投资学第7版TestBank答案24.docx

投资学第7版TestBank答案24.docx

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投资学第7版TestBank答案24

MultipleChoiceQuestions

1.Tradingactivitybymutualfundsjustpriortoquarterlyreportingdatesisknownas

A）insidertrading.

B）programtrading.

C）passivesecurityselection.

D）windowdressing.

E）noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

Mutualfundsmustdiscloseportfoliocompositionquarterly,andtradingactivitythatimmediatelyprecedesthereportingdateisreferredtoas"windowdressing".Thespeculationisthatwindowdressinginvolveschangesinportfoliocomposition,whichgivestheappearanceofsuccessfulstockselection.

2.Thecomparisonuniverseis__________.

A）aconceptfoundonlyinastronomy

B）thesetofallmutualfundsintheworld

C）thesetofallmutualfundsintheU.S.

D）asetofmutualfundswithsimilarriskcharacteristicstoyourmutualfund

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

Amutualfundmanagerisevaluatedagainsttheperformanceofmanagersoffundsofsimilarriskcharacteristics.

3.__________didnotdevelopapopularmethodforrisk-adjustedperformanceevaluationofmutualfunds.

A）EugeneFama

B）MichaelJensen

C）WilliamSharpe

D）JackTreynor

E）AandB

Answer:

ADifficulty:

Easy

Rationale:

MichaelJensen,WilliamSharpe,andJackTreynordevelopedpopularmodelsformutualfundperformanceevaluation.

4.Henriksson（1984）foundthat,onaverage,betasoffunds__________duringmarketadvances

A）increasedverysignificantly

B）increasedslightly

C）decreasedslightly

D）decreasedverysignificantly

E）didnotchange

Answer:

CDifficulty:

Moderate

Rationale:

Portfoliobetasshouldhavealargevalueifthemarketisexpectedtoperformwellandasmallvalueifthemarketisnotexpectedtoperformwell;thus,theseresultsreflectthepoortimingabilityofmutualfundmanagers.

5.Mostprofessionallymanagedequityfundsgenerally__________.

A）outperformtheS&P500indexonbothrawandrisk-adjustedreturnmeasures

B）underperformtheS&P500indexonbothrawandrisk-adjustedreturnmeasures

C）outperformtheS&P500indexonrawreturnmeasuresandunderperformtheS&P500indexonrisk-adjustedreturnmeasures

D）underperformtheS&P500indexonrawreturnmeasuresandoutperformtheS&P500indexonrisk-adjustedreturnmeasures

E）matchtheperformanceoftheS&P500indexonbothrawandrisk-adjustedreturnmeasures

Answer:

BDifficulty:

Moderate

Rationale:

Mostmutualfundsdonotconsistently,overtime,outperformtheS&P500indexonthebasisofeitherraworrisk-adjustedreturnmeasures.

6.Supposetwoportfolioshavethesameaveragereturn,thesamestandarddeviationofreturns,butportfolioAhasahigherbetathanportfolioB.AccordingtotheSharpemeasure,theperformanceofportfolioA__________.

A）isbetterthantheperformanceofportfolioB

B）isthesameastheperformanceofportfolioB

C）ispoorerthantheperformanceofportfolioB

D）cannotbemeasuredasthereisnodataonthealphaoftheportfolio

E）noneoftheaboveistrue.

Answer:

BDifficulty:

Moderate

Rationale:

TheSharpeindexisameasureofaverageportfolioreturns（inexcessoftheriskfreereturn）perunitoftotalrisk（asmeasuredbystandarddeviation）.

7.ConsidertheSharpeandTreynorperformancemeasures.Whenapensionfundislargeandhasmanymanagers,the__________measureisbetterforevaluatingindividualmanagerswhilethe__________measureisbetterforevaluatingthemanagerofasmallfundwithonlyonemanagerresponsibleforallinvestments.

A）Sharpe,Sharpe

B）Sharpe,Treynor

C）Treynor,Sharpe

D）Treynor,Treynor

E）Bothmeasuresareequallygoodinbothcases.

Answer:

CDifficulty:

Moderate

Rationale:

TheTreynormeasureisthesuperiormeasureiftheportfolioisasmallportionofmanyportfolioscombinedintoalargeinvestmentfund.TheSharpemeasureissuperioriftheportfoliorepresentstheinvestor'stotalriskyinvestmentposition.

8.Supposeyoupurchase100sharesofGMstockatthebeginningofyear1,andpurchaseanother100sharesattheendofyear1.Yousellall200sharesattheendofyear2.AssumethatthepriceofGMstockis$50atthebeginningofyear1,$55attheendofyear1,and$65attheendofyear2.AssumenodividendswerepaidonGMstock.Yourdollar-weightedreturnonthestockwillbe__________;yourtime-weightedreturnonthestock.

A）higherthan

B）thesameas

C）lessthan

D）exactlyproportionalto

E）moreinformationisnecessarytoanswerthisquestion

Answer:

ADifficulty:

Moderate

Rationale:

Inthedollar-weightedreturn,thestock'sperformanceinthesecondyear,when200sharesareheld,hasagreaterinfluenceontheoveralldollar-weightedreturn.Thetime-weightedreturnignoresthenumberofsharesheld.

9.Supposetherisk-freereturnis4%.Thebetaofamanagedportfoliois1.2,thealphais1%,andtheaveragereturnis14%.BasedonJensen'smeasureofportfolioperformance,youwouldcalculatethereturnonthemarketportfolioas

A）11.5%

B）14%

C）15%

D）16%

E）noneoftheabove

Answer:

ADifficulty:

Difficult

Rationale:

1%=14%-[4%+1.2（x-4%）];x=11.5%.

