Chapter 18 – Evaluation of Portfolio Performance
87. A manager’s superior returns could have occurred due to
a.
an insightful asset allocation strategy that over weighted an asset class that earned high returns.
b.
investing in undervalued sectors.
c.
selecting individual securities that earned above average returns.
d.
timing broad market movements.
e.
All of these are correct.
88. In the evaluation of bond portfolio performance, the policy effect refers to
a.
the difference in portfolio duration and index duration.
b.
the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
c.
short-run changes in the portfolio during a specific period.
d.
the differential return from changing duration of the portfolio during a specific period.
e.
None of these are correct.
89. In the evaluation of bond portfolio performance, the interest rate anticipation effect refers to
a.
the difference in portfolio duration and index duration.
b.
the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
c.
short-run changes in the portfolio during a specific period.
d.
the differential return from changing duration of the portfolio during a specific period.
e.
None of these are correct.
90. In the evaluation of bond portfolio performance, the analysis effect refers to
a.
the difference in portfolio duration and index duration.
b.
the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
c.
short-run changes in the portfolio during a specific period.
d.
the differential return from changing duration of the portfolio during a specific period.
e.
None of these are correct.
91. In the Grinblatt-Titman (GT) performance measure,
a.
portfolio performance is measured by assessing the quality of services provided by money managers by
looking at adjustments made to the content of their portfolios.
b.
portfolio performance is measured by examining both unsystematic and systematic risk.
c.
portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a
benchmark portfolio.
d.
portfolio performance is measured on the basis of return per unit of risk.
e.
portfolio performance is measured on the basis of historic average differential return per unit of historic
variability of differential return.
92. In the Characteristic Selectivity (CS) performance measure,
Chapter 18 – Evaluation of Portfolio Performance
a.
portfolio performance is measured by assessing the quality of services provided by money managers by
looking at adjustments made to the content of their portfolios.
b.
portfolio performance is measured by examining both unsystematic and systematic risk.
c.
portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a
benchmark portfolio.
d.
portfolio performance is measured on the basis of return per unit of risk.
e.
portfolio performance is measured on the basis of historic average differential return per unit of historic
variability of differential return.
Exhibit 18.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
RCI = 0.17
BCI = 1.05
Rf = 0.07
Rm = 0.12
93. Refer to Exhibit 18.9. Calculate CI’s overall performance.
a.
0.1225
b.
0.1000
c.
0.0525
d.
0.0475
e.
0.0325
94. Refer to Exhibit 18.9. Calculate CI’s selectivity.
a.
0.1225
Chapter 18 – Evaluation of Portfolio Performance
b.
0.1000
c.
0.0525
d.
0.0475
e.
0.0325
95. Refer to Exhibit 18.9. Calculate CI’s risk.
a.
0.1225
b.
0.1000
c.
0.0525
d.
0.0475
e.
0.0325
Exhibit 18.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information, evaluate the performance of Tyler Incorporated (TI).
RTI = 0.18
BTI = 1.06
Rf = 0.06
Rm = 0.11
96. Refer to Exhibit 18.10. Calculate TI’s overall performance.
a.
0.0113
b.
0.1200
c.
0.0670
d.
0.0530
e.
0.0696
Chapter 18 – Evaluation of Portfolio Performance
97. Refer to Exhibit 18.10. Calculate TI’s selectivity.
a.
0.0113
b.
0.1200
c.
0.0687
d.
0.0530
e.
0.0696
98. Refer to Exhibit 18.10. Calculate TI’s risk.
a.
0.0113
b.
0.1200
c.
0.0670
d.
0.0530
e.
0.0696
99. Portfolio managers who anticipate an increase in interest rates should
a.
act to keep the duration constant.
b.
decrease the portfolio duration.
c.
increase the portfolio duration.
d.
assume higher risk in the market.
e.
invest in junk bonds.
100. A portfolio performance measurement technique that decomposes the return of a manager’s holdings to a
predetermined benchmark’s returns and separates the difference into an allocation and selection is called
a.
immunization analysis.
b.
performance attribution analysis.
c.
tactical rankings.
d.
convexity utilization.
e.
duration matching attrition.
101. Under the performance attribution analysis method, the ____ measures the manager’s decision to over- or
underweight a particular market segment in terms of that segment’s return performance relative to the overall return to the
benchmark.
a.
selection effect
b.
allocation effect
c.
distribution effect
Chapter 18 – Evaluation of Portfolio Performance
d.
diversification effect
e.
attribution effect
102. Under the performance attribution analysis method, the ____ measures the manager’s ability to form specific market
segment portfolios that generate superior returns relative to the way in which the comparable market segment is defined in
the benchmark portfolio weighted by the manager’s actual market segment investment proportions.
a.
selection effect
b.
allocation effect
c.
distribution effect
d.
diversification effect
e.
attribution effect
Exhibit 18.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Weights
Policy
Actual
50% stocks
60% stocks
50% bonds
40% bonds
Returns
Index
Actual
8% stocks
9% stocks
5% bonds
7% bonds
103. Refer to Exhibit 18.11. Which of the following statements is TRUE?
a.
The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks.
b.
The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds.
c.
The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks.
d.
The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds.
e.
None of these are correct.
104. Refer to Exhibit 18.11. Which of the following statements is TRUE?
a.
Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested
the funds in stocks and bond indexes.
b.
Sector/security selection improved the port-folio performance by 1.4%; each sector return was higher than for
index value.
c.
Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested
the funds in stocks and bond indexes.
d.
Sector/security selection improved the port-folio performance by 6.8%; each sector return was higher than for
index return.
e.
None of these are correct.
Exhibit 18.12
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for a portfolio manager:
Chapter 18 – Evaluation of Portfolio Performance
Policy
Actual
Index
Actual
Weight
Weight
Returns
Returns
Stocks
0.65
0.7
0.11
0.12
Bonds
0.3
0.25
0.07
0.08
Cash
0.05
0.05
0.03
0.025
105. Refer to Exhibit 18.12. Calculate the percentage return that can be attributed to the asset allocation decision.
a.
0.105 percent
b.
0.925 percent
c.
0.20 percent
d.
0.96 percent
e.
0.94 percent
106. Refer to Exhibit 18.12. Calculate the percentage return that can be attributed to the security selection decision.
a.
0.105 percent
b.
0.925 percent
c.
0.20 percent
d.
0.96 percent
e.
0.94 percent
107. Bailey, Richards, and Tierney maintain that any useful benchmark should have the following characteristics:
a.
ambiguous.
Chapter 18 – Evaluation of Portfolio Performance
b.
investable.
c.
value-weighted.
d.
use the median manager from a peer group.
e.
reflective of past investment opinions.
108. If the return increases as more global investments with low correlation are added to the market portfolio, the efficient
frontier moves
a.
up and right.
b.
up and left.
c.
down and right.
d.
down and left.
e.
up only.
109. A portfolio manager has the following sequence of cash flows over a two-year period:
Time
0
1
2
outflows
−$2,000
−$500
inflows
$50
$3,090
Calculate the portfolio manager’s dollar weighted return.
a.
13.56 percent
b.
11.48 percent
c.
15.50 percent
d.
8.75 percent
e.
10.67 percent
Chapter 18 – Evaluation of Portfolio Performance
110. A portfolio manager has the following sequence of cash flows over a two-year period:
Market Value
Market Value
Time
before cash flow
Cash In
after cash flow
0
$ 0
$3,000
$3,000
1
$3,200
$1,950
$5,150
2
$6,000
−$ 90
$5,910
Calculate the portfolio manager’s time weighted return.
a.
13.56 percent
b.
11.48 percent
c.
15.50 percent
d.
8.75 percent
e.
10.67 percent
111. Global Investment Performance Standards (GIPS), were intended to accomplish which of the following goals?
a.
to assess the quality of services provided by money managers by looking at adjustments made to the content of
their portfolios
b.
to measure both unsystematic and systematic risk
c.
to establish investment industry best practices for calculating and presenting investment performance that
promote investor interests and instill investor confidence
d.
to measure portfolio performance on the basis of return per unit of risk
e.
to measure portfolio performance on the basis of historic average differential return per unit of historic
Chapter 18 – Evaluation of Portfolio Performance
variability of differential return