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Performance+Evaluation

# Performance+Evaluation - FINA 3104 Practice Problems Fall...

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1 FINA 3104 Practice Problems Fall 2011 Portfolio Performance Evaluation 1. True or False (a) Suppose two portfolios have the same average return, the same standard deviation of returns, but portfolio A has a higher beta than portfolio B . According to the Sharpe measure, the performance of portfolio A is the same as the performance of portfolio B . (b) Investors should avoid funds with negative information ratio. (c) If the CAPM holds, the Jensen measures of all securities and portfolios are zero, and the Treynor measures of all securities and portfolios are the same. (d) If a multifactor APT holds, the Jensen measure of all securities and portfolios is zero, and the Treynor measure of all securities and portfolios are the same. 2. Information Ratio The original information ratio measure is based on the CAPM. You want to modify the measure so that it is based on the following APT model: r i r f = i1 ( r M r f ) + i2 r SMB + i3 r HML + e i (a) Use the above notations and write down the formula of the modified information ratio. (b) Using the original measure, Portfolio

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Performance+Evaluation - FINA 3104 Practice Problems Fall...

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