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Exam 24: Portfolio Performance Evaluation

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Question 41

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Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. The dollar-weighted return on your investment is

A) -1.75%.
B) 4.08%.
C) 8.53%.
D) 8.00%.
E) 12.35%.

F) A) and C)
G) All of the above

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Question 42

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The following data are available relating to the performance of Seminole Fund and the market portfolio: $\begin{array} { l c c } && { \text { Market } } \\& \text { Monarch } & \text { Portfolio } \\\text { Average return } & 18 \% & 14 \% \\\text { Standard deviations of returns } &30 \% & 22 \% \\\text { Beta } & 1.4 & 1.00 \\\text { Residual standard deviation } &4.0\%&0.0\%\\\hline\end{array}$ The risk-free return during the sample period was 6%. If you wanted to evaluate the Seminole Fund using the M² measure, what percent of the adjusted portfolio would need to be invested in T-Bills?

A) -36% (borrow)
B) 50%
C) 8%
D) 36%
E) 27%

F) A) and E)
G) A) and D)

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Question 43

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The Modigliani M² measure and the Treynor T² measure

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 Gator Fund. According to the Treynor measure, the performance of Buckeye Fund

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

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

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 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. Which stock has the higher geometric average return?

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

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

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

Most professionally managed equity funds generally

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

Suppose two portfolios have the same average return and 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

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