Metrics Portfolio X Portfolio Y Benchmark

Portfolio return 8.35% 11.20% 9.55%

Standard deviation 7.50% 16.44% 11.98%

Sharpe ratio 0.71 0.50 0.55

Treynor ratio 0.05 0.06 0.05

Information ratio (0.15) 0.31 —

Sortino ratio (MAR = 5%) 0.89 0.58 0.65

Question #1 - 4 of 54 Question ID: 1674949

Which portfolio had the best return to systematic risk ratio?

A) Benchmark.
B) Portfolio X.
C) Portfolio Y.

Question #2 - 4 of 54 Question ID: 1674950

Which statement is most accurate regarding Portfolios X and Y?

A) Portfolio X has an inferior reward/risk ratio as compared to Portfolio Y.

B) Portfolio Y outperformed the benchmark by taking greater risk.
C) Portfolio Y more closely resembles the benchmark as compared to Portfolio X.

Question #3 - 4 of 54 Question ID: 1674951

Which portfolio has the best return to downside risk ratio?

A) Portfolio Y.
B) Portfolio X.
C) Benchmark.

Question #4 - 4 of 54 Question ID: 1674952

An investor seeking to maximize her return and who is indifferent to short-term volatility
should most likely invest in:

A) the benchmark.
B) Portfolio Y.
C) Portfolio X.

Question #5 of 54 Question ID: 1674927

For which of the following is a liability-based benchmark most likely appropriate?

A) A defined contribution employee retirement fund.

B) A defined benefit pension fund.
C) A philanthropic endowment with a 5% spending policy.

Question #6 of 54 Question ID: 1674902

In global performance evaluation, performance attribution seeks to:

A) measure the risk and return of the portfolio.

B) identify the sources of difference between portfolio and benchmark return.
C) differentiate whether returns come from a manager’s luck or skill.

Question #7 of 54 Question ID: 1674907

A transactions-based attribution:
A) is more complicated than a holdings-based attribution.
B) uses the unadjusted portfolio assets from the beginning of a measurement period.
involves running regressions of broad market indices against portfolio returns to
C)
decompose investment performance.

Question #8 of 54 Question ID: 1674904

Which of the following is an example of macro attribution? Quantifying a:

A) portfolio manager's decision to bet against emerging-market currencies.

pension fund's decision to swap a private equity manager for a fixed-income
B)
manager because interest rates are low.
portfolio manager's decision to overweight telecom stocks because interest rates
C)
are low.

Question #9 of 54 Question ID: 1674908

Which of the following is most correct regarding an arithmetic attribution?

The arithmetic attribution is designed to explain the return differential between a

A)
portfolio and the S&P 500.
The arithmetic attribution necessitates adjustments to smooth the subperiod effects
B)
over longer periods.
Arithmetic attribution is better suited than geometric attribution for use with
C)
industry professionals.

Question #10 of 54 Question ID: 1674919

Sarah Cunningham, CFA, uses a top-down analysis process when considering new
investments. In performing risk attribution analysis on an absolute basis, the most
appropriate approach to measuring her performance should focus on:

A) attributing tracking error to relative allocation and selection.

B) each factor’s marginal contribution to total risk and specific risk.
C) each security’s marginal contribution to total risk.

Question #11 of 54 Question ID: 1674947

Which of the following measures would be the most appropriate one to use when comparing
the results of two portfolios in which each portfolio contains many stocks from a broad
selection of different industries?

A) Information ratio.
B) Sharpe ratio.
C) Treynor measure.

Question #12 of 54 Question ID: 1674943

The Treynor measure is correctly defined as a measure of a fund's:

A) return earned compared to its systematic risk.

B) excess earned compared to its systematic risk.
C) return earned compared to its unsystematic risk.

Question #13 of 54 Question ID: 1674901

An effective performance attribution process most likely includes:

A) the portfolio manager's prior decision-making process.

B) the active investment decisions taken by the portfolio manager.
C) a partial explanation of the portfolio's excess return and risk.

Question #14 of 54 Question ID: 1674899

What is the goal of performance appraisal?

A) Identification of overall risk and return.

