Portfolio management involves identifying objectives, constraints, and preferences for an investor, resulting in the development of an investment:
a.) preference list
b.) policy statement
c.) guiding principle
d.) risk parameter
2. The portfolio management process is often different between individuals and institutions. One key reason for this relates to the investment:
a.) risk preference
b.) time horizon
c.) measurement technique
d.) volatility index
3. An investor in the prime of her earnings horizon, seeking a moderate trade-off between risk and return would most commonly be described as being in the ____________ phrase of the investment life cycle.
4. One factor that can become a portfolio constraint, albeit a favorable one, is when the investor’s portfolio becomes partially “locked up.” This is most usually a result of:
a.) high dividend payouts.
b.) profit distributions.
c.) taxable capital gains.
d.) falling interest rates.
5. Historical evidence from 1920 through 2001 suggests an appropriate compound annual rate of return expectation on an equity portfolio should be approximately ______________ percent.
6. The most important portfolio decision an investor can make is probably ___________, because it will be a key factor over time that causes differences in portfolio performance.
a.) asset allocation
b.) stock selection
c.) portfolio hedging
d.) systematic risk
7. Studies have shown clear patterns indicating investors’ risk preference rises in direct relation to ________ and _________.
a.) age; temperament
b.) income; age
c.) wealth; temperament
d.) income; wealth
8. The primary difference between strategic and tactical asset allocation is that the investor who allocates tactically is attempting to:
a.) avoid tax consequences
b.) hedge against potential losses
c.) profit from currency gains
d.) time the market
9.) A primary benefit of portfolio rebalancing is it generally has a favorable effect on portfolio:
a.) transaction costs.
b.) relative strength
10. Many investors have a difficult time with portfolio rebalancing because it often requires the investor to:
a.) sell losers
b.) sell winners
c.) buy bonds
d.) hold cash
11. You have a relative who wants to move her entire investment portfolio into the shares of a popular mutual fund that delivered unusually high returns during the most recent quarter. You are naturally concerned about this and are most likely to advise her to consider the ___________ of the fund before making the decision.
a.) risk profile
b.) tax consequences
c.) historical momentum
d.) self imposed constraints
12. A mutual fund that consistently delivers returns below the S&P 500 average may appear to be an under-performer. However, that cannot be concluded accurately without the investor comparing it to:
a.) a relative benchmark portfolio
b.) the average for all common stocks
c.) the risk free rate of return
d.) the fund’s objectives
13. Studies have shown that the ___________ can account for over 90 percent of a pension fund’s return relative to the overall market.
a.) investment policy statement
b.) fund managers experience
c.) measurement method employed
d.) asset allocation decision
14. When evaluating the performance of a mutual fund manager, it is best to employ a time-weighted return measure because it more accurately measures results by eliminating the problem of:
a.) relative risk adjustment
b.) bear market periods
c.) dividends versus capital gains
d.) deposits and withdrawals
15. One of the most commonly used risk-adjusted measures of portfolio performance is William Sharpe’s reward-to-variability ratio, which compares the ratio of excess return to a portfolio’s:
a.) geometric mean
b.) internal rate of return
c.) standard deviation
16. In contrast to the Sharpe ratio, Treynor’s reward-to-volatility ratio measures the excess return per unit of ___________ risk.
17. Although the Sharpe and Treynor methods of performance measurement yield ranking information, they do not tell an investor how much a portfolio over or under-performed:
a.) in aggregate
b.) in percentage terms
c.) over time
d.) compared to market indexes
18. Investors must understand the limitations of risk-adjusted performance measurement techniques, including the fact that they are:
a.) only directionally accurate
b.) sometimes ambiguous
c.) not valid over extended time periods
d.) dependent on the assumptions of capital market theory
19. Performance Presentation Standards suggest that a conclusion of superior returns by a mutual fund, compared to an appropriate benchmark, should involve a performance record of at least ___________ years.
20. In addition to measuring the performance of a mutual fund portfolio, investors should also be concerned with why the fund over or under performed compared to a relevant benchmark. This is commonly determined through the process of performance: