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Exam 24: Portfolio Performance Evaluation

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Question 31

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Risk-adjusted mutual fund performance measures have decreased in popularity because

A) in nearly efficient markets it is extremely difficult for portfolio managers to outperform the market.
B) the measures usually result in negative performance results for the portfolio managers.
C) the high rates of return earned by the mutual funds have made the measures useless.
D) A and B.
E) none of the above.

F) A) and B)
G) A) and E)

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Question 32

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Calculate the M² measure for the Seminole Fund.

A) 4.0%
B) 20.0%
C) 2.86%
D) 0.8%
E) 40.0%

F) None of the above
G) A) and E)

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Question 33

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Calculate Jensen's measure of performance for Monarch Stock Fund.

The geometric average rate of return is based on

The following data are available relating to the performance of Wildcat Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Wildeat } & \text { Market Portfolio } \\\hline \text { Average Return } & 18 \% & 15 \% \\\hline \text { Standard Deviation of Returns } & 25 \% & 20 \% \\\hline \text { Beta } & 1.25 & 1.00 \\\hline \text { Residual Standard Deviation } & 2 \% & 0 \% \\\hline\end{array}$ The risk-free return during the sample period was 7%. -Calculate Treynor's measure of performance for Wildcat Fund.

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

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. $\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\\hline \text { Fund } \mathrm { A } & 17.6 \% & 10 ^ { \circ } \% & 1.2 \\\hline \text { Fund B } & 17.5 ^ { \circ } \% & 20 ^ { \circ } \% & 1.0 \\\hline \text { Fund C } & 17.4 ^ { \circ } \% & 30 ^ { \circ } \% & 0.8 \\\hline\end{array}$ The fund with the highest Jensen measure is __________.

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

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

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

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 is the data for the S&P 500 index. $\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \\\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \\\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \\\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \\\hline\end{array}$ The fund with the highest Sharpe measure is __________.

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Sooner } & \text { Market Portfolio } \\\hline \text { Average Return } & 20 \% & 11 \% \\\hline \text { Standard Deviation of Returns } & 44 ^ { \circ } \% & 19 \% \\\hline \text { Beta } & 1.8 & 1.0 \\\hline \text { Residual standard deviation } & 2.0 \% & 0.0 \% \\\hline\end{array}$ The risk-free return during the sample period was 4%. -Calculate the information ratio for Sooner Stock Fund.

The following data are available relating to the performance of Wildcat Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Wildeat } & \text { Market Portfolio } \\\hline \text { Average Return } & 18 \% & 15 \% \\\hline \text { Standard Deviation of Returns } & 25 \% & 20 \% \\\hline \text { Beta } & 1.25 & 1.00 \\\hline \text { Residual Standard Deviation } & 2 \% & 0 \% \\\hline\end{array}$ The risk-free return during the sample period was 7%. -What is the information ratio measure of performance evaluation for Wildcat Fund?

Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: $\begin{array} { | l | l | l | } \hline & \text { Long Horn } & \text { Market Portfolio } \\\hline \text { Average Return } & 19 \% & 12 \% \\\hline \text { Standard Deviation of Returns } & 35 \% & 15 \% \\\hline \text { Beta } & 1.5 & 1.0 \\\hline \text { Residual standard deviation } & 3.0 \% & 0.0 \% \\\hline\end{array}$ 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,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

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds } & 10 \% & 6 \% \\\hline \text { Stocks } & 90 \% & 16 \% \\\hline\end{array}$ The return on a bogey portfolio was 10%, calculated as follows: $\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \\\hline \text { Stocks (S\&P 500 Index) } & 50 \% & 15 \% \\\hline\end{array}$ -The contribution of selection within markets to total excess return was

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

Define and discuss the Sharpe,Treynor,and Jensen measures of portfolio performance evaluation,and the situations in which each measure is the most appropriate measure.

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.