weaverbirdllm/famma · Datasets at Hugging Face

100

english_94_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is

[ "A. 59.31", "B. 55.05", "C. 61.31", "D. 49.05", "E. None of the options are correct" ]

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table

D

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

94

1

Not supported with pagination yet

release_basic

101

english_95_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2009 is

[ "A. 3.15", "B. 3.63", "C. 3.69", "D. 2.58", "E. 4.20" ]

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table

A

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

95

1

Not supported with pagination yet

release_basic

102

english_96_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is

[ "A. 2.04", "B. 2.58", "C. 2.97", "D. 1.58", "E. None of the options are correct" ]

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table

B

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

96

1

Not supported with pagination yet

release_basic

103

english_97_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is

[ "A. 1.79", "B. 1.63", "C. 1.34", "D. 2.58", "E. None of the options are correct" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

97

1

Not supported with pagination yet

release_basic

104

english_98_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's return on sales ratio for 2009 is

[ "A. 15.5%", "B. 14.6%", "C. 14.0%", "D. 15.0%", "E. 16.5%" ]

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table

A

$1,240,000/$8,000,000 = 15.5%.

easy

multiple-choice

financial statement analysis

english

98

1

Not supported with pagination yet

release_basic

105

english_99_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's return on equity ratio for 2009 is

[ "A. 16.88%", "B. 15.63%", "C. 14.00%", "D. 15.00%", "E. 16.24%" ]

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table

A

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

99

1

Not supported with pagination yet

release_basic

106

english_100_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2009 is

[ "A. 8.88", "B. 7.63", "C. 7.88", "D. 7.32" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

100

1

Not supported with pagination yet

release_basic

107

english_101_1_r1

nan

The financial statements of Black Barn Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's market-to-book value for 2009 is

[ "A. 1.13", "B. 1.62", "C. 1.00", "D. 1.26" ]

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table

D

$40/$31.85 = 1.26.

easy

multiple-choice

financial statement analysis

english

101

1

Not supported with pagination yet

release_basic

108

english_102_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is

[ "A. 1.82", "B. 1.03", "C. 1.30", "D. 1.65", "E. None of the options are correct" ]

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table

C

$860,000/$660,000 = 1.30.

easy

multiple-choice

financial statement analysis

english

102

1

Not supported with pagination yet

release_basic

109

english_103_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2009 is

[ "A. 1.71", "B. 0.78", "C. 0.85", "D. 1.56" ]

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table

C

($860,000 - $300,000)/$660,000 = 0.85.

easy

multiple-choice

financial statement analysis

english

103

1

Not supported with pagination yet

release_basic

110

english_104_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2009 is

[ "A. 1.62", "B. 1.56", "C. 2.00", "D. 2.42", "E. 2.17" ]

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table

C

$3,040,000/$1,520,000 = 2.00.

easy

multiple-choice

financial statement analysis

english

104

1

Not supported with pagination yet

release_basic

111

english_105_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2009 is

[ "A. 2.897", "B. 2.719", "C. 3.375", "D. 3.462" ]

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table

C

$540,000/160,000 = 3.375.

easy

multiple-choice

financial statement analysis

english

105

1

Not supported with pagination yet

release_basic

112

english_106_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's average collection period for 2009 is

[ "A. 69.35", "B. 69.73", "C. 68.53", "D. 67.77", "E. 68.52" ]

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table

A

<ans_image_1>

medium

multiple-choice

financial statement analysis

english

106

1

Not supported with pagination yet

release_basic

113

english_107_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2009 is

[ "A. 2.86", "B. 1.23", "C. 5.96", "D. 4.42", "E. 4.86" ]

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table

D

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

107

1

Not supported with pagination yet

release_basic

114

english_108_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2009 is

[ "A. 1.45", "B. 1.63", "C. 1.20", "D. 1.58" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

108

1

Not supported with pagination yet

release_basic

115

english_109_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2009 is

[ "A. 1.86", "B. 0.63", "C. 0.83", "D. 1.63" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

109

1

Not supported with pagination yet

release_basic

116

english_110_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on sales ratio for 2009 is