B) Interpretation of performance attribution.
Identification of the sources of differences between portfolio and benchmark risk
C)
and return.

Question #15 of 54 Question ID: 1674906

Holdings-based attribution is most appropriate for assessing:

A) holdings data based on long time intervals.

B) passive index funds.
C) portfolios with high turnover.

Question #16 of 54 Question ID: 1674920

Lisa Roberts is trying to determine whether her equity investment managers have added any
value, so she has decided to conduct a macro attribution analysis of their portfolio returns.
Roberts has gathered the following results:

Fund Fund Benchmark Benchmark

Weight Return Weight Return

Growth
40% 9.75% 35% 8%
Manager

Small-cap growth 25% 12% 20% 8%

Mid-cap growth 15% 6% 15% 8%

Value Manager 60% 6% 65% 3.85%

Small-cap value 40% 7% 35% 2%

Mid-cap value 20% 4% 30% 6%

TOTAL 100% 7.5% 100% 5.3%

Given the results compiled, the allocation effect of Roberts's underweighting value in her
portfolio using the Brinson-Fachler model is closest to:

A) −5 basis points.
B) 14 basis points.
C) 7 basis points.

Question #17 of 54 Question ID: 1674941

Which statement regarding the Sharpe ratio and Sortino ratio is most accurate?

A) In both the Sharpe ratio and Sortino ratio, a higher calculated ratio is better.
The Sortino ratio only considers upside risk, while the Sharpe ratio considers both
B)
upside and downside risk.
In both the Sharpe ratio and Sortino ratio, the risk-free rate is used as a return
C)
benchmark.

Question #18 of 54 Question ID: 1674932

Which of the following is the most appropriate method of calculating the manager's active
return? The manager's active return is the:

A) market return minus the benchmark return.

B) portfolio return minus the benchmark return.
C) portfolio return minus the market return.

Question #19 of 54 Question ID: 1674914

For the purposes of risk attribution, an analysis of a top-down investor would most likely
include:

A) tracking error resulting from overweighting the technology sector.

tracking error resulting from underweighting several stocks relative to the
B)
benchmark.
C) a security's marginal contribution to standard deviation.

Question #20 of 54 Question ID: 1674928

Which of the following is not regarded to be an essential characteristic of a valid benchmark?

A) Specified in advance.
B) Appropriate to the manager’s investment approach and style.
C) Reflective of past investment opinion.

Question #21 of 54 Question ID: 1674942

Analysis of a portfolio's drawdown is useful for evaluating:

A) how long it will take to recover after a period of losses.

B) a portfolio's downside capture relative to an index.
C) how much risk a portfolio manager is taking relative to returns.
Question #22 of 54 Question ID: 1674926

A liability-based benchmark is most likely to include:

A) nominal bonds only.

B) both nominal and inflation-adjusted bonds.
C) inflation-adjusted bonds only.

Question #23 of 54 Question ID: 1674933

XYZ Asset Management operates a Pan-European corporate bond fund. Last year, the bond
fund generated a 5.1% return. In the same year, the bond fund's benchmark generated a
6.0% return; however, the broad index of European bonds generated a 4.5% return. XYZ's
bond fund return due to active management is closest to:

A) −0.9%.
B) 0.6%.
C) 1.5%.

Question #24 of 54 Question ID: 1674929

Fund Sponsors often use the median account in a particular universe of account returns as
an appropriate benchmark. This form of benchmark has numerous drawbacks. Which of the
following is not a drawback that would be associated with using the median account as a
benchmark?

It is not measurable as its value cannot be determined on a reasonably frequent

A)
basis.
B) As the median manager is unknown, the measure is ambiguous.
C) It is virtually impossible to identify the median manager in advance.
Question #25 of 54 Question ID: 1674900

Which component of performance evaluation determines whether the performance was

affected primarily by skill or luck?

A) Performance appraisal.
B) Performance measurement.
C) Performance attribution.

Question #26 of 54 Question ID: 1674931

A retired investor needs to earn at least $100,000 per year in investment income to fund
living expenses. Which type of benchmark is best suited for this individual?

A) Returns-based benchmark.
B) Absolute benchmark.
C) Broad market index.

TOPIC: PERFORMANCE EVALUATION

THE TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS

Johannes Holopainen is a performance attribution analyst at Tampere Research (TR), located

in Finland. TR provides independent performance attributions of active fund managers on
behalf of large institutional investors. Holopainen is asked by his manager, Emppu Turunen,
to run a factor model attribution of the Wacken Fund, a fund managed by Islander Asset
Management (IAM). The fund description claims to follow a semi-active investment style
around a Carhart four-factor model approach. Turunen and his assistant, Tarja Hietala,
prepare the data needed for the attribution analysis shown in Exhibit 1.

Exhibit 1: Data for Attribution Analysis

Factor Proportion of
Factors Portfolio Benchmark Difference Absolute
Return Total

RMRF 0.97 1.00 6.45%

SMB –1.08 –1.00 –4.25%

HML 0.35 0.00 5.50%

 WML –0.01 0.02 8.75%

Factor tilts return

Security selection return

Active return

Turunen starts to complete the four-factor attribution shown in Exhibit 1 but is called away
into a project meeting, so Turunen asks Hietala to complete the analysis. Turunen left a note
that the Wacken Fund achieved an alpha of 1.359% over the measurement period.

Hietala completes the attribution analysis of the Wacken Fund started by Turunen.

Question #27 - 30 of 54 Question ID: 1674922

Based upon the data in Exhibit 1, which of the following statements is least accurate?

A) The benchmark is a broad-based index with average market risk.

B) The manager’s large-cap tilt contributed negatively to returns.
C) The benchmark has a large-cap bias.

Question #28 - 30 of 54 Question ID: 1674923

Which of the following is closest to the return from security selection?

A) –0.35%.
B) +0.35%.
C) –0.45%.

Question #29 - 30 of 54 Question ID: 1674924

Which of the following is the proportion of total active return contributed by the value
factor?

A) 141.65%.
B) 106.41%.
C) 1.925%.

Question #30 - 30 of 54 Question ID: 1674925

Which of the following would have had a greater positive impact on overall return compared
to the manager's actual return?

A) Increasing exposure to the market factor to 1.06.

B) Increasing the stock selection return by +0.55%.
C) Increasing exposure to momentum to 0.04.

Question #31 of 54 Question ID: 1674905

Regression analysis is most likely to be used to analyze portfolio returns when performing:

A) returns-based attribution.
B) transactions-based attribution.
C) holdings-based attribution.

Question #32 of 54 Question ID: 1674910

Jonathan Kennedy is performing attribution analysis of a three-sector domestic equity

portfolio. The following table shows data from the portfolio along with benchmark data.

Weight in Weight in Return From Return From

Sector/Industry
Portfolio Benchmark Portfolio Benchmark

Biotech 30% 25% 5% 3%

Utilities 40% 35% 10% 1%

Media 30% 40% -5% -4%

Total 100% 100% -4% -0.5%

Using the data in the table, the total selection effect is closest to:
A) 3.75%.
B) 4.25%.
C) 3.25%.

Question #33 of 54 Question ID: 1674939

One reason it can be difficult to benchmark hedge funds is because hedge funds:

A) frequently invest in illiquid assets.

B) generally perform in line with their peer universe.
C) generally underperform the broad market indices.

TOPIC: PORTFOLIO PERFORMANCE EVALUATION

TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS

Walker Nero is an investment analyst with Zimmer Advisors Ltd. (Zimmer). Nero's primary
responsibility is evaluating the performance of investment managers being considered by
Zimmer's clients. Grunder Preparatory School (Grunder) has hired Zimmer to advise the
investment committee of its endowment fund.

Grunder has most of its portfolio in large-cap equities, and the investment committee
realizes the investment strategy is extremely competitive—so it asks Zimmer to evaluate its
large-cap manager compared to the manager's competitors. As a result, Nero benchmarks
the performance of Grunder's large-cap equity manager against the median manager from
the manager's peer group, using data provided by a popular investment consultant.

Grunder's investment committee then asks Nero to evaluate the performance of the Knight
Fund. It also asks for advice regarding additional metrics that can be used in evaluating
manager performance. The most recent risk and return measures for the Knight Fund are
shown in the following table. The T-bill return over the same time period was 3.0%. The
return on the S&P 500 was used as the market index.

