1、Chapter 24 Portfolio Performance Evaluation Multiple Choice Questions1.Trading activity by mutual funds just prior to quarterly reporting dates is known as A)insider trading. B)program trading. C)passive security selection. D)window dressing. E)none of the above. Answer: D Difficulty: Moderate Ratio

2、nale: Mutual funds must disclose portfolio composition quarterly, and trading activity that immediately precedes the reporting date is referred to as window dressing. The speculation is that window dressing involves changes in portfolio composition, which gives the appearance of successful stock sel

3、ection.2.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 Answer: D Difficulty: Easy Rationale: A m

4、utual fund manager is evaluated against the performance of managers of funds of similar risk characteristics.3._ did not develop a popular method for risk-adjusted performance evaluation of mutual funds. A)Eugene Fama B)Michael Jensen C)William Sharpe D)Jack Treynor E)A and B Answer: A Difficulty: E

5、asy Rationale: Michael Jensen, William Sharpe, and Jack Treynor developed popular models for mutual fund performance evaluation.4.Henriksson (1984) found that, on average, betas of funds _ during market advances A)increased very significantly B)increased slightly C)decreased slightly D)decreased ver

6、y significantly E)did not change Answer: C Difficulty: Moderate Rationale: Portfolio betas should have a large value if the market is expected to perform well and a small value if the market is not expected to perform well; thus, these results reflect the poor timing ability of mutual fund managers.

7、5.Most professionally managed equity funds generally _. A)outperform the S&P 500 index on both raw and risk-adjusted return measures B)underperform the S&P 500 index on both raw and risk-adjusted return measures C)outperform the S&P 500 index on raw return measures and underperform the S&P 500 index

8、 on risk-adjusted return measures D)underperform the S&P 500 index on raw return measures and outperform the S&P 500 index on risk-adjusted return measures E)match the performance of the S&P 500 index on both raw and risk-adjusted return measures Answer: B Difficulty: Moderate Rationale: Most mutual

9、 funds do not consistently, over time, outperform the S&P 500 index on the basis of either raw or risk-adjusted return measures.6.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 m

10、easure, the performance of portfolio A _. A)is better than the performance of portfolio B B)is the same as the performance of portfolio B C)is poorer than the performance of portfolio B D)cannot be measured as there is no data on the alpha of the portfolio E)none of the above is true. Answer: B Diff

11、iculty: Moderate Rationale: The Sharpe index is a measure of average portfolio returns (in excess of the risk free return) per unit of total risk (as measured by standard deviation).7.Consider the Sharpe and Treynor performance measures. When a pension fund is large and has many managers, the _ meas

12、ure is better for evaluating individual managers while the _ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments. A)Sharpe, Sharpe B)Sharpe, Treynor C)Treynor, Sharpe D)Treynor, Treynor E)Both measures are equally good in both cases. Ans

13、wer: C Difficulty: Moderate Rationale: The Treynor measure is the superior measure if the portfolio is a small portion of many portfolios combined into a large investment fund. The Sharpe measure is superior if the portfolio represents the investors total risky investment position.8.Suppose you purc

14、hase 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

15、 were paid on GM stock. Your dollar-weighted return on the stock will be _; your time-weighted return on the stock. A)higher than B)the same as C)less than D)exactly proportional to E)more information is necessary to answer this question Answer: A Difficulty: Moderate Rationale: In the dollar-weight

16、ed return, the stocks performance in the second year, when 200 shares are held, has a greater influence on the overall dollar-weighted return. The time-weighted return ignores the number of shares held.9.Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and

17、 the average return is 14%. Based on Jensens measure of portfolio performance, you would calculate the return on the market portfolio as A)11.5% B)14% C)15% D)16% E)none of the above Answer: A Difficulty: Difficult Rationale: 1% = 14% - 4% + 1.2(x - 4%); x = 11.5%.10.Suppose the risk-free return is

18、3%. The beta of a managed portfolio is 1.75, the alpha is 0%, and the average return is 16%. Based on Jensens measure of portfolio performance, you would calculate the return on the market portfolio as A)12.3% B)10.4% C)15.1% D)16.7% E)none of the above Answer: B Difficulty: Difficult Rationale: 0%

19、= 16% - 3% + 1.75(x - 3%); x = 10.4%.11.Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensens measure of portfolio performance, you would calculate the return on the market portfolio as A)12% B)14% C)15% D)16% E)n

20、one of the above Answer: A Difficulty: Difficult Rationale: 3% = 18% - 6% + 1.5(x - 6%); x = 12%.12.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 _. A)greater than the arithmetic