[ "A. 20.2%", "B. 21.6%", "C. 22.4%", "D. 18.0%" ]

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table

B

$540,000/$2,500,000 = 0.216, or 21.6%.

easy

multiple-choice

financial statement analysis

english

110

1

Not supported with pagination yet

release_basic

117

english_111_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on equity ratio for 2009 is

[ "A. 12.24%", "B. 14.63%", "C. 15.50%", "D. 14.50%", "E. 16.9%" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

111

1

Not supported with pagination yet

release_basic

118

english_112_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's P/E ratio for 2009 is

[ "A. 4.74", "B. 6.63", "C. 5.21", "D. 5.00" ]

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table

A

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

112

1

Not supported with pagination yet

release_basic

119

english_113_1_r1

nan

The financial statements of Midwest Tours are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's market-to-book value for 2009 is

[ "A. 0.24", "B. 0.95", "C. 0.71", "D. 1.12" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

113

1

Not supported with pagination yet

release_basic

120

english_114_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements for Snapit Company. The firm's current ratio for 2009 is

[ "A. 1.98", "B. 2.47", "C. 0.65", "D. 1.53", "E. None of the options are correct" ]

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table

D

$1,300,000/$850,000 = 1.53.

easy

multiple-choice

financial statement analysis

english

114

1

Not supported with pagination yet

release_basic

121

english_115_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's quick ratio for 2009 is

[ "A. 1.68", "B. 1.12", "C. 0.72", "D. 1.92", "E. None of the options are correct" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

115

1

Not supported with pagination yet

release_basic

122

english_116_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's leverage ratio for 2009 is

[ "A. 2.25", "B. 3.53", "C. 2.61", "D. 3.06", "E. None of the options are correct" ]

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table

D

$2,600,000/$850,000 = 3.06.

easy

multiple-choice

financial statement analysis

english

116

1

Not supported with pagination yet

release_basic

123

english_117_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's times interest earned ratio for 2009 is

[ "A. 2.26", "B. 3.16", "C. 3.84", "D. 3.31", "E. None of the options are correct" ]

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table

D

$530,000/$160,000 = 3.31.

easy

multiple-choice

financial statement analysis

english

117

1

Not supported with pagination yet

release_basic

124

english_118_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's average collection period for 2009 is _______ days.

[ "A. 47.91", "B. 48.53", "C. 46.06", "D. 47.65", "E. None of the options are correct" ]

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table

A

(525,000/4,000,000) (365) = 47.91.

easy

multiple-choice

financial statement analysis

english

118

1

Not supported with pagination yet

release_basic

125

english_119_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's inventory turnover ratio for 2009 is

[ "A. 4.64", "B. 4.16", "C. 4.41", "D. 4.87", "E. None of the options are correct" ]

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table

A

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

119

1

Not supported with pagination yet

release_basic

126

english_120_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's fixed asset turnover ratio for 2009 is

[ "A. 4.60", "B. 3.61", "C. 3.16", "D. 5.46" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

120

1

Not supported with pagination yet

release_basic

127

english_121_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's asset turnover ratio for 2009 is

[ "A. 1.60", "B. 3.16", "C. 3.31", "D. 4.64" ]

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table

A

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

121

1

Not supported with pagination yet

release_basic

128

english_122_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on sales ratio for 2009 is

[ "A. 0.0133", "B. 0.1325", "C. 1.325", "D. 1.260" ]

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table

B

$530,000/$4,000,000 = 0.1325.

easy

multiple-choice

financial statement analysis

english

122

1

Not supported with pagination yet

release_basic

129

english_123_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on equity ratio for 2009 is

[ "A. 0.1235", "B. 0.0296", "C. 0.2960", "D. 2.2960" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

123

1

Not supported with pagination yet

release_basic

130

english_124_1_r1

nan

The financial statements of Snapit Company are given below. <image_1> <image_2> Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's market-to-book value for 2009 is

[ "A. 0.7256", "B. 1.5294", "C. 2.9400", "D. 3.6142" ]

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table

C

<ans_image_1>

easy

multiple-choice

financial statement analysis

english

124

1

Not supported with pagination yet

release_basic

131

english_125_1_r1

nan

The following price quotations were taken from the Wall Street Journal. <image_1> The premium on one February 90 call contract is

