Question
1. Which one of the following considerations would probably not be important when constructing an equityindex? A. Whether to make it currency hedged orunhedged B.
1.Which one of the following considerations would probably not be important when constructing an equityindex?
A.Whether to make it currency hedged orunhedged
B.The constituent stock weightingscheme
C.The forecasted idiosyncratic risk of the constituentstocks
D.Treatment of special dividends and/ordistributions
2.Youbelieve arbitrage price theory is a model for equity market returns.Yourfriend tells you she has found an investment manager who has consistently produced Jensen's alpha over the past ten years.Youare skepticalbecause:
A.She cannot tell you the investment manager's informationratio
B.Youbelieve this alpha is explained by unidentified risks within the manager's portfolio
C.Yoususpect your friend has not included the risk free rate in her analysis
Income taxes typically eliminate any alpha a manager may earn on a pre-taxbasis
3.Assume over the past seven years, Berkshire Hathaway stock (symbol: BRK-A) returned 13.02% with a beta of .95, while the total return of the S&P 500 index was 13.06% over the same period. Further assume the risk free rate ("RFR") averaged1% during that period, but the Company was able to borrow at 2% below that rate. IfWarrenBuffett effectively levered the Berkshire Hathaway portfolio by an additional 60% is above the Company's own equity contribution, we can conclude which of the followingstatements:
A.BRK-A lies on the capital market line("CML")
B.Buffett added alpha on an unleveredbasis
C.Buffett subtracted alpha on a leveredbasis
D.NYU and AQR were correct aboutBuffett'sinvestment"edge"
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