UGRM02

In measuring the performance of a portfolio, the time-weighted rate of return may be preferred to the dollar-weighted rate of return because:

• A) When the rate of return varies, the time-weighted return is higher.

• B) The dollar-weighted return assumes all portfolio deposits are made on day 1.

• C) The dollar-weighted return can only be estimated.

• D) The time-weighted return is unaffected by the timing of portfolio contributions and

  withdrawals.

A portfolio has a high Sharpe ratio. What does this suggest?

• A) The portfolio has high unsystematic risk

• B) The portfolio has low systematic risk

• C) The portfolio is achieving high returns relative to its risk

• D) The portfolio is underperforming the risk-free rate

A portfolio has a Sharpe Ratio of 0.5. What does this suggest?

• A) The portfolio is generating 0.5 units of excess return per unit of risk

• B) The portfolio is underperforming the market

• C) The portfolio’s total risk is 0.5%

• D) The portfolio has generated 0.5% returns above the risk-free rate

Sharpe Ratio and Morningstar Risk-Adjusted Rating are manipulation-proof performance measures.

• True

• False

A portfolio manager uses the M² measure to adjust a portfolio’s return for risk. If the M² value is positive, it suggests that:

• A) The portfolio outperformed the benchmark on a risk-adjusted basis.

• B) The portfolio underperformed the benchmark on a risk-adjusted basis.

• C) The portfolio’s risk is higher than the benchmark.

• D) The portfolio has no risk.

What does a Sortino Ratio measure?

• A) The excess return per unit of total risk

• B) The excess return per unit of downside risk

• C) The return compared to a risk-free asset

• D) The portfolio's exposure to systematic risk

Which of the following factors is most likely to decrease the Certainty-Equivalent Return for a given investment?

• A) A decrease in the investor's risk aversion

• B) A decrease in the market return

• C) An increase in the standard deviation of the investment’s returns

• D) A decrease in interest rates

What does the Treynor ratio measure?

• A) Return per unit of total risk

• B) Return per unit of systematic risk

• C) Return per unit of unsystematic risk

• D) Portfolio return relative to its benchmark

If a portfolio has a beta of 1.2 and the market return is 10%, what does this indicate?

• A) The portfolio is less volatile than the market

• B) The portfolio is expected to move in the same direction as the market but with higher volatility

• C) The portfolio has no correlation with the market

• D) The portfolio's performance can be determined from beta alone

A portfolio manager’s performance is often compared against a benchmark. What does it mean if the portfolio’s return is consistently higher than the benchmark’s return?

• A) The manager is generating alpha

• B) The manager is taking excessive risk

• C) The portfolio has a high beta

• D) The portfolio is inefficient