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Exam 24: Portfolio Performance Evaluation

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Question 1

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In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds } & 20 \% & 5 \% \\\hline \text { Stocks } & 80 \% & 0 \% \\\hline\end{array}$ The return on a bogey portfolio was 2%, calculated from the following information. $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \\\hline \text { Stocks (S\&P 500 Index) } & 50 \% & - 1 \% \\\hline\end{array}$ -The total excess return on the Razorback Fund's managed portfolio was __________.

A) -1.80%
B) -1.00%
C) 0.80%
D) 1.00%
E) none of the above

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

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Question 2

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The dollar-weighted return on a portfolio is equivalent to

A) the time-weighted return.
B) the geometric average return.
C) the arithmetic average return.
D) the portfolio's internal rate of return.
E) none of the above.

F) All of the above
G) B) and D)

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Question 3

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The M² measure was developed by

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 time-weighted return on your investment is __________.

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

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

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

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,$120 at the end of year 2,and $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

The Sharpe,Treynor,and Jensen portfolio performance measures are derived from the CAPM,

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds } & 20 \% & 5 \% \\\hline \text { Stocks } & 80 \% & 0 \% \\\hline\end{array}$ The return on a bogey portfolio was 2%, calculated from the following information. $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \\\hline \text { Stocks (S\&P 500 Index) } & 50 \% & - 1 \% \\\hline\end{array}$ -The contribution of selection within markets to the Razorback Fund's total excess return was __________.

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Studies of style analysis have found that ________ of fund returns can be explained by asset allocation alone.

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds } & 10 \% & 6 \% \\\hline \text { Stocks } & 90 \% & 16 \% \\\hline\end{array}$ The return on a bogey portfolio was 10%, calculated as follows: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \\\hline \text { Stocks (S\&P 500 Index) } & 50 \% & 15 \% \\\hline\end{array}$ -The contribution of asset allocation across markets to the total excess return was

Discuss,in general,the performance attribution procedures.

The Modigliani M² measure and the Treynor T² measure

Suppose the risk-free return is 3%.The beta of a managed portfolio is 1.75,the alpha is 0%,and the average return is 16%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

Mutual funds show ____________ evidence of serial correlation and hedge funds show ____________ evidence of serial correlation.

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 Sharpe's measure of performance for Wildcat Fund.

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

Henriksson (1984) found that,on average,betas of funds __________ during market advances.