Knight Fund Market Index

Return 6.80% 6.60%

Beta 0.90 1.00

Standard deviation 32.60% 31.00%

Question #34 - 37 of 54 Question ID: 1674954

Which of the following statements regarding the use of the median manager's results as a
benchmark for evaluating performance of a portfolio is most accurate?

A) It is not possible to identify the median manager.

The weights of individual securities required to replicate the median manager
B)
cannot be known.
C) The performance of the median manager is subject to upward bias.

Question #35 - 37 of 54 Question ID: 1674955

The Treynor ratio for the Knight Fund is closest to:

A) 7.56.
B) 0.90.
C) 4.22.

Question #36 - 37 of 54 Question ID: 1674956

The Sharpe ratio for the Knight Fund is closest to:

A) 0.90.
B) 0.21.
C) 0.12.

Question #37 - 37 of 54 Question ID: 1674957

Which performance measure would Nero choose if Nero wanted to consider the impact of
both market-related variability of returns and the variability of active management?

A) Treynor ratio.
B) Information ratio.
C) Sharpe ratio.

Question #38 of 54 Question ID: 1674909

The most common approach for calculating excess returns for individual investor portfolios
involves calculating:

A) arithmetic attribution results.

B) total return attribution results.
C) geometric attribution results.

Question #39 of 54 Question ID: 1674911

Ha-Yoon Kim is a stock analyst with Yeongli Securities Co. She uses the Carhart factor model
to perform attribution analysis. Output from the model indicates the benchmark that Kim
uses has the following factor sensitivities:

Factor Benchmark

RMRF +1.00

SMB −1.00

HML 0.05

WML −0.95

Assuming that she is using a benchmark that most closely resembles her portfolio attributes,
we can conclude that Kim is most likely a:

A) large-cap investor.
B) small-cap investor.
C) momentum investor.
Question #40 of 54 Question ID: 1674946

Which of the following statements regarding the Sharpe ratio is most accurate?

A) Beta is not a component of the Sharpe ratio.

The measure of risk used in the denominator of the Sharpe ratio is standard
B)
deviation, also known as unsystematic risk.
The denominator of the Sharpe ratio is standard deviation, which comprises partly
C)
systematic risk called beta.

Use the following table for Questions 8 through 10.

Fund Fund Benchmark Benchmark

Weight Return Weight Return

Domestic equities 0.50 5.78% 0.75 6.20%

International
0.50 8.14% 0.25 8.51%
equities

Total 1.00 6.96% 1.00 6.78%

Question #41 - 43 of 54 Question ID: 1674916

Based on the Brinson-Fachler model, the allocation effect of hiring the domestic equities
portfolio manager is closest to:

A) −0.15%.
B) 0.15%.
C) 0.11%.

Question #42 - 43 of 54 Question ID: 1674917

The selection and interaction effect of hiring the international equities portfolio manager is
closest to:

A) 0.00%.
B) −0.19%.
C) 0.09%.

Question #43 - 43 of 54 Question ID: 1674918

Which statement most accurately describes the impact from asset allocation and manager
selection in the previous table?

A) Value was added with manager selection, and value was added with asset allocation.
Value was detracted by manager selection, but value was added with asset
B)
allocation.
Value was added with manager selection, but value was detracted with asset
C)
allocation.

Question #44 of 54 Question ID: 1674945

Peter Michaels, CFA, works at Composite Consulting, and is in charge of evaluating the
performance of various portfolio managers. His main tasks are to measure and evaluate the
sources of return that can be attributed to manager performance. Michaels understands the
importance of incorporating risk into his analyses, but he realizes the limitations associated
with some performance measurement techniques in accomplishing that particular objective.
Michaels begins the evaluation of numerous managers by examining return information
from both the portfolio being evaluated and its designated benchmark.

Michaels has the following return information for the AM Growth Fund:

AM Growth Fund S&P 500

Return 14% 12%

Standard deviation 25% 18%

Beta 1.15 1.00

If the AM Growth Fund is considered to be well diversified, which measure would be most
appropriate in evaluating its risk/return performance?

