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1、Multiple Choice Questions1. Trading activity by mutual funds just prior to quarterly reporting dates is known asA) insider trading.B) program trading.C) passive security selection.D) window dressing.E) none of the above.Answer: D Difficulty: ModerateRationale: Mutual funds must disclose portfolio co
2、mposition 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 selection.lz JZ n/ J/ A B c D E2. The comparison
3、 universe is. a concept found only in astronomy the set of all mutual funds in the world the set of all mutual funds in the U. S. a set of mutual funds with similar risk characteristics to your mutual fund none of the aboveAnswer: D Difficulty: EasyRationale: A mutual fund manager is evaluated again
4、st 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.ab)c)de)Eugene FamaMichael JensenWilliam SharpeJack TreynorA and BAnswer: A Difficulty: EasyRationale: Michael Jensen, William Sharpe,
5、and Jack Treynor developed popular models for mutual fund performance evaluation.20. Suppose you purchase one share of the slock of Volatile Engineering Coloration at the beginning of year 1 for $36. Al the end of year 1, you receive a $2 dividend, and buy one more share for $30, At the end of year
6、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.)z lz JZ !/ A B c D E-1.75%4.08%8.53%11.46%12.35%Answer: C Difficulty: ModerateRationale: Year 1: ($30 + $2 - $36)/$36 = - 11.11%; Year 2: ($36.45 + $2
7、- $30)/$30 =28.17%; Average: 8.53%.21. 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., $
8、2 for each share), and sell the shares for $36,45 each. The dollar-weighted return on your investment is.X1IZ J/ J/ lzA B c D E-1.75%4.08%8.53%8.00%12.35%Answer: E Difficulty: ModerateRationale: $36 + $30/(1 + r) = $2/(1 + r) + $4/(1 + r)2 + $72.90/(1 + r)2; r = 12.35%.22. Suppose you purchase one s
9、hare 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 time-weight
10、ed return on your investment is.X)/ XJZ A B c D E10.00%8.78%19.71%20.36%none of the aboveAnswer: D Difficulty: ModerateRationale: Year 1: ($72 + $1 - S50)/$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 a
11、t the beginning of year 1 for $50. Al 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.)z lz JZ !/ A
12、B c D E10.00%8.78%19.7120.36%none of the aboveAnswer: B Difficulty: ModerateRationale: $50 + $72 /(I +r) = $l/(I +r) + $2/(l + 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
13、18% return and stock B earns an 11% return.has the higher arithmetic average return.stock Astock Bthe two stocks have the same arithmetic average returnat least three periods are needed to calculate the arithmetic average return none of the aboveAnswer: C Difficulty: ModerateRationale: A: (2% + 18%)
14、/2 = 10%; B: (9% + ll%)/2 = 10%.25. 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?X)/ JZ .7 JZ A B c D Estock Astock
15、Bthe two stocks have the same geometric average returnat least three periods are needed to calculate the geometric average return, none of the aboveAnswer: B Difficulty: ModerateRationale: A: (1.02)( 1.18)11/2 - 1 =9.71%; B: (1,09)(1.1 l)ll/2 - 1 = 10.00%.Use the following to answer questions 26-29:
16、The following data are available relating to the performance of Sooner Stock Fund and the market portfolio:SoonerMarket PortfolioAverage Return20%11%Standard Deviation of Returns44%19%Beta1.81.0Residual standard deviation2.0%0.0%The risk-free return during the sample period was 3%.26. What is the Sh
17、arpe 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: ModerateRationale: (20% - 3%)/44% = 0.386, or 38.6%.27. What is the Treynor measure of performance evaluation for Sooner Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 9.44%E) 37.14%Ans
18、wer: D Difficulty: ModerateRationale: (20% - 3%)/l.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: ModerateRationale: aP = 20% - 3% + 1.8(11 % - 3%) = 2.6%.29. Calculate the information ratio fo
19、r Sooner Stock Fund.1.531.308.6731.4337.14X1IZ J/ !/ 17 XJZ A B c D EAnswer: B Difficulty: ModerateRationale: aP = 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 Monarch Stock Fund and the ma
