A pension fund administrator wants to evaluate the performance of four portfolio managers.Each manager invests only in US common stocks.During the most recent five-year period, the average annual total return on the S&P 500 was 14% and the average annual rate on Treasury bills was 8%.The table below shows risk and return measures for each portfolio.

Portfolio

Average Return

Standard Deviation

Beta

P

17%

20%

1.1

Q

24%

18%

2.1

R

11%

10%

0.5

S

16%

14%

1.5

S&P 500

14%

12%

1.0

1.The Treynor portfolio performance measure for Portfolio P is

_____

A)8.18

B)7.62

C)6.00

D)5.33

2.Which portfolio has the highest Jensen alpha?

_____

A)P

B)Q

C)R

D)S

3.Assuming uncorrelated returns, the Sharpe ratio for a master portfolio with equal allocations to Portfolio S and Portfolio Q is

_____

A)0.71

B)1.40

C)0.95

D)1.05

4.Stock PVQ has an annual mean return of 16% and a standard deviation of 42%.What is the smallest possible loss in the next week with a probability of 2.5%?

____

A)-23.96%

B)-13.66%

C)-11.11%

D)-16.42%

5.The probability that a standard normal random variable is either less than -1.96 or greater than +1.96 is approximately

____

A)2.5%

B)5.0%

C)10%

D)31.74%

6.An investor has 1,000 HKG stocks.The opening value is $31 per share.This individual makes net contributions of $1,000 during the period.The ending portfolio value is $34,000.What is the total return on these shares?

____

A)6.35%

B)6.45%

C)9.52%

D)9.67%

7.A knowledgeable financial advisor recommends that you stop buying common stocks and invest in short-term interest-bearing paper.What is the most likely point in the equity cycle at that point in time?

____

A)Equity cycle peak

B)Expansion phase

C)Stock market trough

D)Contraction phase

8.Which of the following are types of event-driven funds?

I. Merger or risk arbitrage

II. Distressed securities funds

III. High-yield funds

IV. Global macro funds

V. Emerging market funds

VI. Managed futures funds

_____

A)I, II, III

B)I, II, III and IV

C)II, IV, V and VI

D)III, IV, V and VI

9.Which of the following is a style related to fixed-income portfolio managers?

____

A)Credit quality

B)Spread traders

C)Both (A) and (B)

D)Neither (A) nor (B)

10.A "value" manager would invest in stocks with relatively ____ P/E ratios and ____ dividend yields.

____

A)High; high

B)High; low

C)Low; low

D)Low; high

11.What is the main danger in comparing mutual fund performance?

_____

A)The funds may have two different investment objectives

B)Historical returns provide no guarantee of future returns

C)A fund's asset allocation may not be taken into consideration

D)Comparisons with stock market indexes may not account for dividend reinvestment

12.The combination of securities in a portfolio is determined using the following guideline:

_____

A)The investor's primary objectives determine the asset allocation strategy; the investor's secondary objectives determine specific securities that are selected

B)The investor's primary objectives determine specific securities that are selected; the investor's secondary objectives determine the asset allocation strategy

C)Neither (A) nor (B)

D)Both (A) and (B) depending on the investor's level of risk tolerance

13.A $20 million investment is made in year 1 and the fund increases by 30%.Based on a 10% incentive fee, how much money will the manager earn?

____

A)$2 million

B)$2.6 million

C)$0.6 million

D)$1 million

14.Aggressive bond investors are more focused on the capital gains that arise from a change in interest rates.If rates are expected to fall, the short-term speculator can buy ____ and ____ issues to achieve maximum returns if the interest rate forecast is correct.

_____

A)Short-term; low-coupon

B)Long-term; high-coupon

C)Short-term; high-coupon

D)Long-term; low-coupon

15.Which of the following attempts to profit from price anomalies between related interest-rate instruments?

_____

A)Long/short equity funds

B)Convertible arbitrage

C)Fixed-income arbitrage

D)Equity market-neutral funds

16.A ____-coupon callable bond might not be a good choice for a ____ managed portfolio regarding the reinvestment rate risk.

_____

A)High; passively

B)High; actively

C)Low; passively

D)Low; actively

17.Which of the following is correct?

_____

A)A hedge fund is highly correlated to bond or equity markets

B)A hedge fund has a low correlation with bond or equity markets

C)A hedge fund is negatively correlated to bond or equity markets

D)All of the above can be true depending on the investment policies adopted by a particular hedge fund

18.Financial advisors are required o know the essential details about each client, which include

I. The client's current financial status

II. The client's current personal status

III. The client's risk tolerance

IV. The client's investment goals and preferences

_____

A)I, II, III and IV

B)I, II and IV

C)I, II and III

D)II, III and IV

19.What would a successful manager do in a rising market?

I. Go long securities that will rise more than the market

II. Go short securities that will rise less than the market

III. Sell securities that will decline more than the market

IV. Buy securities that will fall less than the market

_____

A)I and III

B)I and II

C)II and III

D)III and IV

(The following information relates to Questions 20 and 21)

A portfolio manager purchases shares in YUL that are worth $2,000.At the same time, this manager goes short shares worth $700.

20.What is the net market exposure?

_____

A)50%

B)65%

C)90%

D)45%

21.What is the leverage factor?

_____

A)1.05

B)1.08

C)1.35

D)1.65

22.All of the following are advantages of "funds of hedge funds" except

_____

A)Consistent returns with lower volatility

B)Experienced portfolio manager

C)Easier access hedge funds

D)Liquidity

23.What does a negative Sharpe ratio mean about a portfolio?

_____

A)It has underperformed the benchmark

B)It has underperformed other portfolios

C)It has underperformed the risk-free asset

D)None of the above

24.A fixed income portfolio manager who actively rebalances his portfolio weights in government versus corporate bonds in response to beliefs regarding changes in the relative yields on these securities would be referred to as a

_____

A)Maturity switcher

B)Interest rate anticipator

C)Spread trader

D)Credit quality manager

25.An investor whose primary investing objective is income would be interested in common shares of a company in an industry in the ____ life cycle stage.

_____

A)Emerging

B)Initial growth

C)Rapid growth

D)Mature

26.Duration will always be ____ the bond's term to maturity for coupon bonds.

_____

A)More than

B)Less than

C)Equal to

D)Unrelated to

27.Which of the following is false regarding value-at-risk (VaR)?

_____

A)VaR provides an estimate of the worst possible loss a firm can incur with a given probability

B)The analytical method of estimating VaR requires the assumption of a normal distribution

C)VaR estimates for portfolios must take into account the correlation among the various assets and liabilities in a portfolio

D)None of the above

28.XYZ stock has an average annual return () of 15% with an annual return standard deviation () of 50%.What loss level can we expect over a two-year investment horizon with a probability of 17%?

_____

A)-35.00%

B)-28.12%

C)-25.05%

D)-40.71%

29.Based on a normal distribution with a mean of 500 and a standard deviation of 150, the Z-value for an observation of 200 is closest to

_____

A)-2.00

B)-1.75

C)1.75

D)2.00

30.A firm has 800 female employees and 200 male employees.According to the stratified sampling technique, how to select from each subgroup to have a sample of 50 people to reflect the gender balance of the firm?

_____

A)40 women and 10 men

B)25 women and 25 men

C)10 women and 40 men

D)45 women and 5 men