[ "A. $3.1250", "B. $318.00", "C. $312.50", "D. $58.00" ]

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table

C

31/8 = $3.125 * 100 = $312.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

easy

multiple-choice

derivatives

english

125

1

Not supported with pagination yet

release_basic

132

english_126_1_r1

nan

The following price quotations on WFM were taken from the Wall Street Journal. <image_1> The premium on one WFM February 90 call contract is

[ "A. $4.1250", "B. $418.00", "C. $412.50", "D. $158.00" ]

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table

C

41/8 = $4.125 * 100 = $412.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

easy

multiple-choice

derivatives

english

126

1

Not supported with pagination yet

release_basic

133

english_127_1_r1

nan

The following price quotations on WFM were taken from the Wall Street Journal. <image_1> The premium on one WFM February 85 call contract is

[ "A. $8.875", "B. $887.50", "C. $412.50", "D. $158.00" ]

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table

B

87/8 = $8.875 * 100 = $887.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

easy

multiple-choice

derivatives

english

127

1

Not supported with pagination yet

release_basic

134

english_128_1_r1

nan

Consider the following: <image_1> What should be the proper futures price for a 1-year contract?

[ "A. 1.703 A$/$", "B. 1.654 A$/$", "C. 1.638 A$/$", "D. 1.778 A$/$", "E. 1.686 A$/$" ]

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table

B

<ans_image_1>

easy

multiple-choice

derivatives

english

128

1

Not supported with pagination yet

release_basic

135

english_129_1_r1

nan

Consider the following: <image_1> If the futures market price is 1.63 A$/$, how could you arbitrage?

[ "A. Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and enter futures positionsto purchase Australian dollars at the current futures price", "B. Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, andenter futures positions to sell Australian dollars at the current futures price", "C. Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at thecurrent futures price", "D. Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price", "E. There is no arbitrage opportunity" ]

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table

B

<ans_image_1>

easy

multiple-choice

derivatives

english

129

1

0

Not supported with pagination yet

release_basic

136

english_130_1_r1

nan

Consider the following: <image_1> If the market futures price is 1.69 A$/$, how could you arbitrage?

[ "A. Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and enterfutures positions to purchase Australian dollars at the current futures price", "B. Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, andenter futures positions to sell Australian dollars at the current futures price", "C. Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchaseAustralian dollars at the current futures price", "D. Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price", "E. There is no arbitrage opportunity" ]

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table

A

<ans_image_1>

medium

multiple-choice

derivatives

english

130

1

0

Not supported with pagination yet

release_basic

137

english_131_1_r1

nan

Consider the following: <image_1> Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$, convert the proceeds to U.S. dollars, and invest them in the U.S. at the risk-free rate. You simultaneously enter a contract to purchase 170,340 A$ at the current futures price (maturity of 1 year). What would be your profit (loss)?

[ "A. Profit of 630 A$", "B. Loss of 2300 A$", "C. Profit of 2300 A$", "D. Loss of 630 A$" ]

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table

A

<ans_image_1>

medium

multiple-choice

derivatives

english

131

1

0

Not supported with pagination yet

release_basic

138

english_132_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> If the anticipated market value materializes, what will be your expected loss on the portfolio?

[ "A. 14.29%", "B. 16.67%", "C. 15.43%", "D. 8.57%", "E. 6.42%" ]

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table

D

The change would represent a drop of (1,200 1,400)/1,400 = 14.3% in the index. Given the portfolio's beta, your portfolio would be expected to lose 0.6 * 14.3% = 8.57%.

medium

multiple-choice

derivatives

english

132

1

Not supported with pagination yet

release_basic

139

english_133_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> What is the dollar value of your expected loss?

[ "A. $142,900", "B. $16,670", "C. $85,700", "D. $30,000", "E. $64,200" ]

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table

C

The dollar value equals the loss of 8.57% times the $1 million portfolio value = $85,700.

easy

multiple-choice

derivatives

english

133

1

Not supported with pagination yet

release_basic

140

english_134_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> For a 200-point drop in the S&P 500, by how much does the value of the futures position change?