20、rket portfolio:MonarchMarket PortfolioAverage Return16%12%Standard Deviation of Returns26%22%Beta1.151.00Residual Standard Deviation1%0%The risk-free return during the sample period was 4%.30.wfua)b)od)e)the inlormation ratio measure of performance evaluation for Monarch Stock1.00%280.00%44.00%50.00
21、%none of the aboveAnswer: B Difficulty: ModerateRationale: aP= 16% - 4%+1.15(12% -4%) = 2.8%; aP/o(eP) = 2.8%/l% = 2.8, or 280%.31. Calculate Sharpes measure of performance for Monarch Slock Fund.X1IZ J/ !/ 17 XJZ A B c D E1.00%46.00%44.00%50.00%none of the aboveAnswer: B Difficulty: Moderate Ration
22、ale: (16 - 4)/ 26 = .4632. Calculate Treynor s measure of performance for Monarch Stock Fund.X1IZ lz XI/ lz A B c D E10.40%8.80%44.00%50.00%none of the aboveAnswer: A Difficulty: Moderate Rationale: (16-4)/1.15= 10.433. Calculate Jensens measure of performance for Monarch Stock Fund.X)/ !/ XJZ A B c
23、 D E1.00%2.80%44.00%50.00%none of the aboveAnswer: B Difficulty: ModerateRationale: 16-4+ 1.15(12-4) = 2.80%Use the following to answer questions 34-37:The following data are available relating to the performance of Seminole Fund and the market portfolio:Seminole Market PortfolioThe risk-free return
24、 during the sample period was 6%.Average Return18%14%Standard Deviation of Returns30%22%Beta1.41.0Residual standard deviation4.0%0.0%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) B) C) D) E)-36% (bo
25、rrow)50%8%36%73%Answer: E Difficulty: Moderate Rationale: 22/30 = .733335. Calculate the M2 measure for the Seminole Fund.4.0%20.0%2.86%0.8%40.0%JZ 7 oA B c D EAnswer: D Difficulty: ModerateRationale: 22/30 = .7333; 1 - .7333 = .2667; M2 = .7333 (18) + .2667 (6) - 14 = 0.8%.36. If the Seminole Fund
26、is actively managed, fairly priced, and will be mixed with the market index portfolio, calculate the value of the measure that should be used for evaluation.4.0%20.0%2.86%0.8%40%Answer: E Difficulty: DifficultRationale: The Sharpe ratio is the correct measure to use in this case. (18-6)/30 = 40%37.
27、If the Seminole Fund is actively managed and will be mixed with the market index portfolio, but you suspect it may be mispriced, calculate the value of the measure that should be used for evaluation.4.0%20.0%2.86%0.8%40%Answer: B Difficulty: DifficultRationale: The information ratio is the correct m
28、easure to use in this case. AP= 18% - 6%+1.4*(14%-6%) = 0.8%, Information Ratio= 0.8%/4.0%=.20= 20%Use the following to answer questions 38-41:The following data are available relating to the performance of Wildcat Fund and the market portfolio:38. What is the information ratio measure1.00%8.80%44.0
29、0%50.00%none of the aboveof performance evaluation for Wildcat Fund?WildcatMarket PortfolioAverage Return18%15%Standard Deviation of Returns25%20%Beta1.251.00Residual Standard Deviation2%0%The risk-free return during the sample period was 7%.Answe亡 D Difficulty: ModerateRationale: aP= 18%- 7% +1.25(
30、15% -7%) = 1%; aP/o(eP) = l%/2% = 0.50, or50.00%.39. Calculate Sharpes measure of performance for Wildcat Fund.1.00%8.80%44.00%50.00%none of the aboveX1IZ J/ !/ 17 XJZ A B c D EAnswer: C Difficulty: Moderate Rationale: (18 - 7)/ 25 = .4440. Calculate Treynor s measure of performance for Wildcat Fund
31、.1.00%8.80%44.00%50.00%none of the aboveX1IZ lz XI/ lz A B c D EAnswer: B Difficulty: Moderate Rationale: (18-7)/1.25 = 8.841. Calculate Jensens measure of performance for Wildcat Fund.1.00%8.80%44.00%50.00%none of the aboveX)/ !/ XJZ A B c D EAnswer: A Difficulty: ModerateRationale: 18 - 7 + 1.25 (
32、15 - 7) = 1.00%Use the following to answer questions 42-45:The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio:Average Return19%12%Standard Deviation of Returns35%15%Beta1.51.0Residual standard deviation3.0%0.0%Lonq Hom Market PortfbhoThe ris
33、k-free return during the sample period was 6%.42.What is the Sharpe1.33%4.00%8.67%31.43%37.14%X1IZ J/ !/ 17 XJZ A B c D Emeasure of performance evaluation for Long Horn Slock Fund?Answer: E Difficulty: ModerateRationale: (19%-6%)/35% = 0.3714, or 37.14%.43.What is the Treynor1.33%4.00%8.67%31.43%37.
