FIN 320 Week 9 Quiz

FIN 320 Week 9 Quiz – StrayerClick on the Link Below to Purchase A+ Graded Course Material http://budapp.net/FIN-320-Week-9-Quiz-Strayer-398.htm Quiz 7 Chapter 17 and 18 Chapter 17: ___________________________________________________________________________ 1. Today's futures markets are dominated by trading in _______ contracts. A. B. C. D. 2. agriculture financial commodity A person with a long position in a commodity futures contract wants the price of the commodity to ______. A. decrease substantially B. increase substantially C. remain unchanged D. 3. metals increase or decrease substantially If an asset price declines, the investor with a _______ is exposed to the largest potential loss. A. long call option B. long put option C. long futures contract D. short futures contract 4. The clearing corporation has a net position equal to ______. A. the open interest B. the open interest times 2 C. the open interest divided by 2 D. 5. The S&P 500 Index futures contract is an example of a(n) ______ delivery contract. The pork bellies contract is an example of a(n) ______ delivery contract. A. 6. cash; cash B. cash; actual C. actual; cash D. actual; actual Which one of the following contracts requires no cash to change hands when initiated? A. 7. zero Listed put option B. Short futures contract C. Forward contract D. Listed call option Synthetic stock positions are commonly used by ______ because of their ______. A. market timers; lower transaction cost B. banks; lower risk C. wealthy investors; tax treatment D. money market funds; limited exposure 8. 9. _____________ are likely to close their positions before the expiration date, while ____________ are likely to make or take delivery. A. Investors; regulators B. Hedgers; speculators C. Speculators; hedgers D. Regulators; investors Futures contracts have many advantages over forward contracts except that _________. A. futures positions are easier to trade B. futures contracts are tailored to the specific needs of the investor C. D. futures trading preserves the anonymity of the participants counterparty credit risk is not a concern on futures 10. An investor who is hedging a corporate bond portfolio using a T-bond futures contract is said to have _______. A. an arbitrage B. a cross-hedge C. an over hedge D. a spread hedge 11. The open interest on silver futures at a particular time is the number of __________. A. all outstanding silver futures contracts B. long and short silver futures positions counted separately on a particular trading day C. silver futures contracts traded during the day D. silver futures contracts traded the previous day 12. An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset. A. pay; pay B. pay; receive C. receive; pay D. receive; receive 13. An investor who goes long in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset. A. pay; pay B. pay; receive C. receive; pay D. receive; receive 14. The advantage that standardization of futures contracts brings is that _____ is improved because ____________________. A. liquidity; all traders must trade a small set of identical contracts B. credit risk; all traders understand the risk of the contracts C. pricing; convergence is more likely to take place with fewer contracts D. trading cost; trading volume is reduced 15. The fact that the exchange is the counterparty to every futures contract issued is important because it eliminates _________ risk. A. market B. C. D. credit interest rate basis 16. In the futures market the short position's loss is ___________ the long position's gain. A. B. C. D. greater than less than equal to sometimes less than and sometimes greater than 17. A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices. A. sell wheat futures B. buy wheat futures C. buy a contract for delivery of wheat now and sell a contract for delivery of wheat at harvest time D. sell wheat futures if the basis is currently positive and buy wheat futures if the basis is currently negative 18. Which of the following provides the profit to a long position at contract maturity? A. Original futures price - Spot price at maturity B. Spot price at maturity - Original futures price C. Zero D. Basis 19. You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called a __________. A. cross-hedge B. reversing trade C. spread position D. straddle 20. Interest rate futures contracts exist for all of the following except __________. A. federal funds B. Eurodollars C. banker's acceptances D. repurchase agreements 21. Initial margin is usually set in the region of ________ of the total value of a futures contract. A. 5%-15% B. 10%-20% C. 15%-25% D. 20%-30% 22. Margin must be posted by ________. A. buyers of futures contracts only B. sellers of futures contracts only C. D. both buyers and sellers of futures contracts speculators only 23. The daily settlement of obligations on futures positions is called _____________. A. a margin call B. marking to market C. a variation margin check D. the initial margin requirement 24. Which of the following provides the profit to a short position at