Question 1

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

Accepted Answer

Both Sharpe and Treynor Measures are based on the calculation of excess returns relative to a risk-free rate and systematic risk represented by beta. These measures are not affected by the level of diversification or the specific types of investments in the portfolio. However, both measures are more appropriate for evaluating well-diversified portfolios. Therefore, when portfolios are properly diversified, the rankings of portfolios based on these measures would be consistent.

Question 2

Draw the domestic portfolio opportunity set being sure to label each axis.Next illustrate and explain how the (domestic)capital market line is formed as part of the two-asset model of the risk-free security plus a portfolio of risky securities..Illustrate and explain how this model changes as we move from a domestic-only portfolio to an international portfolio.What to we anticipate will happen to the risk-return tradeoff?

Accepted Answer

The answer of Draw the domestic portfolio opportunity set being...

Question 3

TABLE 17.1
Use the information to answer the following question(s).
 
-Refer to Table 17.1.What is the value of the Treynor Measure for the Netherlands?

Accepted Answer

The answer of TABLE 17.1
Use the information to answer the...

Question 4

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

Accepted Answer

The answer of If an investor is able to determine...

Question 5

Meryl Janicky,a mutual fund manager,is evaluating the recent performance of the shares of Thames Boats International,a publicly traded company in Great Britain.Ms Janicky's firm has $200,000 invested in Thames Boats and she has gathered the information presented in the following table.What was the return on the security in pounds?

Accepted Answer

To calculate the return on the security in pounds, we need to use the formula: return in pounds = (ending price - beginning price + dividends) / beginning price. 
Using the information from the table, we get: 
(413 - 370 + 4) / 370 = 0.1207 or 12.07% 
Therefore, the correct answer is (C) 12.07%.

Question 6

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Accepted Answer

When the correlation between assets is -1.0, it means they move in exactly opposite directions, providing the maximum diversification benefit and reducing overall portfolio risk.

Question 7

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM)?

Accepted Answer

All of the options listed are important questions when assessing the validity of a global version of the CAPM. Therefore, none of them can be excluded as an unimportant question.

Question 8

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

Accepted Answer

While it is true that stock market correlations across countries have increased since 1986, international portfolio diversification still provides diversification benefits. This is because there are still differences in the patterns of economic growth, inflation rates, and political risks across countries that affect their stock markets differently. Therefore, investing in a portfolio of stocks from different countries can still reduce overall portfolio risk and increase returns.

Question 9

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

Accepted Answer

The largest equity market losses of the last 100 years were primarily related to war and terrorism, including the World War I, World War II, and the events of September 11, 2001. While there have been other significant market losses for other reasons, such as the 2008 financial crisis, they were not on the same scale as the losses caused by war and terrorism.

Question 10

TABLE 17.1
Use the information to answer the following question(s).
 
-Refer to Table 17.1.What is the value of the Sharpe Measure for France?

Accepted Answer

The Sharpe Measure for France is calculated by dividing the difference between the average return of the fund and the risk-free rate by the standard deviation of the fund. From Table 17.1, we can see that the average return for France is 8.5% and the risk-free rate is 3.5%, while the standard deviation is 60. Therefore, the Sharpe Measure for France is (8.5 - 3.5) / 60 = 0.1 or 0.113 rounded to three decimal places. Therefore, the correct choice is A.

Question 11

Capital markets around the world are on average less integrated today than they were 20 years ago.

Accepted Answer

Comment: Capital markets around the world are on average MORE integrated today than they were 20 years ago.

Question 12

TABLE 17.1
Use the information to answer the following question(s).
 
-Refer to Table 17.1.________ appears to have the greatest amount of risk as measured by monthly standard deviation,but ________ has the best return per unit of risk according to the Sharpe Measure.

Accepted Answer

The answer of TABLE 17.1
Use the information to answer the...

Question 13

Draw the curve representing the Optimal Domestic Efficient Frontier.Be sure to draw and label the following: The vertical axis and the horizontal axis,the risk-free security,the minimum risk portfolio,the domestic portfolio opportunity set,the optimal domestic portfolio,and the capital market line.Choose a point along the domestic portfolio opportunity set between the optimal domestic portfolio and the minimum risk domestic portfolio and explain why that point is not the optimal risky domestic portfolio for investors to hold.

Accepted Answer

The answer of Draw the curve representing the Optimal Domestic...

Question 14

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

Accepted Answer

The Sharpe Measure calculates the average return of the portfolio above that of the risk-free rate, per unit of portfolio risk (standard deviation).

Question 15

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

Accepted Answer

Correlations among economies can change due to various factors such as policy changes, technological advancements, and global events, making past correlations unreliable predictors for future correlations.

Question 16

Meryl Janicky,a mutual fund manager,is evaluating the recent performance of the shares of Thames Boats International,a publicly traded company in Great Britain.Ms Janicky's firm has $200,000 invested in Thames Boats and she has gathered the information presented in the following table.What was the return on the security in dollars?

Accepted Answer

The answer of Meryl Janicky,a mutual fund manager,is evaluating the...

Question 17

The Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the

Accepted Answer

The answer of The Treynor Measure of portfolio performance calculates...

Quiz 17: International Portfolio Theory and Diversification

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1.What is the value of the Treynor Measure for the Netherlands?

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM) ?

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1.What is the value of the Sharpe Measure for France?

Capital markets around the world are on average less integrated today than they were 20 years ago.

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1. appears to have the greatest amount of risk as measured by monthly standard deviation,but has the best return per unit of risk according to the Sharpe Measure.

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

The Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the

Quiz 17: International Portfolio Theory and Diversification

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1.What is the value of the Treynor Measure for the Netherlands?

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM) ?

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1.What is the value of the Sharpe Measure for France?

Capital markets around the world are on average less integrated today than they were 20 years ago.

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1.________ appears to have the greatest amount of risk as measured by monthly standard deviation,but ________ has the best return per unit of risk according to the Sharpe Measure.

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

The Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the

TABLE 17.1 Use the information to answer the following question(s) . -Refer to Table 17.1. appears to have the greatest amount of risk as measured by monthly standard deviation,but has the best return per unit of risk according to the Sharpe Measure.