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Exam 24: Portfolio Performance Evaluation

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Question 21

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The comparison universe is __________.

A) a concept found only in astronomy
B) the set of all mutual funds in the world
C) the set of all mutual funds in the U.S.
D) a set of mutual funds with similar risk characteristics to your mutual fund
E) none of the above

F) D) and E)
G) C) and E)

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Question 22

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The following data are available relating to the performance of Wildcat Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Wildeat } & \text { Market Portfolio } \\\hline \text { Average Return } & 18 \% & 15 \% \\\hline \text { Standard Deviation of Returns } & 25 \% & 20 \% \\\hline \text { Beta } & 1.25 & 1.00 \\\hline \text { Residual Standard Deviation } & 2 \% & 0 \% \\\hline\end{array}$ The risk-free return during the sample period was 7%. -Calculate Jensen's measure of performance for Wildcat Fund.

A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) none of the above

F) C) and D)
G) C) and E)

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Question 23

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Suppose the risk-free return is 4%.The beta of a managed portfolio is 1.2,the alpha is 1%,and the average return is 14%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

Suppose two portfolios have the same average return,the same standard deviation of returns,but Buckeye Fund has a higher beta than Gator Fund.According to the Treynor measure,the performance of Buckeye Fund

If an investor has a portfolio that has constant proportions in T-bills and the market portfolio,the portfolio's characteristic line will plot as a line with ___________; if the investor can time bull markets,the characteristic line will plot as a line with ___________.

You want to evaluate three mutual funds using the Treynor measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations,and betas for the three funds are given below,in addition to information regarding the S&P 500 index. $\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\\hline \text { Fund A } & 13 \% & 10 \% & 0.5 \\\hline \text { Fund B } & 19 \% & 20 \% & 1.0 \\\hline \text { Fund C } & 25 \% & 30 \% & 1.5 \\\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \\\hline\end{array}$ The fund with the highest Treynor measure is __________.

Suppose you own two stocks,A and B.In year 1,stock A earns a 2% return and stock B earns a 9% return.In year 2,stock A earns an 18% return and stock B earns an 11% return.Which stock has the higher geometric average return?

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 4%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. $\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\\hline \text { Fund A } & 18 \% & 38 \% & 1.6 \\\hline \text { Fund B } & 15 \% & 27 \% & 1.3 \\\hline \text { Fund C } & 11 \% & 24 \% & 1.0 \\\hline \text { S\&P 500 } & 10 \% & 22 \% & 1.0 \\\hline\end{array}$ The fund with the highest Sharpe measure is __________.

Suppose a particular investment earns an arithmetic return of 10% in year 1,20% in year 2 and 30% in year 3.The geometric average return for the year period will be __________.

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Monarch } & \text { Market Portfolio } \\\hline \text { Average Return } & 16 \% & 12 \% \\\hline \text { Standard Deviation of Returns } & 26 \% & 22 \% \\\hline \text { Beta } & 1.15 & 1.00 \\\hline \text { Residual Standard Deviation } & 1 \% & 0 \% \\\hline\end{array}$ The risk-free return during the sample period was 4%. -Calculate Treynor's measure of performance for Monarch Stock Fund.

To determine whether portfolio performance is statistically significant requires

Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a higher beta than portfolio B.According to the Sharpe measure,the performance of portfolio A __________.

Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36.At the end of year 1,you receive a $2 dividend,and buy one more share for $30.At the end of year 2,you receive total dividends of $4 (i.e.,$2 for each share) ,and sell the shares for $36.45 each.The time-weighted return on your investment is ________.

Most professionally managed equity funds generally __________.

__________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50.At the end of year 1,you receive a $1 dividend,and buy one more share for $72.At the end of year 2,you receive total dividends of $2 (i.e.,$1 for each share) ,and sell the shares for $67.20 each.The dollar-weighted return on your investment is __________.

What is the Treynor measure of performance evaluation for Sooner Stock Fund?

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

Suppose you purchase 100 shares of GM stock at the beginning of year 1,and purchase another 100 shares at the end of year 1.You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1,$55 at the end of year 1,and $65 at the end of year 2.Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

The M-squared measure