contract maturity? A. Original futures price - Spot price at maturity B. Spot price at maturity - Original futures price C. Zero D. Basis 25. Margin requirements for futures contracts can be met by ______________. A. B. C. cash only cash or highly marketable securities such as Treasury bills cash or any marketable securities D. cash or warehouse receipts for an equivalent quantity of the underlying commodity 26. An established value below which a trader's margin may not fall is called the ________. A. B. daily limit daily margin C. maintenance margin D. convergence limit 27. Which one of the following is a true statement? A. B. A margin deposit can be met only by cash. All futures contracts require the same margin deposit. C. The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract. D. The maintenance margin is the value of the margin account below which the holder of a futures contract receives a margin call. 28. At maturity of a futures contract, the spot price and futures price must be approximately the same because of __________. A. marking to market B. the convergence property C. the open interest D. the triple witching hour 29. A futures contract __________. A. is a contract to be signed in the future by the buyer and the seller of a commodity B. is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract C. is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract D. gives the buyer the right, but not the obligation, to buy an asset some time in the future 30. Which one of the following exploits differences between actual future prices and their theoretically correct parity values? A. Index arbitrage B. Marking to market C. Reversing trades D. Settlement transactions 31. Which one of the following refers to the daily settlement of obligations on future positions? A. Marking to market B. The convergence property C. The open interest D. The triple witching hour 32. The most actively traded interest rate futures contract is for ___________. A. LIBOR B. Treasury bills C. Eurodollars D. Treasury bonds 33. The CME weather futures contract is an example of ______________. A. a cash-settled contract B. an agricultural contract C. a financial future D. a commodity future 34. Single stock futures, as opposed to stock index futures, are _______________. A. B. not yet being offered by any exchanges offered overseas but not in the United States C. currently trading on One Chicago, a joint venture of several exchanges D. scheduled to begin trading in 2015 on several exchanges 35. You are currently long in a futures contract. You instruct a broker to enter the short side of a futures contract to close your position. This is called __________. A. a cross-hedge B. a reversing trade C. a speculation D. marking to market 36. A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This is an example of __________ to limit its risk. A. cross-hedging B. long hedging C. spreading D. speculating 37. Futures markets are regulated by the __________. A. CFA Institute B. CFTC C. CIA D. SEC 38. A hog farmer decides to sell hog futures. This is an example of __________ to limit risk. A. cross-hedging B. short hedging C. spreading D. speculating 39. On May 21, 2012, you could have purchased a futures contract from Intrade for a price of $5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells you _____. A. that the market believed that Obama had a 57% chance of winning B. that the market believed that Obama would not win the election C. nothing about the market's belief concerning the odds of Obama winning D. that the market believed Obama's chances of winning were about 43% 40. An investor would want to __________ to exploit an expected fall in interest rates. A. sell S&P 500 Index futures B. sell Treasury-bond futures C. buy Treasury-bond futures D. buy wheat futures 41. Forward contracts _________ traded on an organized exchange, and futures contracts __________ traded on an organized exchange. A. are; are B. are; are not C. are not; are D. are not; are not 42. If the S&P 500 Index futures contract is overpriced relative to the spot S&P 500 Index, you should __________. A. buy all the stocks in the S&P 500 and write put options on the S&P 500 Index B. sell all the stocks in the S&P 500 and buy call options on S&P 500 Index C. sell S&P 500 Index futures and buy all the stocks in the S&P 500 D. sell short all the stocks in the S&P 500 and buy S&P 500 Index futures 43. A long hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market. A. long; long B. long; short C. short; long D. short; short 44. Investors who take short positions in futures contract agree to ___________ delivery of the commodity on the delivery date, and those who take long positions agree to __________ delivery of the commodity. A. make; make B. make; take C. take; make D. take; take 45. An investor would want to __________ to hedge a long position in Treasury bonds. A. B. buy interest rate futures buy Treasury bonds in the spot market C. sell interest rate futures D. sell S&P 500 futures 46. Futures contracts are said to exhibit the property of convergence