Question 1

The Jays Fund had a value of $88,750 on January 1, 20XX. On April 1, 20XX (first quarter) the fund had a value of $91,650 and received an inflow of $18,500. On July 1, the fund had a value of $118,150 and paid a semi-annual dividend of $6,000. Assume the dividend was not reinvested. At year-end (December 31, 20XX), the fund's value was $126,850. Calculate the money- and time-weighted returns for the fund.

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Question 2

What is performance attribution?

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Question 3

A $50 million portfolio reports a 5% monthly VaR of $3 million. Explain what this VaR indicates and identify the ramifications for monthly returns over the next five years.

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Question 4

GIPS® requirements include: uniformity in certain performance calculations and disclosures; inclusion of all actual fee-paying discretionary portfolios in composites with similar objectives; compliant history for at least 5 years, or since inception if less than 5 years.

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The GIPS® standards require uniformity in performance calculations and disclosures, inclusion of all actual fee-paying discretionary portfolios in composites, and a compliant performance history of at least 5 years or since inception if less than 5 years.

Question 5

A retired couple's assets consist of a $100,000 house, a $400,000 securities portfolio, a $15,000 car, and personal effects. Would they be more concerned with the Sharpe measure or the Treynor measure for the portfolio?

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Question 6

Value at risk (VaR) indicates the largest possible loss a manager should expect if an extreme negative event occurs.

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VaR indicates the maximum potential loss over a specific time period at a given confidence level, not necessarily the largest possible loss in extreme events.

Question 7

Consider the data for the JJ Value Fund and its benchmark the Russell Value Index. The YTM on T-bonds is 3.8%.
 $\begin{array}{|l|c|c|c|}
\hline & \text { JJ Fund } & \text { Russell Value } & \text { Difference } \
\hline \text { Mean Return } & 14.2 \% & 12.7 \% & 1.5 \% \
\hline \text { Standard Deviation } & 25.9 \% & 23.6 \% & 3.9 \% * \
\hline \text { Beta } & 1.21 & 1.14 & \text { NA } \
\hline \text { Downside Deviation (MAR }=2 \%) & 16.2 \% & 15.9 \% & \text { NA } \
\hline
\end{array}$ * * Derived as the standard deviation of active return
Find the following risk-adjusted performance measures for the JJ Fund and the Russell Index: Sharpe ratio, Treynor ratio, Sortino ratio and Information ratio.

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Question 8

What are the appropriate uses of the Sharpe and the Treynor measures?

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Question 9

Identify the three approaches to calculating value at risk (VaR) and identify one advantage and one disadvantage of each approach.

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Question 10

Sharpe's ratio measures the slope of the line between RF and the portfolio being evaluated. If the line is plotted between RF and a market index, where would superior portfolios lie? Inferior portfolios?

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Question 11

In assessing a manager's performance, his supervisor determines that his security selection contributed nothing to his outperformance i.e., all of his outperformance came from asset allocation. Does this mean the manager should not be rewarded for outperforming the benchmark?

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Question 12

Discuss how constraints on portfolio managers affect the portfolio results.

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Question 13

Time-weighted, as opposed to money-weighted, return captures the return actually earned by the fund manager.

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Time-weighted return measures the compound rate of growth in a portfolio, eliminating the impact of cash flows, thus reflecting the manager's actual investment performance.

Question 14

What is the major difference between the Sharpe and Treynor measures?

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Question 15

What are the two approaches to perform style analysis on a portfolio? Briefly explain each.

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Question 16

What are some of the problems associated with using risk-adjusted portfolio performance measures?

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Quiz 22: Evaluation of Investment Performance