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Exam 20: Taxes, Inflation, and Investment Strategy

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Question 21

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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.

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

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Question 22

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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.

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

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Question 23

Multiple Choice

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

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

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

Discuss the two major components of active portfolio management,security selection and market timing.How may the investor potentially benefit from such activities?

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

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

The Treynor-Black model assumes that

Discuss the M² measure of performance by answering the following questions.Why is M² better than the Sharpe measure? What measure of risk does M² use? How do you construct a managed portfolio,P,to use in computing the M² measure? What is the formula for M²? Draw a graph that shows how M² would be measured.Be sure to label the axes and all relevant points.

Explain why mean-variance analysis is inadequate for valuing market timing.

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

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

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.

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 _________.

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 _________.

Calculate the M² measure for Goldenlake Investors.

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

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 _________.

The dollar-weighted return on a portfolio is equivalent to