because _______________. A. the profits from long positions and short positions must ultimately be equal B. the profits from long positions and short positions must ultimately net to zero C. price discrepancies would open arbitrage opportunities for investors who spot them D. the futures price and spot price of any asset must ultimately net to zero 47. In the context of a futures contract, the basis is defined as ______________. A. the futures price minus the spot price B. the spot price minus the futures price C. the futures price minus the initial margin D. the profit on the futures contract 48. The __________ is among the world's largest derivatives exchanges and operates a fully electronic trading and clearing platform. A. CBOE B. CBOT C. CME D. Eurex 49. Violation of the spot-futures parity relationship results in _______________. A. B. C. D. fines and other penalties imposed by the SEC arbitrage opportunities for investors who spot them suspension of delivery privileges suspension of trading 50. When dividend-paying assets are involved, the spot-futures parity relationship can be stated as _________________. A. F1 = S0(1 + rf) B. F0 = S0(1 + rf - d)T C. F0 = S0(1 + rf + d)T D. F0 = S0(1 + rf)T 51. An investor establishes a long position in a futures contract now (time 0) and holds the position until maturity (time T). The sum of all daily settlements will be __________. A. F0 - FT B. F0 - S0 C. D. FT - F0 FT - S0 52. A short hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market. A. long; long B. long; short C. short; long D. short; short 53. Approximately __________ of futures contracts result in actual delivery. A. 0% B. less than 1% to 3% C. less than 5% to 15% D. less than 60% to 80% 54. A long hedger will __________ from an increase in the basis; a short hedger will __________. A. be hurt; be hurt B. be hurt; profit C. profit; be hurt D. profit; profit 55. At year-end, taxes on a futures position _______________. A. must be paid if the position has been closed out B. must be paid if the position has not been closed out C. must be paid regardless of whether the position has been closed out or not D. need not be paid if the position supports a hedge 56. A speculator will often prefer to buy a futures contract rather than the underlying asset because: I. Gains in futures contracts can be larger due to leverage. II. Transaction costs in futures are typically lower than those in spot markets. III. Futures markets are often more liquid than the markets of the underlying commodities. A. I and II only B. II and III only C. I and III only D. I, II, and III 57. On January 1, you sold one April S&P 500 Index futures contract at a futures price of 1,300. If the April futures price is 1,250 on February 1, your profit would be __________ if you close your position. (The contract multiplier is 250.) A. B. C. D. -$12,500 -$15,000 $15,000 $12,500 58. The current level of the S&P 500 is 1,250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6%. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________. A. 1,274.33 B. 1,286.95 C. 1,268.61 D. 1,291.29 59. The spot price for gold is $1,550 per ounce. The dividend yield on the S&P 500 is 2.5%. The risk-free interest rate is 3.5%. The futures price for gold for a 6-month contract on gold should be __________. A. $1,504.99 B. $1,569.08 C. $1,554.04 D. $1,557.73 60. If you expect a stock market downturn, one potential defensive strategy would be to __________. A. buy stock-index futures B. sell stock-index futures C. buy stock-index options D. sell foreign exchange futures 61. At contract maturity the basis should equal ___________. A. 1 B. C. 0 the risk-free interest rate D. -1 62. You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this, you should ______________. A. buy the September contract and sell the June contract B. sell the September contract and buy the June contract C. sell the September contract and sell the June contract D. buy the September contract and buy the June contract 63. A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. The arbitrage profit implied by these prices is _____________. A. $3.27 B. $4.39 C. $5.24 D. $6.72 64. A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. Based on the above data, which of the following set of transactions will yield positive riskless arbitrage profits? A. Buy gold in the spot with borrowed money, and sell the futures contract. B. Buy the futures contract, and sell the gold spot and invest the money earned. C. Buy gold spot with borrowed money, and buy the futures contract. D. Buy the futures contract, and buy the gold spot using borrowed money. 65. A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 1 year. If the T-bill rate is 5%, what should the futures price be? A. $95.24 B. $100 C. $105 D. $107 66. A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 4 years. If the T-bill rate is 7%, what should the futures price be? A. B. $76.29 $93.46 C. D. $107 $131.08 67. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. After Monday's close the balance on your margin account will be ________. A. B. C. D. $2,700 $2,000 $3,137.50 $2,262.50 68. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. At the close of day on Tuesday your cumulative rate of return on your investment is _____. A. 16.2% B. -5.8% C. -.16% D. -2.2% 69. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. On which of the given days do you get a margin call? A. B. C. D. Monday Tuesday Wednesday None of these options 70. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. The cumulative rate of return on your investment after Wednesday is a ____. A. 79.9% loss B. 2.6% loss C. 33% gain D. 53.9% loss 71. The volume of interest rate swaps increased from almost zero in 1980 to over __________ today. A. $40 million B. $400 million C. $400 billion D. $400 trillion 72. If the risk-free rate is greater than the dividend yield, then we know that _______________. A. the futures price will be higher as contract maturity increases B. F0 < S0 C. FT > ST D. arbitrage profits are possible 73. Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%. Sahali Trading Company then enters into an interest rate swap where it will pay LIBOR and receive a fixed 8% on a notional principal of $100 million. After all these transactions are considered, Sahali's cost of funds is __________. A. B. C. D. 17% LIBOR LIBOR + 1% LIBOR - 1% 74. Interest rate swaps involve the exchange of ________________. A. actual fixed-rate bonds for actual floating-rate bonds B. actual floating-rate bonds for actual fixed-rate bonds C. net interest payments and an actual principal swap D. net interest payments based on notional principal, but no exchange of principal 75. From the perspective of determining profit and loss, the long futures position most closely resembles a levered investment in a ____________. A. B. long call short call C. short stock position D. long stock position 76. The _________ contract dominates trading in stock-index futures. A. S&P 500 B. DJIA C. Nasdaq 100 D. Russell 2000 77. The ________ and the _______ have the lowest correlations with the large-cap indexes. A. Nasdaq Composite; Russell 2000 B. NYSE; DJIA C. S&P 500; DJIA D. Russell 2000; S&P 500 78. The use of leverage is practiced in the futures markets due to the existence of _________. A. B. C. D. banks brokers clearinghouses margin 79. You purchase an interest rate futures contract that has an initial margin requirement of 15% and a futures price of $115,098. The contract has a $100,000 underlying par value bond. If the futures price falls to $108,000, you will experience a ______ loss on your money invested. A. 31% B. 41% C. 52% D. 64% 80. You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates are expected to increase by 5 basis points, or .05%. What is the price value of a basis point? A. $10,400 B. $14,300 C. $16,500 D. $21,300 81. The price of a corn futures contract is $2.65 per bushel when the contract is issued, and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior? A. B. Convergence Margin C. D. Basis Volatility 82. A corporation will be issuing bonds in 6 months, and the treasurer is concerned about unfavorable interest rate moves in the interim. The best way for her to hedge the risk is to _________________. A. buy T-bond futures B. sell T-bond futures C. buy stock-index futures D. sell stock-index futures 83. A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. What are the farmer's proceeds from the sale of corn? A. $27,500 B. $31,875 C. $33,875 D. $35,950 84. A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging sales with the futures contracts? A. B. C. D. $0 $2,000 $31,875 $33,875 85. A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________. A. sell T-bond futures B. buy T-bond futures C. buy stock-index futures D. sell stock-index futures 86. A market timer now believes that the economy will soften over the rest of the year as the housing market slump continues, and she also believes that foreign investors will stop buying U.S. fixed-income securities in the large quantities that they have in the past. One way the timer could take advantage of this forecast is to ________________. A. buy T-bond futures and sell stock-index futures B. sell T-bond futures and buy stock-index futures C. buy stock-index futures and buy T-bond futures D. sell stock-index futures and sell T-bond futures 87. The Student Loan Marketing Association (SLMA) has short-term student loans funded by long-term debt. To hedge out this interest rate risk, SLMA could: I. Engage in a swap to pay fixed and receive variable interest payments II. Engage in a swap to pay variable and receive fixed interest payments III. Buy T-bond futures IV. Sell T-bond futures A. I and II only B. I and IV only C. II and III only D. II and IV only Chapter 18: _____________________________________________________________________ ______ 1. A mutual fund with a beta of 1.1 has outperformed the S&P 500 over the last 20 years. We know that this mutual fund manager _____. A. must have had superior stock selection ability. B. must have had superior asset allocation ability. C. must have had superior timing ability. D. may or may not have outperformed the S&P 500 on a risk-adjusted basis. 