F420 chapter 24 portfolio performance
evaluation questions with answers.
True or false: Efficient allocation depends on the quality of financial professionals and the ability of
financial markets to identify and direct capital to the best stewards. ANS -TRUE
Since each return has an equal weight in the geometric average, it is also called the ______-______
average return. ANS -time-weighted
Suppose you invested $2,000 in a mutual fund two years ago, added $1,000 a year later, and redeemed
all your shares today. If the fund returns for the first and the second year were 10% and 8% respectively,
the dollar-weighted average return on your investment is ______.
A. greater than the time-weighted average return
B. greater than 9%
C. less than the time-weighted average return
D. greater than the arithmetic average return ANS -C. less than the time-weighted average return
Reason:
You have more money invested during the second year when the return is lower.
Select all that apply
Which statements are true about the use of comparison universes to evaluate managers?
A. It can be misleading when managers focus on different assets within an asset class.
B. A 90th percentile manager has performed better than 10% of competing funds over the evaluation
period.
C. Dollar-weighted average returns are used to rank the funds.
, D. It can be misleading because managers' levels of risk may vary. ANS -A. It can be misleading when
managers focus on different assets within an asset class.
D. It can be misleading because managers' levels of risk may vary.
Match the portfolio performance measure with its description. ANS -Sharpe Ratio ---> Average excess
return divided by standard deviation of excess returns
Treynor Measure ---> Average excess return divided by systemic risk (β)
Jensen's Alpha ---> Average return above the CAPM prediction given the portfolio's beta
Information Ratio ---> Alpha divided by the nonsystematic risk of the portfolio
Select all that apply
Evaluating the performance of a fund manager presents which difficulties?
A. Risk levels may change along with portfolio composition.
B. The proper measure of risk may not be obvious.
C. The manager may use fundamental analysis.
D. The manager may use technical analysis.
E. Average portfolio return is not straightforward to measure. ANS -A. Risk levels may change along with
portfolio composition.
B. The proper measure of risk may not be obvious.
E. Average portfolio return is not straightforward to measure.
evaluation questions with answers.
True or false: Efficient allocation depends on the quality of financial professionals and the ability of
financial markets to identify and direct capital to the best stewards. ANS -TRUE
Since each return has an equal weight in the geometric average, it is also called the ______-______
average return. ANS -time-weighted
Suppose you invested $2,000 in a mutual fund two years ago, added $1,000 a year later, and redeemed
all your shares today. If the fund returns for the first and the second year were 10% and 8% respectively,
the dollar-weighted average return on your investment is ______.
A. greater than the time-weighted average return
B. greater than 9%
C. less than the time-weighted average return
D. greater than the arithmetic average return ANS -C. less than the time-weighted average return
Reason:
You have more money invested during the second year when the return is lower.
Select all that apply
Which statements are true about the use of comparison universes to evaluate managers?
A. It can be misleading when managers focus on different assets within an asset class.
B. A 90th percentile manager has performed better than 10% of competing funds over the evaluation
period.
C. Dollar-weighted average returns are used to rank the funds.
, D. It can be misleading because managers' levels of risk may vary. ANS -A. It can be misleading when
managers focus on different assets within an asset class.
D. It can be misleading because managers' levels of risk may vary.
Match the portfolio performance measure with its description. ANS -Sharpe Ratio ---> Average excess
return divided by standard deviation of excess returns
Treynor Measure ---> Average excess return divided by systemic risk (β)
Jensen's Alpha ---> Average return above the CAPM prediction given the portfolio's beta
Information Ratio ---> Alpha divided by the nonsystematic risk of the portfolio
Select all that apply
Evaluating the performance of a fund manager presents which difficulties?
A. Risk levels may change along with portfolio composition.
B. The proper measure of risk may not be obvious.
C. The manager may use fundamental analysis.
D. The manager may use technical analysis.
E. Average portfolio return is not straightforward to measure. ANS -A. Risk levels may change along with
portfolio composition.
B. The proper measure of risk may not be obvious.
E. Average portfolio return is not straightforward to measure.
