 percent, the standard
deviation was 13.1 percent last year, and the risk-free rate of return was 5%.
Standard
Fund
Beta
Deviation (%)
Return (%)
A
1.50
18.95
12.5
B
1.20
12.41
13.0
C
0.90
9.30
11.2
D
0.50
8.10
9.5
78. Refer to Exhibit 18.7. Compute the Sharpe Measure for the A fund.
a.
0.012
b.
0.040
c.
0.069
d.
0.396
e.
1.142
79. Refer to Exhibit 18.7. Compute the Jensen Measure for the B fund.
a.
1.16%
b.
2.31%
c.
6.90%
d.
9.60%
e.
10.13%
80. Refer to Exhibit 18.7. Compute the Treynor Measure for the C fund.
a.
0.012
b.
0.040
c.
0.069
d.
0.396
e.
1.142
81. Refer to Exhibit 18.7. Based on the Sharpe Measure, which portfolio preformed best?
a.
A
b.
B
c.
C
d.
D
e.
market
82. Refer to Exhibit 18.7. Based on the Treynor Measure, which portfolio preformed best?
a.
A
b.
B
c.
C
d.
D
e.
market
Chapter 18 – Evaluation of Portfolio Performance
Exhibit 18.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is expected to be 11 percent next
period, and the risk-free rate of return is 3 percent. The market portfolio had a standard deviation over the past ten years of
0.20. The analyst gathered the following information on the four funds.
Stock
Return
Beta
A
17%
1.7
.21
B
20%
2.1
.25
C
10%
0.9
.12
D
15%
1.2
.16
83. Refer to Exhibit 18.8. Rank the four funds and market portfolio in order from highest to lowest based on their Treynor
performance measures.
a.
A, B, C, D, M
b.
B, C, M, D, A
c.
C, A, M, D, B
d.
D, A, B, M, C
e.
D, B, A, C, M
84. Refer to Exhibit 18.8. Rank the four funds and market portfolio in order from highest to lowest based on their Sharpe
measures.
a.
A, B, C, D, M
b.
B, C, M, D, A
c.
C, A, M, D, B
d.
D, A, B, M, C
e.
D, B, A, C, M
Chapter 18 – Evaluation of Portfolio Performance
85. Refer to Exhibit 18.8. Compute the Jensen Measure for the C fund.
a.
0.16 percent
b.
1.80 percent
c.
7.20 percent
d.
9.00 percent
e.
9.13 percent
86. Selectivity measures how well a portfolio performed relative to a
a.
market portfolio (S&P 400).
b.
portfolio of the same securities in the previous period.
c.
naively selected portfolio of equal risk.
d.
naively selected portfolio of equal return.
e.
world market portfolio.