ch22 - Chapter 22 EVALUATION OF INVESTMENT PERFORMANCE...

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Chapter 22 EVALUATION OF INVESTMENT PERFORMANCE Multiple Choice Performance Measurement Issues 1. The major question when evaluating the performance of a portfolio is: a. “Does the portfolio match the investor characteristics of the individual investor?” b. “Does the expected return of the portfolio meet the needs of the individual investor?” c. “Is the return on the portfolio adequate to compensate for the risk taken?” d. “Is the risk on the portfolio in line with the personal characteristics of the investor?” (c, difficult) 2. The --------------------- is the legitimate alternative to a portfolio that accurately reflects the objectives of the portfolio owners. a. market average index b. efficient portfolio c. benchmark portfolio d. performance standard (c, moderate) 3. Which of the following statements regarding the dollar-weighted rate of return is not true? a. It is equivalent to the internal rate of return. b. It is a measure of the rate of return to the portfolio owner. c. It equates all cash flows with the beginning market value of the portfolio. d. It is considered useful when making comparisons to other portfolios or to market indexes. (d, difficult) Chapter Twenty-Two Evaluation of Investment Performance 27
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4. The __________ indicates the percentage of the variance in the portfolio's returns that is explained by the market's returns. a. standard deviation b. coefficient of determination c. beta d. alpha (b, moderate) 5. If we are to assess performance carefully, we must do so on a(n) ___ basis. a. quarterly b. annual c. risk-adjusted d. independent (c, moderate) 6. The degree of diversification of a portfolio is measured by a. calculating the correlation coefficient between a stock's returns with those of the market. b. calculating the coefficient of determination. c. computing the beta of a portfolio. d. dividing the average return of a portfolio by its beta. (b, difficult) Risk-Adjusted Measures of Performance 7. The reward-to-variability ratio measures: a. return above the risk-free rate. b. excess return per unit of total risk. c. total risk per unit of excess return. d. return above the risk-free rate relative to the risk-free rate. (b, easy) Chapter Twenty-Two Evaluation of Investment Performance 28
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8. Which one of the following statements is true? Notation: RVAR: Sharpe’s reward-to-variability measure RVOL: Treynor’s reward-to-volatility measure a. RVOL is based on total risk while RVAR is based on systematic risk. b. RVAR is based on total risk while RVOL is based on systematic risk. c. RVAR is based on unsystematic risk while RVOL is based on systematic risk. d. RVOL is based on systematic risk while RVAR is based on unsystematic risk.
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This note was uploaded on 08/29/2009 for the course BUS Invt taught by Professor Yost during the Spring '09 term at W. Florida.

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ch22 - Chapter 22 EVALUATION OF INVESTMENT PERFORMANCE...

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