65.
The __________ measures the reward to volatility trade-off by dividing the average portfolio
excess return by the standard deviation of returns.
66.
A pension fund that begins with $500,000 earns 15% the first year and 10% the second
year. At the beginning of the second year, the sponsor contributes another $300,000. The
dollar-weighted and time-weighted rates of return, respectively, were
67.
The
Value
Line
Index is an equally weighted geometric average of the returns of about
1,700 firms. The value of an index based on the geometric average returns of three stocks
where the returns on the three stocks during a given period were 32%, 5%, and
–
10%,
respectively, is
68.
Risk-adjusted mutual fund performance measures have decreased in popularity because
69.
The Sharpe, Treynor, and Jensen portfolio performance measures are derived from the
CAPM,
70.
The Jensen portfolio evaluation measure
71.
The M-squared measure considers
72.
The dollar-weighted return on a portfolio is equivalent to
73.
A portfolio manager’s ranking within a comparison universe may not provide a good
measure of performance because
74.
The geometric average rate of return is based on
75.
The
M
2 measure was developed by
76.
Rodney holds a portfolio of risky assets that represents his entire risky investment. To
evaluate the performance of Rodney’s portfolio, in which order would you complete the
steps listed?
I) Compare the Sharpe measure of Rodney’s portfolio to the Sharpe measure of the best
portfolio.
II) State your conclusions.
III) Assume that past security performance is representative of expected performance.
IV) Determine the benchmark portfolio that Rodney would have held if he had chosen a
passive strategy.
77.
The Modigliani
M
2 measure and the Treynor
T
2 measure
78.
To determine whether portfolio performance is statistically significant requires
Short Answer Questions
79.
Define and discuss the Sharpe, Treynor, and Jensen measures of portfolio performance
evaluation and the situations in which each measure is the most appropriate measure.
80.
What is the problem with using the Sharpe measure for evaluation of an active portfolio
management strategy?
81.
Discuss, in general, the performance attribution procedures.
24–121
82.
You invested $1,000 through your broker three years ago. Your account balance at the
beginning of each period is shown in the table below.
– Calculate the annual return for each year. Show your calculations in the table.
– Your broker called to tell you the good news that your average annual return over the
three years has been 4%. Where did he get this number?
– At first you are confused. It seems as though the broker must be mistaken because you
are no better off than when you started investing three years ago. But then you remember
something from your favorite investments class. Suggest an alternate measure for the
average return. Calculate this measure and explain to your broker why it is more
appropriate.
– Explain to your broker when it would make sense to use the 4% result that he initially
quoted you.
See the table below.
83.
Discuss the
M
2 measure of performance by answering the following questions. Why is
M
2
better than the Sharpe measure? What measure of risk does
M
2 use? How do you construct
a managed portfolio,
P
, to use in computing the
M
2 measure? What is the formula for
M
2?
Draw a graph that shows how
M
2 would be measured. Be sure to label the axes and all
relevant points.