10.Supposetherisk-freereturnis3%.Thebetaofamanagedportfoliois1.75,thealphais0%,andtheaveragereturnis16%.BasedonJensen'smeasureofportfolioperformance,youwouldcalculatethereturnonthemarketportfolioas

A）12.3%

B）10.4%

C）15.1%

D）16.7%

E）noneoftheabove

Answer:

BDifficulty:

Difficult

Rationale:

0%=16%-[3%+1.75（x-3%）];x=10.4%.

11.Supposetherisk-freereturnis6%.Thebetaofamanagedportfoliois1.5,thealphais3%,andtheaveragereturnis18%.BasedonJensen'smeasureofportfolioperformance,youwouldcalculatethereturnonthemarketportfolioas

A）12%

B）14%

C）15%

D）16%

E）noneoftheabove

Answer:

ADifficulty:

Difficult

Rationale:

3%=18%-[6%+1.5（x-6%）];x=12%.

12.Supposeaparticularinvestmentearnsanarithmeticreturnof10%inyear1,20%inyear2and30%inyear3.Thegeometricaveragereturnfortheyearperiodwillbe__________.

A）greaterthanthearithmeticaveragereturn

B）equaltothearithmeticaveragereturn

C）lessthanthearithmeticaveragereturn

D）equaltothemarketreturn

E）cannottellfromtheinformationgiven

Answer:

CDifficulty:

Moderate

Rationale:

Thegeometricmeanwillalwaysbelessthanthearithmeticmeanunlessthereturnsinallperiodsareequal（inwhichcasethetwomeanswillbeequal）.

13.Supposeyoubuy100sharesofAbolishingDividendCorporationatthebeginningofyear1for$80.AbolishingDividendCorporationpaysnodividends.Thestockpriceattheendofyear1is$100,theprice$120attheendofyear2,andthepriceis$150attheendofyear3.Thestockpricedeclinesto$100attheendofyear4,andyousellyour100shares.Forthefouryears,yourgeometricaveragereturnis

A）0.0%

B）1.0%

C）5.7%

D）9.2%

E）34.5%

Answer:

CDifficulty:

Difficult

Rationale:

[（1.25）（1.20）（1.25）（0.6667）]1/4-1.0=5.7%

14.Youwanttoevaluatethreemutualfundsusingtheinformationratiomeasureforperformanceevaluation.Therisk-freereturnduringthesampleperiodis6%,andtheaveragereturnonthemarketportfoliois19%.Theaveragereturns,residualstandarddeviations,andbetasforthethreefundsaregivenbelow.

Thefundwiththehighestinformationratiomeasureis__________.

A）FundA

B）FundB

C）FundC

D）FundsAandBaretiedforhighest

E）FundsAandCaretiedforhighest

Answer:

BDifficulty:

Difficult

Rationale:

Informationratio=αP/σ（eP）;A:

αP=20-6-.8（19-6）=3.6;3.6/4=0.9;B:

αP=21-6-1（19-6）=2.0;2/1.25=1.6;C:

αP=23-6-1.2（19-6）=1.4;1.4/1.20=1.16.

15.YouwanttoevaluatethreemutualfundsusingtheSharpemeasureforperformanceevaluation.Therisk-freereturnduringthesampleperiodis6%.Theaveragereturns,standarddeviationsandbetasforthethreefundsaregivenbelow,asisthedatafortheS&P500index.

ThefundwiththehighestSharpemeasureis__________.

A）FundA

B）FundB

C）FundC

D）FundsAandBaretiedforhighest

E）FundsAandCaretiedforhighest

Answer:

CDifficulty:

Moderate

Rationale:

A:

（24%-6%）/30%=0.60;B:

（12%-6%）/10%=0.60;C:

（22%-6%）/20%=0.80;S&P500:

（18%-6%）/16%=0.75.

16.YouwanttoevaluatethreemutualfundsusingtheSharpemeasureforperformanceevaluation.Therisk-freereturnduringthesampleperiodis4%.Theaveragereturns,standarddeviationsandbetasforthethreefundsaregivenbelow,asisthedatafortheS&P500index.

ThefundwiththehighestSharpemeasureis__________.

A）FundA

B）FundB

C）FundC

D）FundsAandBaretiedforhighest

E）FundsAandCaretiedforhighest

Answer:

BDifficulty:

Moderate

Rationale:

A:

（18%-4%）/38%=0.368;B:

（15%-4%）/27%=0.407;C:

（11%-4%）/24%=0.292;S&P500:

（10%-4%）/22%=0.273.

17.YouwanttoevaluatethreemutualfundsusingtheSharpemeasureforperformanceevaluation.Therisk-freereturnduringthesampleperiodis5%.Theaveragereturns,standarddeviationsandbetasforthethreefundsaregivenbelow,asisthedatafortheS&P500index.

TheinvestmentwiththehighestSharpemeasureis__________.

A）FundA

B）FundB

C）FundC

D）theindex

E）FundsAandCaretiedforhighest

Answer:

DDifficulty:

Moderate

Rationale:

A:

（23%-5%）/30%=0.60;B:

（20%-5%）/19%=0.789;C:

（19%-5%）/17%=0.824;S&P500:

（18%-5%）/15%=0.867.

18.