21、average return B)equal to the arithmetic average return C)less than the arithmetic average return D)equal to the market return E)cannot tell from the information given Answer: C Difficulty: Moderate Rationale: The geometric mean will always be less than the arithmetic mean unless the returns in all

22、periods are equal (in which case the two means will be equal).13.Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning of year 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price at the end of year 1 is $100, the price $120 at the end of year 2, and

23、 the price is $150 at the end of year 3. The stock price declines to $100 at the end of year 4, and you sell your 100 shares. For the four years, your geometric average return is A)0.0% B)1.0% C)5.7% D)9.2% E)34.5% Answer: C Difficulty: Difficult Rationale: (1.25)(1.20)(1.25)(0.6667)1/4 - 1.0 = 5.7%

24、14.You want to evaluate three mutual funds using the information ratio measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 19%. The average returns, residual standard deviations, and betas for the three funds are

25、given below. The fund with the highest information ratio measure is _. A)Fund A B)Fund B C)Fund C D)Funds A and B are tied for highest E)Funds A and C are tied for highest Answer: B Difficulty: Difficult Rationale: Information ratio = P/(eP); A: P = 20 - 6 - .8(19 - 6) = 3.6; 3.6/4 = 0.9; B: P = 21

26、- 6 - 1(19 - 6) = 2.0; 2/1.25 = 1.6; C: P = 23 - 6 - 1.2(19 - 6) = 1.4; 1.4/1.20 = 1.16.15.You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations and betas for the thre

27、e funds are given below, as is the data for the S&P 500 index. The fund with the highest Sharpe measure is _. A)Fund A B)Fund B C)Fund C D)Funds A and B are tied for highest E)Funds A and C are tied for highest Answer: C Difficulty: Moderate Rationale: A: (24% - 6%)/30% = 0.60; B: (12% - 6%)/10% = 0

28、.60; C: (22% - 6%)/20% = 0.80; S&P 500: (18% - 6%)/16% = 0.75.16.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, a

29、s is the data for the S&P 500 index. The fund with the highest Sharpe measure is _. A)Fund A B)Fund B C)Fund C D)Funds A and B are tied for highest E)Funds A and C are tied for highest Answer: B Difficulty: Moderate Rationale: A: (18% - 4%)/38% = 0.368; B: (15% - 4%)/27% = 0.407; C: (11% - 4%)/24% =

30、 0.292; S&P 500: (10% - 4%)/22% = 0.273.17.You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the

31、S&P 500 index. The investment with the highest Sharpe measure is _. A)Fund A B)Fund B C)Fund C D)the index E)Funds A and C are tied for highest Answer: D Difficulty: Moderate Rationale: A: (23% - 5%)/30% = 0.60; B: (20% - 5%)/19% = 0.789; C: (19% - 5%)/17% = 0.824; S&P 500: (18% - 5%)/15% = 0.867.18

32、.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. The fun

33、d with the highest Treynor measure is _. A)Fund A B)Fund B C)Fund C D)Funds A and B are tied for highest E)Funds A and C are tied for highest Answer: A Difficulty: Difficult Rationale: A: (13% - 6%)/0.5 = 14; B: (19% - 6%)/1.0 = 13; C: (25% - 6%)/1.5 = 12.7; S&P 500: (18% - 6%)/1.0 = 12.19.You want

34、to evaluate three mutual funds using the Jensen measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 18%. The average returns, standard deviations, and betas for the three funds are given below. The fund with the h

35、ighest Jensen measure is _. A)Fund A B)Fund B C)Fund C D)Funds A and B are tied for highest E)Funds A and C are tied for highest Answer: C Difficulty: Difficult Rationale: A: 17.6% -6% + 1.2(18% - 6%) = - 2.8%; B: 17.5% - 6% + 1.0(18% - 6%) = - 0.5; C: 17.4% - 6% + 0.8(18% - 6%) = + 1.8.20.Suppose y

36、ou 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 $36.4

37、5 each. The time-weighted return on your investment is _. A)-1.75% B)4.08% C)8.53% D)11.46% E)12.35% Answer: C Difficulty: Moderate Rationale: Year 1: ($30 + $2 - $36)/$36 = - 11.11%; Year 2: ($36.45 + $2 - $30)/$30 = 28.17%; Average: 8.53%.21.Suppose you purchase one share of the stock of Volatile

38、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 dollar-weighted return on your inve

39、stment is _. A)-1.75% B)4.08% C)8.53% D)8.00% E)12.35% Answer: E Difficulty: Moderate Rationale: $36 + $30/(1 + r) = $2/(1 + r) + $4/(1 + r)2 + $72.90/(1 + r)2; r = 12.35%.22.Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of y

