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Exam 20: Performance Evaluation of Managed Funds

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Question 21

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Portfolio A has a return of 5% and a standard deviation of 10%.Portfolio B has a return of 8% and a standard deviation of 12%.If the risk-free rate is 2% portfolio,then the Sharpe indices of A and B are:

A) $A=0.3 ; B=0.5$
B) $\mathrm{A}=0.25 ; \mathrm{B}=0.25$
C) $\mathrm{A}=0.35 ; \mathrm{B}=0.1$
D) $\mathrm{A}=0.5 ; \mathrm{B}=0.1$

E) A) and D)
F) A) and C)

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Question 22

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The Treynor measure differs from the Sharpe index,because it uses beta risk rather than standard deviation as the risk measure.

A) True
B) False

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Question 23

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Blake,Elton and Gruber (1993) find that most bond funds have __________ indicating underperformance.

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

An English survey of 2000 investors conducted in 2001 found that ___ of respondents regard performance as the most important factor to consider.

Sinclair's study in 1990 for Australian mutual funds reports negative returns for market timing.

Past performance is not useful for funds managers.

Portfolio A has a return of 8% and a standard deviation of 10%.Portfolio B has a return of 12% and a standard deviation of 15%.If the risk-free rate is 4%,portfolio A has the highest Sharpe index.

Dissatisfaction with the traditional performance measures has led to the development of a new generation of performance measures such as

A portfolio with a beta of 1.7 has a return of 15% and a standard deviation of 10%.If the risk-free rate is 5% and the market return is 119%,calculate the Jensen's alpha measure for the portfolio.

Robson (1986) examines managed funds in Australia over the period 1969-78 and reports generally _________values of Jensen's alpha and _________ consistency in performance across time.

Treynor and Mazuy model active managers' market timing ability by introducing a quadratic term.

A criticism of Jensen's alpha is that:

Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.

Volkman and Wohar (1995) find that __________ is associated with low management fees,whereas __________ tends to be associated with funds charging high management fees.

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

Studies appear to exhibit mild evidence that well performing funds exhibit performance __________,but stronger evidence that poor performing funds __________.

The major criticism of the Sharpe index is that it relies on:

A portfolio with a beta of 0.5 has a return of 5% and a standard deviation of 10%.If the risk-free rate is 2% and the market return is 9%,calculate the Jensen's alpha measure for the portfolio.

For which of the following reasons may a mimicking portfolio fail to accurately track an index?