Deck 20: Taxes, Inflation, and Investment Strategy

Question 1

There appears to be a role for a theory of active portfolio management because

A) some portfolio managers have produced sequences of abnormal returns that are difficult to label as lucky outcomes.
B) the "noise" in the realized returns is enough to prevent the rejection of the hypothesis that some money managers have outperformed a passive strategy by a statistically small,yet economic,margin.
C) some anomalies in realized returns have been persistent enough to suggest that portfolio managers who identified these anomalies in a timely fashion could have outperformed a passive strategy over prolonged periods.
D) a and b.
E) a,b,and c.

Answer 1

E

Question 2

Calculate the Jensen measure of performance evaluation for The Carlyte Group.

A) 1.33%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Answer 2

B

Question 3

The comparison universe is _________.

A) a concept found only in astronomy
B) the set of all mutual funds in the world
C) the set of all mutual funds in the U.S.
D) a set of mutual funds with similar risk characteristics to your mutual fund
E) none of these

Answer 3

D

Question 4

You want to evaluate three mutual funds using the appraisal ratio measure for performance evaluation.The risk-free return during the sample period is 6%,and the average return on the market portfolio is 19%.The average returns,residual standard deviations,and betas for the three funds are given below. $$\begin{array} { l c c c } & \text { Average Return } & \text { Residual Standard Deviation } & \text { Beta } \\\hline \text { Fund A } & 20 \% & 4.00 \% & 0.8 \\\text { Fund B } & 21 \% & 1.25 \% & 1.0 \\\text { Fund C } & 23 \% & 1.20 \% & 1.2\end{array}$$
The fund with the highest appraisal ratio measure is _________.

A) Fund A
B) Fund B
C) Fund C
D) Funds A and B are tied for highest
E) Funds A and C are tied for highest

Question 5

What is the Treynor measure of performance evaluation for The Carlyte Group?

A) 1.33%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Question 6

What is the Sharpe measure of performance evaluation for The Carlyte Group?

A) 1.33%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Question 7

What is the appraisal ratio measure of performance evaluation for Beech Lake Discord Group?

A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) none of these

Question 8

Suppose the risk-free return is 6%.The beta of a managed portfolio is 1.5,the alpha is 3%,and the average return is 18%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

A) 12%
B) 14%
C) 15%
D) 16%
E) none of these

Question 9

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. $$\begin{array}{l}\begin{array} { l l l l } \text { Average Return } & \text { Standard Deviation }&\text { Beta } \\\text { Fund A } &24 \% & 30 \% & 1.5\\\text { Fund B } &12\%&10\%&0.5\\\text { Fund C } &22\%&20\%&1.0\\\text { S\&P 500 } &18\% &16\% &1.0\end{array}\end{array}$$
The fund with the highest Sharpe measure is _________.

A) Fund A
B) Fund B
C) Fund C
D) Funds A and B are tied for highest
E) Funds A and C are tied for highest

Question 10

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

A) portfolio returns may not be calculated in the same way.
B) portfolio durations can vary across managers.
C) if managers follow a particular style or subgroup,portfolios may not be comparable.
D) both b and c.
E) all of these.

Question 11

__________ did not develop a popular method for risk-adjusted performance evaluation of mutual funds.

A) Eugene Fama
B) Michael Jensen
C) William Sharpe
D) Jack Treynor
E) a and b

Question 12

Suppose you purchase 100 shares of GM stock at the beginning of year 1,and purchase another 100 shares at the end of year 1.You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1,$55 at the end of year 1,and $65 at the end of year 2.Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

A) higher than
B) the same as
C) less than
D) exactly proportional to
E) more information is necessary to answer this question

Question 13

Most professionally managed equity funds generally _________.

A) outperform the S&P 500 index on both raw and risk-adjusted return measures
B) underperform the S&P 500 index on both raw and risk-adjusted return measures
C) outperform the S&P 500 index on raw return measures and underperform the S&P 500 index on risk-adjusted return measures
D) underperform the S&P 500 index on raw return measures and outperform the S&P 500 index on risk-adjusted return measures
E) match the performance of the S&P 500 index on both raw and risk-adjusted return measures

Question 14

Calculate Sharpe's measure of performance for Beech Lake Discord Group.

A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) none of these

Question 15

Sharpe's measure

A) is an assessment of mutual fund performance.
B) is a common criterion for tracking the performance of professionally managed portfolios.
C) measures excess returns per unit of risk,as measured by beta.
D) a and b.
E) a,b,and c.

Question 16

Calculate the appraisal ratio for The Carlyte Group.

