Chap027 - Chapter 27 The Theory of Active Portfolio...

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Chapter 27 The Theory of Active Portfolio Management Multiple Choice Questions 1. In the Treynor-Black model A) portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. B) portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. C) portfolio weight are sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers. D) portfolio weight are not sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers. E) none of the above. Answer: A Difficulty: Moderate 2. Benchmark portfolio risk is defined as A) the return difference between the portfolio and the benchmark B) the variance of the return of the benchmark portfolio C) the variance of the return difference between the portfolio and the benchmark D) the variance of the return of the actively-managed portfolio E) none of the above. Answer: C Difficulty: Moderate 3. Benchmark portfolio risk A) is inevitable and is never a significant issue in practice. B) is inevitable and is always a significant issue in practice. C) cannot be constrained to keep a Treynor-Black portfolio within reasonable weights. D) can be constrained to keep a Treynor-Black portfolio within reasonable weights. E) none of the above. Answer: D Difficulty: Moderate 4. ____________ can be used to measure forecast quality and guide in the proper adjustment of forecasts. A) regression analysis B) exponential smoothing C) ARIMA D) moving average models E) GAUSS Answer: A Difficulty: Moderate 675
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5. Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance. A) 0.656 B) 0.452 C) 0.258 D) 0.153 E) 0.001 Answer: E Difficulty: Moderate 6. The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure. A) Black-Litterman B) Treynor-Black C) Treynor-Mazuy D) Black-Scholes E) none of the above. Answer: A Difficulty: Moderate 7. The Black-Litterman model and Treynor-Black model are A) nice in theory but practically useless in modern portfolio management. B) complementary tools that should be used in portfolio management. C) contradictory models can not be use together; therefore, portfolio managers must choose which one suits their needs. D) not useful due to their complexity. E) none of the above. Answer: B Difficulty: Moderate 8. The Black-Litterman model is geared toward ____________ while the Treynor-Black model is geared toward ____________. A) security analysis; security analysis
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Chap027 - Chapter 27 The Theory of Active Portfolio...

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