2. The comparison universe is __________. A. the bogey portfolio B. a set of mutual funds with similar risk characteristics to your mutual fund C. D. the set of all mutual funds in the United States the set of all mutual funds in the world 3. Which one of the following performance measures is the Sharpe ratio? A. Average excess return to beta ratio B. Average excess return to standard deviation ratio C. D. Alpha to standard deviation of residuals ratio Average return minus required return 4. The M2 measure is a variant of ________________. A. the Sharpe measure B. the Treynor measure C. Jensen's alpha D. the appraisal ratio 5. A managed portfolio has a standard deviation equal to 22% and a beta of .9 when the market portfolio's standard deviation is 26%. The adjusted portfolio P* needed to calculate the M2 measure will have ________ invested in the managed portfolio and the rest in T-bills. A. 84.6% B. 118% C. D. 18% 15.4% 6. Your return will generally be higher using the __________ if you time your transactions poorly, and your return will generally be higher using the __________ if you time your transactions well. A. dollar-weighted return method; dollar-weighted return method B. dollar-weighted return method; time-weighted return method C. time-weighted return method; dollar-weighted return method D. time-weighted return method; time-weighted return method 7. Consider the Sharpe and Treynor performance measures. When a pension fund is large and well diversified in total and it has many managers, the __________ measure is better for evaluating individual managers while the __________ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments, which may not be fully diversified. A. Sharpe; Sharpe B. Sharpe; Treynor C. Treynor; Sharpe D. Treynor; Treynor 8. Consider the theory of active portfolio management. Stocks A and B have the same beta and the same positive alpha. Stock A has higher nonsystematic risk than stock B. You should want __________ in your active portfolio. A. equal proportions of stocks A and B B. more of stock A than stock B C. more of stock B than stock A D. The answer cannot be determined from the information given. 9. Suppose that over the same time period two portfolios have the same average return and the same standard deviation of return, but portfolio A has a higher beta than portfolio B. According to the Sharpe ratio, the performance of portfolio A __________. A. is better than the performance of portfolio B B. is the same as the performance of portfolio B C. is poorer than the performance of portfolio B D. cannot be measured since there is no data on the alpha of the portfolio 10. Which model is preferred by academics, and is gaining in popularity with practitioners, when evaluating investment performance? A. The Treynor-Black model B. The single-index model C. D. The Fama-French three-factor model The Sharpe model 11. The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. What is the Treynor measure for portfolio A? A. B. C. D. 12.38% 2.38% .91% 3.64% 12. The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. What is the M2 measure for portfolio B? A. .43% B. 1.25% C. 1.77% D. 1.43% 13. The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. If these portfolios are subcomponents that make up part of a well-diversified portfolio, then portfolio ______ is preferred. A. A B. B C. D. C S&P 500 14. The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. Based on the M2 measure, portfolio C has a superior return of _____ as compared to the S&P 500. A. -1.33% B. 1.43% C. 2% D. 0% 15. Which one of the following is largely based on forecasts of macroeconomic factors? A. Security selection B. Passive investing C. Market efficiency D. Market timing 16. Based on the example used in the book, a perfect market timer would have made _______ by 2008 on a $1 investment made in 1926. A. B. $100 $1,626 C. $1.5 million D. $36.7 billion 17. The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Sharpe ratio for performance evaluation. The fund with the highest Sharpe ratio of performance is __________. A. fund A B. fund B C. fund C D. The answer cannot be determined from the information given. 18. The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Treynor measure for performance evaluation. The fund with the highest Treynor measure of performance is __________. A. fund A B. fund B C. fund C D. The answer cannot be determined from the information given. 19. The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Jensen measure for performance evaluation. The fund with the highest Jensen measure of performance is __________. A. fund A B. fund B C. fund C D. S&P 500 20. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The total excess return on the managed portfolio was __________. A. 2% B. 3% C. 4% D. 5% 21. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of asset allocation across markets to the total excess return was __________. A. 1.5% B. C. D. 2% 2.5% 3.5% 22. In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of security selection within asset classes to the total excess return was __________. A. 1.5% B. C. D. 2% 2.5% 3.5% 23. In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The total extra return on the managed portfolio was __________. A. 1% B. 2% C. 3% D. 4% 24. In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of asset allocation across markets to the total extra return was __________. A. -1% B. 0% C. 1% D. 2% 25. In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of security selection within asset classes to the total extra return was __________. A. -1% B. 0% C. 1% D. 2% 26. Which one of the following averaging methods is the preferred method of constructing returns series for use in evaluating portfolio performance? A. Geometric average B. Arithmetic average C. Dollar weighted D. Internal 27. The __________ calculates the reward to risk trade-off by dividing the average portfolio excess return by the portfolio beta. A. Sharpe ratio B. Treynor measure C. Jensen measure D. appraisal ratio 28. 28. In creating the P* portfolio, one mixes the original portfolio P and T-bills to match the _________ of the market. A. alpha B. beta C. excess return D. standard deviation 29. The M2 measure of portfolio performance was developed by ______________. A. Modigliani and Miller B. Modigliani and Modigliani C. Merton and Miller D. Fama and French 30. Probably the biggest problem with evaluating the portfolio performance of actively managed funds is the assumption that __________________________. A. B. C. the markets are efficient portfolio risk is constant over time diversification pays off D. security selection is more valuable than asset allocation 31. Perfect-timing ability is equivalent to having __________ on the market portfolio. A. a call option B. a futures contract C. D. a put option a forward contract 32. One hundred fund managers enter a contest to see how many times in 13 years they can earn a higher return than their competitors. The probability distribution of the number of successful years out of 13 for the best-performing money managers is Out of this sample, chance alone would indicate that there is a ______ probability that someone would beat the market at least 11 times out of 13 years. A. 51.3% B. 65.9% C. 67.1% D. 10.83% 33. The Treynor-Black model is a model that shows how an investment manager can use security analysis and statistics to construct __________. A. a market portfolio B. a passive portfolio C. an active portfolio D. an index portfolio 34. If an investor is a successful market timer, his distribution of monthly portfolio returns will __________. A. be skewed to the left B. be skewed to the right C. exhibit kurtosis D. exhibit neither skewness nor kurtosis 35. Recent analysis indicates that the style of investing is a critical component of fund performance. In fact, on average about _____ of fund performance is attributable to the asset allocation decision. A. 68% B. 74% C. 88% D. 97% 36. In the Treynor-Black model, the active portfolio will contain stocks with __________. A. alphas equal to zero B. negative alphas C. positive alphas D. some negative and some positive alphas 37. Portfolio performance is often decomposed into various subcomponents, such as the return due to: I. Broad asset allocation across security classes II. Sector weightings within equity markets III. Security selection with a given sector The one decision that contributes most to the fund performance is _____. A. I B. II C. D. III All contribute equally to fund performance. 38. The theory of efficient frontiers has __________. A. no adherents among practitioners B. a small number of adherents among practitioners C. a significant number of adherents among practitioners D. complete support by practitioners 39. In the Treynor-Black model, security analysts __________. A. analyze a relatively small number of stocks B. analyze all stocks that are publicly traded C. are redundant D. devote their attention to market timing rather than fundamental analysis 40. In the Treynor-Black model, security analysts __________. A. analyze the entire universe of stocks B. assume that markets are inefficient C. treat market index as a baseline portfolio from which an active portfolio is constructed D. focus on selecting the best-performing bogey 41. Active portfolio management consists of: I. Market timing II. Security selection III. Sector selection within given markets IV. Indexing A. I and II only B. II and III only C. I, II, and III only D. I, II, III, and IV 42. A market-timing strategy is one in which asset allocation in the stock market __________ when one forecasts that the stock market will outperform Treasury bills. A. decreases B. increases C. remains the same D. may increase or decrease 43. In the Treynor-Black model, the contribution of individual security to the active portfolio should be based primarily on the stock's _________. A. alpha B. beta C. residual variance D. information ratio 44. If all ______ are ______ in the Treynor-Black model, there would be no reason to depart from the passive