A) 1.33%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Question 17

You want to evaluate three mutual funds using the Treynor measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations,and betas for the three funds are given below,in addition to information regarding the S&P 500 index. $$\begin{array}{l}\begin{array} { l l l l } \text { Average Return } & \text { Standard Deviation }&\text { Beta } \\\text { Fund A } &13 \% & 10 \% & 0.5\\\text { Fund B } &19\%&20\%&1.0\\\text { Fund C } &25\%&30\%&1.5\\\text { S\&P 500 } &18\% &16\% &1.0\end{array}\end{array}$$
The fund with the highest Treynor measure is _________.

A) Fund A
B) Fund B
C) Fund C
D) Funds A and B are tied for highest
E) Funds A and C are tied for highest

Question 18

Consider the Sharpe and Treynor performance measures.When a pension fund is large and has many managers,the __________ measure is better for evaluating individual managers while the __________ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments.

A) Sharpe,Sharpe
B) Sharpe,Treynor
C) Treynor,Sharpe
D) Treynor,Treynor
E) Both measures are equally good in both cases.

Question 19

You want to evaluate three mutual funds using the Jensen measure for performance evaluation.The risk-free return during the sample period is 6%,and the average return on the market portfolio is 18%.The average returns,standard deviations,and betas for the three funds are given below. $$\begin{array}{l}\begin{array} { l l l l } \text { Average Return } & \text { Standard Deviation }&\text { Beta } \\\text { Fund A } &17.6 \% & 10 \% & 1.2\\\text { Fund B } &17.5\%&20\%&1.0\\\text { Fund C } &17.4\%&30\%&0.8\\\end{array}\end{array}$$
The fund with the highest Jensen measure is _________.

A) Fund A
B) Fund B
C) Fund C
D) Funds A and B are tied for highest
E) Funds A and C are tied for highest

Question 20

Trading activity by mutual funds just prior to quarterly reporting dates is known as

A) insider trading
B) program trading
C) passive security selection
D) window dressing
E) none of these

Question 21

If Goldenlake Investors 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.

A) 4.0%
B) 20.0%
C) 2.86%
D) 0.8%
E) 40%

Question 22

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

A) therefore,it does not matter which measure is used to evaluate a portfolio manager.
B) however,the Sharpe and Treynor measures used different risk measures,therefore the measures vary as to whether or not they are appropriate,depending on the investment scenario.
C) therefore,all measure the same portfolio attributes.
D) a and b.
E) none of these.

Question 23

Portfolio managers A and B each manage $1,000,000 funds.Portfolio manager A has perfect foresight and the call option value of his perfect foresight is $180,000.Portfolio manager B is an imperfect forecaster and correctly predicts 60% of all bull markets and 70% of all bear markets.The correct measure of timing ability for portfolio manager B is ______.

A) -0.30
B) 0.30
C) 0.65
D) 1.30
E) none of these

Question 24

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

A) Sharpe measure
B) Treynor measure
C) Jensen measure
D) appraisal ratio
E) none of these

Question 25

If an investor invested $1,000 in the NYSE index on January 1,1927 and reinvested all dividends in that portfolio,the investor would have approximately __________ at the end of 1978 as an investor who put $1,000 into 30-day commercial paper or 30-day T-bills and rolled the proceeds over each month over the same time period.

A) twice as much
B) 19 times as much
C) 43 times as much
D) 240 times as much
E) none of these

Question 26

If you wanted to evaluate Goldenlake Investors using the M2 measure,what percent of the adjusted portfolio would need to be invested in T-Bills?

A) -36% (borrow)
B) 50%
C) 8%
D) 36%
E) 73%

Question 27

Perfect timing ability is equivalent to having __________ on the market portfolio.

A) a call option
B) a futures contract
C) a put option
D) a commodities contract
E) none of these

Question 28

Calculate Jensen's measure of performance for Beech Lake Discord Group.

A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) none of these

Question 29

The Jensen portfolio evaluation measure

A) is a measure of return per unit of risk,as measured by standard deviation.
B) is an absolute measure of return over and above that predicted by the CAPM.
C) is a measure of return per unit of risk,as measured by beta.
D) a and b.
E) b and c.

Question 30

If a portfolio manager consistently obtains a high Sharpe measure,the manager's forecasting ability _________.

A) is above average
B) is average
C) is below average
D) does not exist.
E) cannot be determined based on the Sharpe measure

Question 31

An investor is a perfect market timer and decides at the beginning of each month to invest in cash equivalents or equities,whichever is projected to do better.If the investor started with $1,000 on January 1,1927 and reinvested all proceeds,the investor would have earned approximately __________ at the end of 1978.