40、ear 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 time-weighted return on your investment is _. A)10.00% B)8.78% C)19.71% D)20.36% E)none of the above Answer: D

41、 Difficulty: Moderate Rationale: Year 1: ($72 + $1 - $50)/$50 = 46%; Year 2: ($67.20 + $1 - $72)/$72 = -5.28%; Average: 20.36%.23.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

42、 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 _. A)10.00% B)8.78% C)19.71 D)20.36% E)none of the above Answer: B Difficulty: Moderate Rationale: $50 + $72 /

43、(1 + r) = $1/(1 + r) + $2/(1 + r)2 + $134.40/(1 + r)2; r = 8.78%.24.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. _ has the higher arithmetic average return. A)stock A B

44、)stock B C)the two stocks have the same arithmetic average return D)at least three periods are needed to calculate the arithmetic average return E)none of the above Answer: C Difficulty: Moderate Rationale: A: (2% + 18%)/2 = 10%; B: (9% + 11%)/2 = 10%.25.Suppose you own two stocks, A and B. In year

45、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? A)stock A B)stock B C)the two stocks have the same geometric average return D)at least three periods are needed to

46、calculate the geometric average return. E)none of the above Answer: B Difficulty: Moderate Rationale: A: (1.02)(1.18)1/2 - 1 = 9.71%; B: (1.09)(1.11)1/2 - 1 = 10.00%.Use the following to answer questions 26-29:The following data are available relating to the performance of Sooner Stock Fund and the

47、market portfolio:26.What is the Sharpe measure of performance evaluation for Sooner Stock Fund? A)1.33% B)4.00% C)8.67% D)38.6% E)37.14% Answer: D Difficulty: Moderate Rationale: (20% - 3%)/44% = 0.386, or 38.6%.27.What is the Treynor measure of performance evaluation for Sooner Stock Fund? A)1.33%

48、B)4.00% C)8.67% D)9.44% E)37.14% Answer: D Difficulty: Moderate Rationale: (20% - 3%)/1.8 = 9.44%.28.Calculate the Jensen measure of performance evaluation for Sooner Stock Fund. A)2.6% B)4.00% C)8.67% D)31.43% E)37.14% Answer: A Difficulty: Moderate Rationale: P = 20% - 3% + 1.8(11% - 3%) = 2.6%.29

49、.Calculate the information ratio for Sooner Stock Fund. A)1.53 B)1.30 C)8.67 D)31.43 E)37.14 Answer: B Difficulty: Moderate Rationale: P = 20% - 3% + 1.8(11% - 3%) = 2.6%, 2.6% / 2.00% = 1.3.Use the following to answer questions 30-33:The following data are available relating to the performance of M

50、onarch Stock Fund and the market portfolio:30.What is the information ratio measure of performance evaluation for Monarch Stock Fund? A)1.00% B)280.00% C)44.00% D)50.00% E)none of the above Answer: B Difficulty: Moderate Rationale: P = 16% - 4% +1.15(12% - 4%) = 2.8%; P/(eP) = 2.8%/1% = 2.8, or 280%

51、.31.Calculate Sharpes measure of performance for Monarch Stock Fund. A)1.00% B)46.00% C)44.00% D)50.00% E)none of the above Answer: B Difficulty: Moderate Rationale: (16 - 4)/ 26 = .4632.Calculate Treynors measure of performance for Monarch Stock Fund. A)10.40% B)8.80% C)44.00% D)50.00% E)none of th

52、e above Answer: A Difficulty: Moderate Rationale: (16 - 4)/1.15 = 10.433.Calculate Jensens measure of performance for Monarch Stock Fund. A)1.00% B)2.80% C)44.00% D)50.00% E)none of the above Answer: B Difficulty: Moderate Rationale: 16 - 4 + 1.15 (12 - 4) = 2.80%Use the following to answer question

53、s 34-37:The following data are available relating to the performance of Seminole Fund and the market portfolio:34.If you wanted to evaluate the Seminole Fund using the M2 measure, what percent of the adjusted portfolio would need to be invested in T-Bills? A)-36% (borrow) B)50% C)8% D)36% E)73% Answer: E Difficulty: Moderate Rationale: 22/30 = .733335.Calculate the M2 measure for the Seminole Fund. A)4.0% B)20.0% C)2.86% D)0.8% E)40.0% Answer: D Difficulty: Moderate Rationale: 22/30 = .7333; 1 - .7333 = .2667; M2 = .7333 (18) + .2667 (6) - 14 = 0.8%.36.If the Seminole Fund is a