CH 23 - Portfolio Monitoring and Performance Evaluation

Question 1

Six steps of monitoring system

Answer 1

1. Verify all client contact information
2. Verify all information affecting client’s financial situation
3. Determine how often to meet client
4. Stay on top of forecasts for economic and financial markets.
5. review performance of fund managers regularly.
6. Determine if goals or personal circumstances have changed

Question 2

two stages of portfolio performance evaluation

Answer 2

Performance measurement

Performance appraisal

Question 3

factors included in portfolio performance report (4)

Answer 3

• A list of the securities
• The book value and market value of each security
• Each security’s weight
• Each security’s dividend or interest rate, annualized income, and current yield

Question 4

WHAT IS DOLLAR-WEIGHTED RETURN

Answer 4

Investor’ sactual return based on amount and timing of portfolio cash flows

Question 5

TIME-WEIGHTED RETURN

Answer 5

measures only the cumulative performance of the portfolio’s investments

Question 6

characteristics of a good benchmark

Answer 6

• Investable
• Clear Composition
• Appropriate
• Specified in advance
• Objectively constructed
• Measurable

Question 7

four classes of benchmarks

Answer 7

• Composite market indexes
• Investment style benchmarks
• Normal portfolios
• Sharpe benchmarks

Question 8

Whart is a normal portfolio benchmark

Answer 8

benchmark that includes all the securities that a manager normally selects from.

Question 9

How is the Sharpe benchmark created?

Answer 9

Statistically using multiple-regression analysis

Question 10

JENSEN’S ALPHA

Answer 10

quantifies the degree to which a manager has added value relative to the market given the portfolio’s systematic risk.

Question 11

TREYNOR RATIO

Answer 11

measure of the average excess return per

unit of risk