A) $3,000
B) $67,000
C) $3.6 million
D) $5.36 billion.
E) none of these

Question 32

Calculate Treynor's measure of performance for Beech Lake Discord Group.

A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%
E) none of these

Question 33

If the Goldenlake Investors 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.

A) 4.0%
B) 20.0%
C) 2.86%
D) 0.8%
E) 40%

Question 34

The M² measure was developed by

A) Merton and Miller.
B) Miller and Miller.
C) Modigliani and Miller.
D) Modigliani and Modigliani.
E) the M&M Mars Company.

Question 35

A pension fund that begins with $500,000 earns 15% the first year and 10% the second year.At the beginning of the second year,the sponsor contributes another $300,000.The dollar-weighted and time-weighted rates of return,respectively,were

A) 11.7% and 12.5%
B) 12.1% and 12.5%
C) 12.5% and 11.7%
D) 12.5% and 12.1%
E) None of these is correct

Question 36

If an investor invested $1,000 in 30-day commercial paper on January 1,1927 and rolled over the proceeds into commercial paper every 30 days until December 31,1978,the investor would have earned approximately ___________ at the end of 1978.

A) $3,600
B) $67,500
C) $3,640,000
D) $5,360,000,000
E) none of these

Question 37

The M-squared measure

A) considers only the return when evaluating mutual funds.
B) considers the risk-adjusted return when evaluating mutual funds.
C) considers only the total risk when evaluating mutual funds.
D) considers only the market risk when evaluating mutual funds.
E) none of these.

Question 38

Risk-adjusted mutual fund performance measures have decreased in popularity because

A) in nearly efficient markets it is extremely difficult for portfolio managers to outperform the market.
B) the measures usually result in negative performance measures for the portfolio managers.
C) the high rates of return earned by the mutual funds in recent years have made the measures useless.
D) a and b.
E) none of these.

Question 39

If an investor is a perfect market timer,his distribution of monthly portfolio returns will _________.

A) be skewed to the left
B) be skewed to the right
C) exhibit kurtosis
D) exhibit neither skewness nor kurtosis
E) none of these

Question 40

Calculate the M² measure for Goldenlake Investors.

A) 4.0%
B) 20.0%
C) 2.86%
D) 0.8%
E) 40.0%

Question 41

Rodney holds a portfolio of risky assets that represents his entire risky investment.To evaluate the performance of Rodney's portfolio,which in which order would you complete the steps listed?
I)Compare the Sharpe measure of Rodney's portfolio to the Sharpe measure of the best portfolio.
II)State your conclusions.
III)Assume that past security performance is representative of expected performance.
IV)Determine the benchmark portfolio that Rodney would have held if he had chosen a passive strategy.

A) I,III,IV,II
B) III,IV,I,II
C) IV,III,I,II
D) III,II,I,IV
E) III,I,IV,II

Question 42

A manager who uses the mean-variance theory to construct an optimal portfolio will satisfy

A) investors with low risk-aversion coefficients.
B) investors with high risk-aversion coefficients.
C) investors with moderate risk-aversion coefficients.
D) all investors,regardless of their level of risk aversion.
E) only clients with whom she has established long-term relationships,because she knows their personal preferences.

Question 43

The beta of an active portfolio is 1.20.The standard deviation of the returns on the market index is 20%.The nonsystematic variance of the active portfolio is 1%.The standard deviation of the returns on the active portfolio is _________.

A) 3.84%
B) 5.84%
C) 19.60%
D) 24.17%
E) 26.0%

Question 44

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

A) between 50% and 70%
B) less than 10%
C) between 40 and 50%
D) between 75% and 90%
E) over 90%

Question 45

An active portfolio manager faces a tradeoff between
I)using the Sharpe measure.
II)using mean-variance analysis.
III)exploiting perceived security mispricings.
IV)holding too much of the risk-free asset.
V)letting a few stocks dominate the portfolio.

A) I and II
B) II and V
C) III and V
D) III and IV
E) II and III

Question 46

If someone flips a fair coin to predict bear versus bull markets,they will most likely predict 50% of bull markets and 50% of bear markets correctly over time.Their market timing score is

A) 1.00
B) 0.75
C) 0.50
D) 0.25
E) 0.0

Question 47

An imperfect forecaster correctly predicts 57% of all bull markets and 63% of all bear markets.If the imperfect forecaster is able to charge a fee of $75,000,the fee that a perfect forecaster should charge is _________.

