Question 1

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

Accepted Answer

The Treynor measure takes into account the portfolio's beta, which measures its sensitivity to market movements. A lower beta indicates that the portfolio is less volatile than the overall market. Therefore, if two portfolios have the same average return and standard deviation but one has a lower beta, it means that it achieved the same return with less risk. As the Treynor measure relates the excess return of the portfolio to its beta, the portfolio with a lower beta will have a higher Treynor ratio, indicating better performance.

Question 2

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 Sharpe measure,the performance of Buckeye Fund

Accepted Answer

The Sharpe measure evaluates performance based on risk-adjusted returns using standard deviation, not beta. Since both portfolios have the same average return and standard deviation, their Sharpe ratios are the same.

Question 3

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

Accepted Answer

The Sharpe measure evaluates performance based on risk-adjusted returns using standard deviation, not beta. Since both portfolios have the same average return and standard deviation, their Sharpe ratios are the same.

Question 4

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

Accepted Answer

The Treynor measure evaluates performance based on the risk taken, specifically market risk (beta). A higher beta implies higher market risk, so with the same return, Buckeye Fund's performance is poorer.

Question 5

__________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

Accepted Answer

The answer of __________ developed a popular method for risk-adjusted...

Question 6

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

Accepted Answer

The Treynor measure calculates a portfolio's excess return per unit of systematic risk, or beta. Since Aggie Fund has a lower beta than Raider Fund but has the same average return and standard deviation of returns, it must have a higher excess return (as measured by Treynor) than Raider Fund. Therefore, Aggie Fund's performance is better than Raider Fund's performance.

Question 7

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

Accepted Answer

The Sharpe measure evaluates performance based on risk-adjusted returns using standard deviation, not beta. Since both portfolios have the same average return and standard deviation, their Sharpe ratios are the same.

Question 8

The comparison universe is not __________.

Accepted Answer

The comparison universe is not limited to astronomy or all mutual funds globally or in the U.S.; it refers to a set of mutual funds with similar risk characteristics.

Question 9

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

Accepted Answer

Eugene Fama is known for his work on efficient market hypothesis, not for developing a specific method for risk-adjusted performance evaluation of mutual funds.

Question 10

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.

Accepted Answer

Dollar-weighted return takes into account the timing and size of cash flows. Since you purchased more shares at the end of year 1 when the stock price was higher, the overall return will be higher than if you had bought the same amount of shares at the beginning of year 1. Time-weighted return only measures the performance of the investment and is not impacted by the timing or size of cash flows. Therefore, the dollar-weighted return will be higher than the time-weighted return.

Question 11

The comparison universe is __________.

Accepted Answer

The comparison universe refers to a set of mutual funds that have similar risk characteristics to a specific mutual fund. This helps investors compare the performance of their fund with similar funds in the market, which can aid in making investment decisions. Option A is incorrect as the comparison universe is not limited to astronomy, and options B and C are incorrect as they refer to all mutual funds, not just the comparable set.

Question 12

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

Accepted Answer

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

Question 13

Hedge funds
I.are appropriate as a sole investment vehicle for an investor.
II.should only be added to an already well-diversified portfolio.
III.pose performance evaluation issues due to non-linear factor exposures.
IV.have down-market betas that are typically larger than up-market betas.
V.have symmetrical betas.

Accepted Answer

Hedge funds are not appropriate as a sole investment vehicle due to their high risk and limited liquidity. They should only be added to an already well-diversified portfolio to potentially benefit from their non-linear factor exposures. However, this can pose performance evaluation issues as traditional measures such as beta may not accurately capture the fund's risks and returns. Hedge funds also typically have larger down-market betas than up-market betas, which can be a concern for investors. Therefore, options II, III, and IV are correct. Hedge fund betas are not symmetrical, so option V is incorrect.

Question 14

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

Accepted Answer

The Treynor measure is calculated by dividing the excess return of a portfolio over the risk-free rate by the portfolio's beta. Since both portfolios have the same average return and standard deviation, but portfolio A has a higher beta, it means that portfolio A has taken on more systematic risk than portfolio B. Thus, if both portfolios have the same excess return over the risk-free rate, portfolio B would have a higher Treynor measure as it has a lower beta. Therefore, the performance of portfolio A is poorer than the performance of portfolio B according to the Treynor measure.

Question 15

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

Accepted Answer

The Sharpe measure evaluates performance based on risk-adjusted returns using standard deviation, not beta. Since both portfolios have the same average return and standard deviation, their Sharpe ratios are the same.

Question 16

Morningstar's RAR method
I.is one of the most widely used performance measures.
II.indicates poor performance by placing up to 5 darts next to the fund's name.
III.computes fund returns adjusted for loads.
IV.computes fund returns adjusted for risk.
V.produces ranking results that are the same as those produced with the Sharpe measure.

Accepted Answer

The Morningstar RAR method computes fund returns adjusted for loads and risk, making statements I, III, and IV true. However, statement II is false as the method does not use darts or indicate poor performance in this manner. Statement V is also not true as the Morningstar RAR method and Sharpe measure produce different ranking results. Therefore, the best choice is B, which includes only the true statements.

Question 17

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 Treynor measure,the performance of Aggie Fund

Accepted Answer

The Treynor measure evaluates performance based on the risk taken, measured by beta. A higher beta implies higher risk, so with the same return, Aggie Fund has poorer performance.

Question 18

Most professionally managed equity funds generally __________.

Accepted Answer

According to multiple studies and research, most professionally managed equity funds tend to underperform the S&P 500 index on both raw and risk-adjusted return measures. This is due to various reasons such as high fees, turnover, and active management strategies that make it difficult to consistently beat the market.

Question 19

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

Accepted Answer

Mutual funds generally show almost no evidence of serial correlation, meaning their returns are not significantly predictable from one period to the next. Hedge funds, on the other hand, often exhibit substantial evidence of serial correlation, suggesting that their returns can be somewhat predictable based on past performance.

Question 20

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 __________.

Accepted Answer

The Treynor measure evaluates the excess return of a portfolio per unit of systematic risk, as measured by beta. A lower beta implies less systematic risk, and given that the two portfolios have the same average return and standard deviation of returns, portfolio A must have a higher risk-adjusted return, making it a better performer according to the Treynor measure.

Quiz 24: Portfolio Performance Evaluation

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

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 Sharpe measure,the performance of Buckeye Fund

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

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

__________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

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

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

The comparison universe is not __________.

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

The comparison universe is __________.

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

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

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

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 Treynor measure,the performance of Aggie Fund

Most professionally managed equity funds generally __________.

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

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 __________.