A) The Treynor measure.

B) The M2 measure.
C) The Sharpe ratio.

Question #45 of 54 Question ID: 1674944

Which of the following statements about risk/return investment manager performance

measures is least accurate?

The Treynor measure includes company-specific risk as part of its performance

A)
measurement.
The Sharpe measure includes company-specific risk as part of its performance
B)
measurement.
When measuring the performance of an equity fund, if the Sharpe ratio is 0.55, and
C) the Treynor measure is 0.47, the difference is attributable to unsystematic
(company-specific) risk.

Santiago Barrera is a performance evaluation analyst with Zapopan Asset Management

(ZAM). ZAM provides performance attribution analysis services to many large institutional
investors across the Americas.

Barrera has been asked by his manager, Mateo Garcia, to evaluate the performance of three
U.S. funds: Delta, Gamma, and Theta. Delta has a U.S. small-cap style, Gamma a U.S.
momentum style, and Theta has a U.S. large-cap growth style.

Garcia explains that the client is interested in the separation of true active returns from style
returns in the analysis. Jose Reynosa, a junior analyst at ZAM, assists Barrera in compiling
relevant performance data, as shown in Exhibit 1.

Exhibit 1: Performance Data

Returns Delta Gamma Theta

Portfolio returns 9.2% –5.8% 6.7%

Risk-free 3%

S&P 500 8.8%

S&P 500 Growth 9.5%

S&P SmallCap 600 8.3%

S&P 500 Momentum –7.1%

Question #46 - 49 of 54 Question ID: 1674935

Rank the true active returns from the three portfolios from highest to lowest.

A) Gamma, Theta, Delta.

B) Gamma, Delta, Theta.
C) Theta, Delta, Gamma.

Question #47 - 49 of 54 Question ID: 1674936

Calculate the style return for the Delta portfolio.

A) 0.90%.
B) 0.40%.
C) –0.50%.

Question #48 - 49 of 54 Question ID: 1674937

Which of the portfolios has misfit active return of 0.70%?

A) Delta.
B) Gamma.
C) Theta.

Question #49 - 49 of 54 Question ID: 1674938

Which manager's normal portfolio return is the highest?

A) Gamma.
B) Delta.
C) Theta.
Question #50 of 54 Question ID: 1674940

In the Sortino ratio, the excess return is divided by the:

A) standard deviation using only the returns below a minimum level.

B) maximum drawdown.
C) standard deviation.

Question #51 of 54 Question ID: 1674913

The following table shows attribution results from a fixed-income portfolio:

Total
Interest
Duration Duration Curve Sector Bond
Sector Rate Total
Bucket Effect Effect Allocation Selection
Allocation
Effect

Short Corporate

ABS/MBS

Total −0.25% +0.45% +0.20% +0.75% +0.15% +1.10%

Long Corporate

ABS/MBS

Total −0.40% +0.05% −0.35% +0.15% −0.45% −0.65%

TOTAL −0.65% +0.50% −0.15% +0.90% −0.30% +0.45%

Based on the results provided in this table, it would be most appropriate to conclude that:

A) the portfolio outperformed the benchmark portfolio by 45 basis points.

the yield curve likely flattened, because long- and short-duration positions
B)
underperformed the benchmark.
there was a 90 basis point gain from underweighting ABS/MBS versus corporate
C)
bonds.
Question #52 of 54 Question ID: 1674903

Which of the following is least likely to represent a benefit of carrying out performance
attribution?

A) Additional information for passive portfolios.

B) Quality control of active portfolios.
C) Justification of underperformance during negative market periods.

Question #53 of 54 Question ID: 1674912

Within yield curve decomposition analysis, which of the following statements regarding the
full-repricing method is least accurate? The full-repricing method:

A) requires less data than the duration-based approach.

B) is most accurate when based on spot rates.
C) is most accurate when based on zero-coupon curves.

Question #54 of 54 Question ID: 1674930

Which of the following best characterizes manager universes as a benchmark? Manager

universes are:

A) a valid benchmark because they are measurable.

B) not a valid benchmark because they are not investable.
C) not a valid benchmark because they are not measurable.