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Exam 18: Evaluating Investment Performance

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Question 1

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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. The fund with the highest Jensen measure is

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

F) A) and D)
G) C) and D)

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Question 2

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The geometric average rate of return is based on

A) the market's volatility.
B) the concept of expected return.
C) the standard deviation of returns.
D) the CAPM.
E) the principle of compounding.

F) B) and C)
G) A) and D)

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Question 3

Multiple Choice

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

The dollar-weighted return on a portfolio is equivalent to

The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. Calculate the M2 measure for the Seminole Fund.

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 period will be

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

The following data are available relating to the performance of Wildcat Fund and the market portfolio: The risk-free return during the sample period was 7%. What is the information ratio measure of performance evaluation for Wildcat Fund?

The Jensen portfolio evaluation measure

Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. ________ has the higher arithmetic average return.

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. The investment with the highest Sharpe measure is

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: The return on a bogey portfolio was 2%, calculated from the following information. The total excess return on the Razorback Fund's managed portfolio was

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 are the data for the S&P 500 Index. The fund with the highest Sharpe measure is

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.

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 nonlinear factor exposures. IV. have down-market betas that are typically larger than up-market betas. V. have symmetrical betas.

Suppose two portfolios have the same average return and 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

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: The risk-free return during the sample period was 4%. Calculate Treynor's measure of performance for Monarch Stock Fund.

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. The fund with the highest Treynor measure is

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

You want to evaluate three mutual funds using the information 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. The fund with the highest information ratio measure is