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Exam 24: Portfolio Performance Evaluation

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Question 21

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Suppose you purchase one share of the stock of Mayfair 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) A) and C)
F) None of the above

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Question 22

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The following data are available relating to the performance of Scooner Stock Fund and the market portfolio: $\begin{array}{lcc} & \text { Scooner } & \text { Market } \\&&\text { Portfolio }\\\text { Average return } & 19 \% & 12\% \\\text { Standard deviations of returns } & 35\% & 15\% \\\text { Beta } & 1.5 & 1.0 \\\text { Residual standard deviation } & 3.0 \% & 0.0 \%\end{array}$ The risk-free return during the sample period was 6%. Calculate the Jensen measure of performance evaluation for Scooner Stock Fund.

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

F) B) and E)
G) C) and D)

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Question 23

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The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $\begin{array}{lcc} & \text { Monarch } & \text { Market } \\ &&\text { Portfolio }\\\text { Average return } & 16 \% & 12\% \\\text { Standard deviations of returns } & 26\% & 22\% \\\text { Beta } & 1.15 & 1.00 \\\text { Residual standard deviation } &1 \% & 0 \%\end{array}$ The risk-free return during the sample period was 4%. Calculate Treynor's measure of performance for Monarch Stock Fund.

Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

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

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

The following data are available relating to the performance of Scooner Stock Fund and the market portfolio: $\begin{array}{lcc} & \text { Scooner } & \text { Market } \\&&\text { Portfolio }\\\text { Average return } & 19 \% & 12\% \\\text { Standard deviations of returns } & 35\% & 15\% \\\text { Beta } & 1.5 & 1.0 \\\text { Residual standard deviation } & 3.0 \% & 0.0 \%\end{array}$ The risk-free return during the sample period was 6%. What is the Treynor measure of performance evaluation for Scooner Stock Fund?

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

Morningstar's RAR methodI) 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.

The following data are available relating to the performance of ScoonerStock Fund and the market portfolio: $\begin{array}{lcc} & \text { Scooner } & \text { Market } \\&&\text { Portfolio }\\\text { Average return } & 19 \% & 12\% \\\text { Standard deviations of returns } & 35\% & 15\% \\\text { Beta } & 1.5 & 1.0 \\\text { Residual standard deviation } & 3.0 \% & 0.0 \%\end{array}$ The risk-free return during the sample period was 6%. Calculate the information ratio for ScoonerStock Fund.

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

The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: $\begin{array}{lcc} & \text { Sooner } & \text { Market } \\&&\text { Portfolio }\\\text { Average return } & 20 \% & 11\% \\\text { Standard deviations of returns } & 44\% & 19\% \\\text { Beta } & 1.8 & 1.0 \\\text { Residual standard deviation } & 2.0 \% & 0.0 \%\end{array}$ The risk-free return during the sample period was 3%. What is the Treynor measure of performance evaluation for Sooner Stock Fund?

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 ___________.

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $\begin{array}{lcc} & \text { Monarch } & \text { Market } \\ &&\text { Portfolio }\\\text { Average return } & 16 \% & 12\% \\\text { Standard deviations of returns } & 26\% & 22\% \\\text { Beta } & 1.15 & 1.00 \\\text { Residual standard deviation } &1 \% & 0 \%\end{array}$ The risk-free return during the sample period was 4%. What is the information ratio measure of performance evaluation for Monarch Stock Fund?

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

The Jensen portfolio evaluation measure

Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is 0%, and the average return is 16%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

The geometric average rate of return is based on

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