Performance Measurement and Attribution

Question 1

Holding period return calculation

Answer 1

Ending Price - Beginning Price + Dividend during period one / Beginning Price

Question 2

Effective Annual Rates

Answer 2

percentage of change of an amount invested after factoring in compounding and assuming the investment was made over a one year period

Question 3

EAR is useful for

Answer 3

comparing investments because it provides a standard return parameter for a standard time period (one year)

Question 4

An investment earns 8% per year compounded quarterly for six months. What is the EAR?

Answer 4

8.24%

Question 5

APR often used for

Answer 5

periods less than one year and which reflects a simple interest rate applied over the whole year

Question 6

EAR reflects what

Answer 6

would be actually experienced over a period of one year by factoring in compounding

Question 7

Time weighted returns

Answer 7

managers return
Does not consider cash flows

Question 8

Dollar weighted return

Answer 8

Investors return
Considers cash flows
IRR

Question 9

Arithmetic returns

Answer 9

ignores compounding

Always equal or greater in value than geometric returns

Question 10

Sharpe ratio formula

Answer 10

average annual return - average risk free return / standard deviation of the portfolio

Question 11

M squared ratio

Answer 11

risk adjusted performance that adjusts for total risk using standard deviation

Question 12

Omega description

Answer 12

a measure of the change in an options value based on the change in the underlying price of the asset

Question 13

Tracking error is sometimes referred to as

Answer 13

Active risk
Active return
Extra return
annualized standard deviations of returns
residual standard deviation

Question 14

Tracking error is also used in

Answer 14

Information ratio

Question 15

Calculation of Tracking error

Answer 15

Portfolio return - benchmark return

Question 16

Consider the following:

Portfolio A: 3.6, 7.5, 6.3, 4.5, 5.4

Portfolio B: 3.8, 7.0,6.9, 4.2, 5.0

Index: 4.6, 6.9, 7.4, 4.6, 5.2

Which portolio has the least tracking error to the index?

Answer 16

B

Question 17

Information ratio

Answer 17

equals the average excess portfolio return above a benchmark, divided by the risk measured by SDEV

managers ability to select securities relative to a benchmark

captures the size of excess return and the ability to do so consistently

excess return/sdev

Portfolio return - benchmark return/tracking error

Question 18

(Information Ratio) The contribution of the active portfolio depends on

Answer 18

the ratio of its alpha to its residual standard deviation

Question 19

Information ratio meaures

Answer 19

the extra return we can obtain from security analysis

Question 20

Active asset allocation considers

Answer 20

market timing or tactical allocations

Question 21

Active asset selection considers

Answer 21

security selection or stock picking

Question 22

Tracking error computed as

Answer 22

the standard deviation of the difference between to variables

Question 23

Upside Capture Ratio are calculated by

Answer 23

Take the investment monthly report during months when the benchmark had a positive return and divide it by the benchmark return during that same month.

Question 24

Survivorship bias mean

Answer 24

worse performing funds are removed from the database and the entire group aggregate return is higher as a result