34、14%X1IZ lz XI/ lz A B c D Emeasure ot performance evaluation for Long Horn Stock Fund?Answer: C Difficulty: Moderate Rationale: (19%-6%)/1.5 = 8.67%.44. Calculate the Jensen measure of performance evaluation for Long Hom Stock Fund.X)/ !/ XJZ A B c D E1.33%4.00%8.67%31.43%37.14%Answer: B Difficulty:
35、 ModerateRationale: ap = 19% - 6% + 1.5(12% - 6%) = 4.00%.45. Calculate the information ratio for Long Horn Stock Fund.1.334.008.6731.4337.14Answer: A Difficulty: ModerateRationale: aP = 19% -16% + 1.5( 12% - 6%) = 4.00%, 4.00% / 3.00% = 1.33.Use the following to answer questions 46-48:In a particul
36、ar year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes:W-ht ReturnBonds 20%5%Stocks 80%0%The return on a bogey portfolio was 2%, calculated from the following information.Weight ReturnBonds(LehmanBrothers Index)50%5%Stocks(S&P 500 Index)50%-1%46. Th
37、e total excess return on the Razorback Funds managed portfolio was.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: B Difficulty: Moderate Rationale: 1 % - 2% = -1 %.47. The contribution of asset allocation across markets to the Razorback Funds total excess return was.)z .!/ X)/ A B c D
38、 E-1.80%-1.00%0.80%1.00% none of the aboveAnswer: A Difficulty: DifficultRationale: See tabic below.Mkt.Act. Wt.Bench, wt.Xs Wt.Mkt. Ret. - BogeyContrib.Equity0.80.50.3-3%-0.9%Bond0.20.5-0.33%-0.9%-1.80%4. Henriksson (1984) found that, on average, betas of funds during marketadvancesA) increased ver
39、y significantlyB) increased slightlyC) decreased slightlyD) decreased very significantlyE) did not changeAnswer: C Difficulty: ModerateRationale: 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,
40、 these results reflect the poor timing ability of mutual fund managers.5. Most professionally managed equity funds generally.A) outperform the S&P 500 index on both raw and risk-adjusted return measuresB) underperform the S&P 500 index on both raw and risk-adjusted return measuresoutperform the S&P
41、500 index on raw return measures and underperform the S&P 500 index on risk-adjusted return measuresC) underperform the S&P 500 index on raw return measures and outperform the S&P 500 index on risk-adjusted return measuresmatch the performance of the S&P 500 index on both raw and risk-adjusted retur
42、n measuresAnswer: B Difficulty: ModerateRationale: Most mutual 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
43、A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A.lz o lz A B c D Eis better than the performance of portfolio Bis the same as the performance of portfolio Bis poorer than the performance of portfolio Bcannot be measured as there is no data on the
44、alpha of the portfolio none of the above is true.Answer: B Difficulty: ModerateRationale: 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).a 7 J/ )z x)z XJ/ w A B c D E48. The contribution of sel
45、ection within markets to the Razorback Funds total excess return -1.80%-1.00%0.80%1.00%none of the aboveAnswer: C Difficulty: DifficultRationale: See table below.Mkt. folio Perform. Index Perform. Xs Perform. folio Wt. Contrib.Equity0%-1%1%0.80.8Bond5%5%0%0.20.0-oTUse the following to answer questio
46、ns 49-51:In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classesWeght ReturnBonds10%6%Stocks90%16%The return on a bogey portfolio was 10%, calculated as follows:Weight ReturnBonds (Lehman Brothers Index)50%5%Stocks (S&P 500 Index)50%15%49. The total excess return on the Aggie managed portfolio was1%3%4%5%none of the aboveAnswer: D Difficulty: Easy Rationale: 15%- 10% = 5%.50. The contribution of asset allocation across markets to the total excess return wasX1IZ J/ !/ 17 XJZ A B c D EX1IZ J/ !/