Portfolio Performance Evaluation

Which one of the following provides the greatest reduction in total risk?

• diversification

• asset allocation

• security selection

• beta reduction

The fixed-weightings approach to asset allocation

• Ais based on an allocation of an equal percentage of the portfolio to each separate asset category.

• requires periodic rebalancing of the portfolio to maintain the desired weights.

• is based on periodic adjustments to category weights in response to market changes.

• uses stock-index futures and bond futures in a market timing strategy.

Tactical asset allocation is most suitable for

• young, single individuals with good incomes.

• retirees.

• large institutional investors.

• investors who have already accumulated a fair amount of wealth.

Fred and Martha are in their seventies and retired. Which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk?

• beta of 0.83 and a dividend yield of 6.3%

• beta of 0.86, and a dividend yield of 4.6%

• beta of 1.6 and a dividend yield of 6.4%

• beta of 1.1 and a dividend yield of 5.4%

Which of the following is the more appropriate measure of portfolio performance if you have only one mutual fund in your investment portfolio?

• Jensen measure

• Sharpe measure

• Treynor measure

• Information ratio

A portfolio manager realized an average annual return of 15%. The beta of the portfolio is 1.2 and the standard deviation of returns is 25%. The average annual return for the market index was 11% and the standard deviation of the market returns is 20%. The risk-free rate is 4%. Calculate the Sharpe measure for the portfolio.

• 0.16

• 0.44

• 0.55

• 0.64

A portfolio manager realized an average annual return of 10%. The beta of the portfolio is 0.8 and the standard deviation of returns is 20%. The average annual return for the market index was 12% and the standard deviation of the market returns is 25%. The risk-free rate is 3%. Calculate the Treynor measure for the portfolio.

• 7.00

• 8.75

• 11.25

• 12.50

A portfolio manager realized an average annual return of 12%. The beta of the portfolio is 1.1 and the standard deviation of returns is 30%. The average annual return for the market index is 10% and the standard deviation of the market returns is 25%. The risk-free rate is 5%. Calculate Jensen's alpha for the portfolio.

• 0.5%

• -0.5%

• 1.5%

• -1.5%