A) $75,000
B) $150,000
C) $208,333
D) $625,000
E) $375,000

Question 48

The Modigliani M² measure and the Treynor T² measure

A) are identical.
B) are nearly identical and will rank portfolios the same way.
C) are nearly identical but might rank portfolios differently.
D) are somewhat different;M² can be used to rank portfolios but T² can not.
E) are somewhat different;T² can be used to rank portfolios but M² can not.

Question 49

For a perfect market timer the rate of return is

A) bounded from above by the expected return on the market.
B) bounded from above by the market risk premium.
C) bounded from below by the expected return on the market.
D) bounded from below by the risk-free rate.
E) unbounded.

Question 50

The Treynor measure and the Sharpe measure
I)both lead to the same conclusion about whether performance was superior.
II)rank portfolios in the same order.
III)may rank portfolios in a different order.
IV)use alpha differently.

A) I and II
B) I and III
C) I and IV
D) I,II,and IV
E) I,III,and IV

Question 51

If an investor has a portfolio that has constant proportions in T-bills and the market portfolio,the portfolio's characteristic line will plot as a line with ____________;if the investor can time bull markets,the characteristic line will plot as a line with __________.

A) a positive slope;a negative slope
B) a negative slope;a positive slope
C) a constant slope;a negative slope
D) a negative slope;a constant slope
E) a constant slope;a positive slope

Question 52

Most professionally managed equity funds generally _________.

A) outperform the S&P 500 index on both raw and risk-adjusted return measures
B) underperform the S&P 500 index on both raw and risk-adjusted return measures
C) outperform the S&P 500 index on raw return measures and underperform the S&P 500 index on risk-adjusted return measures
D) underperform the S&P 500 index on raw return measures and outperform the S&P 500 index on risk-adjusted return measures
E) match the performance of the S&P 500 index on both raw and risk-adjusted return measures

Question 53

Portfolio managers A and B each manage $1,000,000 funds.Portfolio manager A has perfect foresight and the call option value of his perfect foresight is $180,000.Portfolio manager B is an imperfect forecaster and correctly predicts 60% of all bull markets and 70% of all bear markets.The value of portfolio manager B's imperfect forecasting ability is _________.

A) -$45,000
B) $45,000
C) $54,000
D) $108,000
E) $126,000

Question 54

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

A) increased very significantly
B) increased slightly
C) decreased slightly
D) decreased very significantly
E) did not change

Question 55

The appropriate measure of forecasting ability is

A) the proportion of correct forecasts.
B) the proportion of bull markets correctly forecast.
C) the proportion of bear markets correctly forecast.
D) the average of the above items.
E) the proportion of bull markets correctly forecast plus the proportion of bear markets correctly forecast minus one.

Question 56

When you are examining the record of a perfect market timer it is important to realize that

A) the average rate of return is a misleading measure.
B) the average excess return is a misleading measure.
C) the standard deviation is a misleading measure.
D) the coefficient of skewness is a misleading measure.
E) he has based most of his decisions on inside information.

Question 57

Consider these two investment strategies: $$\begin{array} { l c c } & \text { Strategy 1 } ( \% ) & \text { Strategy 2 } ( \% ) \\\hline \text { Expected return } & 6 & 9 \\\text { Standard deviation } & 0 & 4 \\\text { Highest return } & 6 & 15 \\\text { Lowest return } & 6 & 6\end{array}$$
Strategy ___ is the dominant strategy because _________.

A) 1,it is riskless
B) 1,it has the highest reward/risk ratio
C) 2,its return is at least equal to Strategy 1 and sometimes greater
D) 2,it has the highest reward/risk ratio
E) both strategies are equally preferred.

Question 58

The Treynor-Black model assumes that

A) the objective of security analysis is to form an active portfolio of a limited number of mispriced securities.
B) the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock.
C) the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing,the market sensitivity of the security,and its degree of nonsystematic risk.
D) All of these are true.
E) None of these is true.

Question 59

Ideally,clients would like to invest with the portfolio manager who has

A) a moderate personal risk-aversion coefficient.
B) a low personal risk-aversion coefficient.
C) the highest Sharpe measure.
D) the highest record of realized returns.
E) the lowest record of standard deviations.

Question 60

The correct measure of timing ability is __________ for a portfolio manager who correctly forecasts 40% of bull markets and 65% of bear markets.

A) -5%
B) 5%
C) 25%
D) 105%
E) none of these

Question 61

An investor focusing on future performance estimation would most likely consider

A) the arithmetic average return.
B) the geometric average return.
C) the dollar-weighted return.
D) all three measures would be equally informative.
E) both a and b would be equally informative.

