Module 11 - Portfolio Management

Question 1

The major requirements of a portfolio manager include the following, except

a. Follow the client’s policy statement.
b. Completely diversify the portfolio to eliminate all unsystematic risk.
c. The ability to derive above-average risk adjusted returns.
d. Completely diversify the portfolio to eliminate all systematic risk.
e. None of the above (that is, all are requirements of a portfolio manager)

Answer 1

d. Completely diversify the portfolio to eliminate all systematic risk.

Question 2

Portfolio managers who anticipate an increase in interest rates should

a. Act to keep the duration constant.
b. Decrease the portfolio duration.
c. Increase the portfolio duration.
d. Assume higher risk in the market.
e. Invest in junk bonds.

Answer 2

b. Decrease the portfolio duration.

Question 3

Treynor showed that rational, risk averse investors always prefer portfolio possibility lines that have

a. Zero slopes.
b. Slightly negative slopes.
c. Highly negative slopes.
d. Slightly positive slopes.
e. Highly positive slopes.

Answer 3

e. Highly positive slopes.

Question 4

The measure of performance which divides the portfolio’s risk premium by the portfolio’s beta is the

a. Sharpe measure.
b. Jensen measure.
c. Fama measure.
d. Alternative components model (MCV).
e. Treynor measure.

Answer 4

e. Treynor measure.

Question 5

Sharpe’s performance measure divides the portfolio’s risk premium by the

a. Standard deviation of the rate of return.
b. Variance of the rate of return.
c. Slope of the fund’s characteristic line.
d. Beta.
e. Risk free rate.

Answer 5

a. Standard deviation of the rate of return.

Question 6

Which measure of portfolio performance allows analysts to determine the statistical significance of abnormal returns?

a. Sharpe measure
b. Jensen measure
c. Fama measure
d. Alternative components model (MCV)
e. Treynor measure

Answer 6

b. Jensen measure

Question 7

Selectivity measures how well a portfolio performed relative to a

a. Market portfolio (S&P 400).
b. Portfolio of the same securities in the previous period.
c. Naively selected portfolio of equal risk.
d. Naively selected portfolio of equal return.
e. World market portfolio.

Answer 7

c. Naively selected portfolio of equal risk.

Question 8

A portfolio performance measurement technique that decomposes the return of a manager’s holdings to a predetermined benchmark’s returns and separates the difference into an allocation and selection is called

a. Immunization analysis.
b. Performance attribution analysis.
c. Tactical rankings.
d. Convexity utilization.
e. Duration matching attrition.

Answer 8

b. Performance attribution analysis.

Question 9

Under the performance attribution analysis method, the ____ measures the manager’s decision to over- or underweight a particular market segment in terms of that segment’s return performance relative to the overall return to the benchmark.

a. Selection effect
b. Allocation effect
c. Distribution effect
d. Diversification effect
e. Attribution effect

Answer 9

b. Allocation effect

Question 10

Under the performance attribution analysis method, the ____ measures the manager’s ability to form specific market segment portfolios that generate superior returns relative to the way in which the comparable market segment is defined in the benchmark portfolio weighted by the manager’s actual market segment investment proportions.

a. Selection effect
b. Allocation effect
c. Distribution effect
d. Diversification effect
e. Attribution effect

Answer 10

a. Selection effect