portfolio. A. alphas; zero B. alphas; positive C. betas; positive D. standard deviations; positive 45. In the Treynor-Black model, the weight of each analyzed security in the portfolio should be proportional to its __________. A. alpha/beta B. alpha/residual variance C. beta/residual variance D. none of these options 46. The critical variable in the determination of the success of the active portfolio is the stock's __________. A. alpha/nonsystematic risk ratio B. alpha/systematic risk ratio C. delta/nonsystematic risk ratio D. delta/systematic risk ratio 47. Consider the theory of active portfolio management. Stocks A and B have the same positive alpha and the same nonsystematic risk. Stock A has a higher beta than stock B. You should want __________ in your active portfolio. A. equal proportions of stocks A and B B. more of stock A than stock B C. more of stock B than stock A D. The answer cannot be determined from the information given. 48. Consider the theory of active portfolio management. Stocks A and B have the same beta and nonsystematic risk. Stock A has a higher positive alpha than stock B. You should want __________ in your active portfolio. A. equal proportions of stocks A and B B. more of stock A than stock B C. more of stock B than stock A D. The answer cannot be determined from the information given. 49. The market-timing form of active portfolio management relies on __________ forecasting, and the security selection form of active portfolio management relies on __________ forecasting. A. macroeconomic; macroeconomic B. macroeconomic; microeconomic C. microeconomic; macroeconomic D. microeconomic; microeconomic 50. Active portfolio managers try to construct a risky portfolio with _______. A. a higher Sharpe ratio than a passive strategy B. a lower Sharpe ratio than a passive strategy C. the same Sharpe ratio as a passive strategy D. very few securities 51. In performance measurement, the bogey portfolio is designed to _________. A. measure the returns to a completely passive strategy B. measure the returns to a similar active strategy C. measure the returns to a given investment style D. equal the return on the S&P 500 52. __________ portfolio managers experience streaks of abnormal returns that are hard to label as lucky outcomes, and _________ anomalies in realized returns have been sufficiently persistent that portfolio managers could use them to beat a passive strategy over prolonged periods. A. No; no B. No; some C. Some; no D. Some; some 53. A passive benchmark portfolio is: I. A portfolio in which the asset allocation across broad asset classes is neutral and not determined by forecasts of performance of the different asset classes II. One in which an indexed portfolio is held within each asset class III. Often called the bogey A. I only B. I and III only C. II and III only D. I, II, and III 54. The correct measure of timing ability is ____________ for a portfolio manager who correctly forecasts 55% of bull markets and 55% of bear markets. A. -5% B. C. D. 5% 10% 95% 55. It is very hard to statistically verify abnormal fund performance because of all of the following except which one? A. Inevitably, some fund managers experience streaks of good performance that may just be due to luck. B. The noise in realized rates of return is so large as to make it hard to identify abnormal performance in competitive markets. C. Portfolio composition is rarely stable long enough to identify abnormal performance. D. Even if successful, there is really not much value to be added by active strategies such as market timing. 56. The term alpha transport refers to _____. A. establishing alpha and then using index products to hedge market exposure and reduce exposure to particular sectors. B. establishing alpha and then using sector mutual funds to hedge market exposure and reduce exposure to the general market. C. establishing alpha and then using sector mutual funds to hedge market exposure and gain exposure to the general market. D. establishing alpha and then using index products to hedge market exposure and gain exposure to particular sectors. 57. Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The correct measure of timing ability for Krueger is __________. A. 20% B. 60% C. 75% D. 120% 58. Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The value of Krueger's imperfect forecasting ability is __________. A. $30,000 B. $67,500 C. $108,750 D. $217,500 59. Douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68% of all bear markets. Simmonds is a perfect forecaster. If Douglass is able to charge a fee of $125,000, the fee that Roy Simmonds should charge is __________. Assume that both forecasters manage similar-size funds. A. $31,250 B. $200,000 C. $500,000 D. $625,000 60. A mutual fund invests in large-capitalization stocks. Its performance should be measured against which one of the following? A. Russell 2000 Index B. S&P 500 Index C. Wilshire 5000 Index D. Dow Jones Industrial Average 61. Assume you purchased a rental property for $100,000 and sold it 1 year later for $115,000 (there was no mortgage on the property). At the time of the sale, you paid $3,000 in commissions and $1,000 in taxes. If you received $10,000 in rental income (all received at the end of the year), what annual rate of return did you earn? A. 6% B. 11% C. 21% D. 25% 62. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the manager's return in the month? A. 2.07% B. 2.21% C. 2.24% D. 4.8% 63. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the bogey's return in the month? A. 2.07% B. 2.21% C. 2.24% D. 4.8% 64. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the manager's over- or underperformance for the month? A. Underperformance = .03% B. Overperformance = .03% C. Overperformance = .14% D. Underperformance = 3% 65. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What is the contribution of security selection to relative performance? A. B. C. D. -.15% .15% -.3% .3% 66. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What is the contribution of asset allocation to relative performance? A. -.18% B. C. .18% -.15% D. .15% 67. Morningstar's RAR produce results that are similar but not identical to ________. A. Jensen's alpha M2 B. C. the Treynor ratio D. the Sharpe ratio 68. The Treynor-Black model assumes that security markets are _________. A. completely efficient B. nearly efficient C. very inefficient D. random walks 69. The information ratio is equal to the stock's ____ divided by its ______. A. diversifiable risk; beta B. beta; alpha C. alpha; beta D. alpha; diversifiable risk 70. Empirical tests to date show ______________. A. that many investors have earned large rewards by market timing B. little evidence of market-timing ability C. clear-cut evidence of substantial market-timing ability D. evidence that absolutely no market-timing ability exists 71. A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the M2 measure of the portfolio if the risk-free rate is 5%? A. .58% B. .68% C. .78% D. .88% 72. A portfolio generates an annual return of 17%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the M2 measure of the portfolio if the risk-free rate is 4%? A. 2.15% B. 2.76% C. 2.94% D. 3.14% 73. A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Treynor measure of the portfolio if the risk-free rate is 5%? A. .1143 B. .1233 C. .1354 D. .1477 74. A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Treynor measure of the portfolio if the risk-free rate is 6%? A. .0833 B. .1083 C. .1114 D. .1163 75. A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Sharpe measure of the portfolio if the risk-free rate is 5%? A. .3978 B. .4158 C. .4563 D. .4706 76. A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Sharpe ratio of the portfolio if the risk-free rate is 6%? A. .4757 B. .5263 C. .6842 D. .7252 77. A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is Jensen's alpha of the portfolio if the risk-free rate is 5%? A. .017 B. .034 C. .067 D. .078 78. A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is Jensen's alpha of the portfolio if the risk-free rate is 6%? A. .017 B. .028 C. .036 D. .078 79. The portfolio that contains the benchmark asset allocation against which a manager will be measured is often called _____________. A. the bogey portfolio B. the Vanguard Index C. Jensen's alpha D. the Treynor measure 80. An attribution analysis will not likely contain which of the following components? A. Asset allocation B. Index returns C. Risk-free returns D. Security selection 81. Which of the following investment strategies would have produced the highest returns in the time period since 1926? A. T-bills portfolio B. S&P 500 Index fund C. Perfect market timing D. Random stock selection 82. What phrase might be used as a substitute for the Treynor-Black model developed in 1973? A. Solely active management B. Enhanced index approach C. Passive management D. Random selection 83. What is the term for the process used to assess portfolio manager performance? A. Active analysis B. Attribution analysis C. Passive analysis D. Treynor-Black Analysis 84. A fund has excess performance of 1.5%. In looking at the fund's investment breakdown, you see that the fund overweighted equities relative to the benchmark and that the average return on the fund's equity portfolio was slightly lower than the equity benchmark return. The excess performance for this fund is probably due to _______________. A. B. C. D. security selection ability better sector weightings in the equity portfolio the asset allocation decision finding securities with positive alphas 85. For a market timer, the _____________ will be higher when RM is higher. A. portfolio's alpha and beta B. portfolio's unsystematic risk C. portfolio's beta and slope of the characteristic line D. security selection component of the portfolio 86. The Treynor-Black model combines an actively managed portfolio with an efficiently diversified portfolio in order to: I. Improve the diversification of the overall portfolio II. Improve the overall portfolio's Sharpe ratio III. Reach a higher CAL than would otherwise be possible A. I only B. I and II only C. II and III only D. I, II, and III