Investments Test Bank

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Chapter 18 Portfolio Performance Evaluation Answer Key Multiple Choice Questions 1. A mutual fund with a beta of 1.1 has outperformed the S&P500 over the last 20 years. We know that this mutual fund manager _______________________. A. must have had superior stock selection ability B. must have had superior asset allocation ability C. must have had superior timing ability D. may or may not have outperformed the S&P500 on a risk adjusted basis Difficulty: Easy 2. The comparison universe is __________. A. the bogey portfolio B. a set of mutual funds with similar risk characteristics to your mutual fund C. the set of all mutual funds in the U.S.A. D. the set of all mutual funds in the world Difficulty: Easy 3. Which one of the following performance measures is the Sharpe measure? A. Average excess return to beta ratio B. Average excess return to standard deviation ratio C. Alpha to standard deviation of residuals ratio D. Average return minus required return Difficulty: Easy 4. The M2 measure is a variant of ________________. A. the Sharpe measure B. the Treynor measure C. Jensen's alpha D. the appraisal ratio Difficulty: Easy 5. A managed portfolio has a standard deviation equal to 22% and a beta of 0.9 when the market portfolio's standard deviation is 26%. The adjusted portfolio P* needed to calculate the M2 measure will have ________ invested in the managed portfolio and the rest in T-bills. A. 84.6% B. 118% C. 18% D. 15.4% 26/22 = 118% Difficulty: Medium 6. Your return will generally be higher using the __________ if you time your transactions poorly and your return will generally be higher using the __________ if you time your transactions well. A. dollar-weighted return method; dollar-weighted return method B. dollar-weighted return method; time-weighted return

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