Question 62

The contribution of asset allocation across markets to the Highwater Marx Bros.'s total excess return was _________.

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

Question 63

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 _________.

A) 10.00%
B) 8.78%
C) 19.71%
D) 20.36%
E) none of these

Question 64

Historically,the average arithmetic return of Parametric Design Company has been 12%.If the returns have been normally distributed with a variance of 6%,the geometric average return on this stock has been _________.

A) 4%
B) 8%
C) 12%
D) 9%
E) none of these

Question 65

The contribution of selection within markets to the Highwater Marx Bros.'s total excess return was _________.

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

Question 66

Your return will generally be higher using the __________ if you time your transactions well and your return will generally be higher using the __________ if you time your transactions poorly.

A) dollar-weighted return method,dollar-weighted return method
B) dollar-weighted return method,time-weighted return method
C) time-weighted return method,dollar-weighted return method
D) time-weighted return method,time-weighted return method
E) cannot determine without more information

Question 67

Suppose you earned an arithmetic return on a stock of exactly10% every year for 10 years.The geometric average return on the stock will be _________.

A) greater than the arithmetic average return
B) equal to the arithmetic average return
C) less than the arithmetic average return
D) indeterminable
E) none of these

Question 68

Suppose a particular investment earns an arithmetic return of 10% in year 1,20% in year 2 and 30% in year 3.The geometric average return for the year period will be _________.

A) greater than the arithmetic average return
B) equal to the arithmetic average return
C) less than the arithmetic average return
D) equal to the market return
E) cannot tell from the information given

Question 69

Suppose you purchase 100 shares of GM stock at the beginning of year 1,and purchase another 100 shares at the end of year 1.You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1,$55 at the end of year 1,and $65 at the end of year 2.Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

A) higher than
B) the same as
C) less than
D) exactly proportional to
E) more information is necessary to answer this question

Question 70

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. ,$2 for each share),and sell the shares for $36.45 each.The dollar-weighted return on your investment is _________.

A) -1.75%
B) 4.08%
C) 8.53%
D) 8.00%
E) 12.35%

Question 71

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 dollar-weighted return on your investment is _________.

A) 10.00%
B) 8.78%
C) 19.71
D) 20.36%
E) none of these

Question 72

The Value Line Index is an equally weighted geometric average of the returns of about 1,700 firms.The value of an index based on the geometric average returns of 3 stocks where the returns on the 3 stocks during a given period were 32%,5%,and -10%,respectively,is _________.

A) 4.3%
B) 7.6%
C) 9.0%
D) 13.4%
E) 5.0%

Question 73

A pension fund that begins with $500,000 earns 15% the first year and 10% the second year.At the beginning of the second year,the sponsor contributes another $300,000.The dollar-weighted and time-weighted rates of return,respectively,were

A) 11.7% and 12.5%
B) 12.1% and 12.5%
C) 12.5% and 11.7%
D) 12.5% and 12.1%
E) none of these

Question 74

Historically,the average arithmetic return of Hypothetically Prosperous Company has been 16% while the average geometric return has been 14%.If the returns have been normally distributed,the variance of returns of this stock has been _________.

A) 1%
B) 2%
C) 4%
D) 16%
E) none of these

Question 75

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

A) 0.0%
B) 1.0%
C) 5.7%
D) 9.2%
E) 34.5%

Question 76

In measuring the comparative performance of different fund managers,the preferred method of calculating rate of return is _________.

A) internal rate of return
B) arithmetic average
C) dollar-weighted
D) time-weighted
E) none of these

Question 77

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. ,$2 for each share),and sell the shares for $36.45 each.The time-weighted return on your investment is _________.

A) -1.75%
B) 4.08%
C) 8.53%
D) 11.46%
E) 12.35%

Question 78

To determine the optimal risky portfolio in the Treynor-Black Model,macroeconomic forecasts are used for the _________ and composite forecasts are used for the _________.

A) passive index portfolio;active portfolio
B) active portfolio,passive index portfolio
C) expected return;standard deviation
D) expected return;beta coefficient
E) alpha coefficient;beta coefficient

Question 79

The difference between the arithmetic average return and the geometric average return is __________ for stocks with a high variance of returns,compared to stocks with a low variance of returns.

A) higher
B) lower
C) the same
D) can be either higher or lower
E) none of these

Question 80

The total excess return on the Highwater Marx Bros.'s managed portfolio was _________.

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