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

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Chapter 27 - The Theory of Active Portfolio Management 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. In the Treynor-Black model portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. Difficulty: Moderate 2. Absent research, you should assume the alpha of a stock A. zero B. positive C. negative D. not zero E. A or B In efficient markets, alpha should be assumed to be zero. Difficulty: Moderate 27-1
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Chapter 27 - The Theory of Active Portfolio Management 3. If you begin with a ______ and obtain additional data from and experiment you can form a ______. A. posterior distribution; prior distribution B. prior distribution; posterior distribution C. tight posterior; Bayesian analysis D. tight prior; Bayesian analysis E. none of the above If you begin with a prior distribution and obtain additional data from and experiment you can form a posterior distribution. Difficulty: Moderate 4. 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. Benchmark portfolio risk is defined as the variance of the return difference between the portfolio and the benchmark. Difficulty: Moderate 27-2
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Chapter 27 - The Theory of Active Portfolio Management 5. 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. Benchmark portfolio risk can be constrained to keep a Treynor-Black portfolio within reasonable weights. Difficulty: Moderate 27-3
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Chapter 27 - The Theory of Active Portfolio Management 6. ____________ can be used to measure forecast quality and guide in the proper adjustment of forecasts. A.
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This note was uploaded on 01/08/2011 for the course MBA ECON taught by Professor Hamza during the Spring '10 term at Prince Sultan University.

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

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