[ "A. $200,000", "B. $50,000", "C. $250,000", "D. $500,000", "E. $100,000" ]

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table

B

The change is 200 points times the $250 multiplier, which equals $50,000.

easy

multiple-choice

derivatives

english

134

1

Not supported with pagination yet

release_basic

141

english_135_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer.

[ "A. sell 1.714", "B. buy 1.714", "C. sell 4.236", "D. buy 4.236", "E. sell 11.235" ]

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table

A

The number of contracts equals the hedge ratio = change in portfolio value/profit on one futures contract = $85,700/$50,000 = 1.714. You should sell the contract because as the market falls the value of the futures contract will rise and will offset the decline in the portfolio's value.

easy

multiple-choice

derivatives

english

135

1

0

Not supported with pagination yet

release_basic

142

english_136_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> If the anticipated market value materializes, what will be your expected loss on the portfolio?

[ "A. 7.58%", "B. 6.52%", "C. 15.43%", "D. 8.57%", "E. 6.42%" ]

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table

B

The change would represent a drop of (915 990)/990 = 7.58% in the index. Given the portfolio's beta, your portfolio would be expected to lose 0.86* 7.58% = 6.52%.

easy

multiple-choice

derivatives

english

136

1

Not supported with pagination yet

release_basic

143

english_137_1_r1

nan

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> What is the dollar value of your expected loss?

[ "A. $142,900", "B. $65,200", "C. $85,700", "D. $30,000", "E. $64,200" ]

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table

B

The dollar value equals the loss of 6.52% times the $1 million portfolio value = $65,200.

easy

multiple-choice

derivatives

english

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You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> For a 75-point drop in the S&P 500, by how much does the futures position change?

[ "A. $200,000", "B. $50,000", "C. $250,000", "D. $500,000", "E. $18,750" ]

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E

The change is 75 points times the $250 multiplier, which equals $18,750.

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You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. <image_1> How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer.

[ "A. Sell 3.477", "B. Buy 3.477", "C. Sell 4.236", "D. Buy 4.236", "E. Sell 11.235" ]

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A

The number of contracts equals the hedge ratio equals: Change in portfolio value/profit on one futures contract = $65,200/$18,750 = 3.477. You should sell the contract because as the market falls the value of the futures contract will rise and will offset the decline in the portfolio's value.

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You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. <image_1> The fund with the highest Sharpe measure is

[ "A. Fund A", "B. Fund B", "C. Fund C", "D. Funds A and B (tied for highest)", "E. Funds A and C (tied for highest)" ]

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C

<ans_image_1>

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nan

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 4%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. <image_1> The fund with the highest Sharpe measure is

[ "A. Fund A", "B. Fund B", "C. Fund C", "D. Funds A and B (tied for highest)", "E. Funds A and C (tied for highest)" ]

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B

<ans_image_1>

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You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. <image_1> The investment with the highest Sharpe measure is

[ "A. Fund A", "B. Fund B", "C. Fund C", "D. the index", "E. Funds A and C (tied for highest)" ]

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D

<ans_image_1>

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You want to evaluate three mutual funds using the Treynor measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, in addition to information regarding the S&P 500 Index. <image_1> The fund with the highest Treynor measure is

[ "A. Fund A", "B. Fund B", "C. Fund C", "D. Funds A and B (tied for highest)", "E. Funds A and C (tied for highest)" ]

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A

<ans_image_1>

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You want to evaluate three mutual funds using the Jensen measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 18%. The average returns, standard deviations, and betas for the three funds are given below. <image_1> The fund with the highest Jensen measure is

[ "A. Fund A", "B. Fund B", "C. Fund C", "D. Funds A and B (tied for highest)", "E. Funds A and C (tied for highest)" ]

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C

<ans_image_1>

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The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 3%. What is the Sharpe measure of performance evaluation for Sooner Stock Fund?

[ "A. 1.33%", "B. 4.00%", "C. 8.67%", "D. 38.6%", "E. 37.14%" ]

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D

<ans_image_1>

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The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 3%. What is the Treynor measure of performance evaluation for Sooner Stock Fund?

[ "A. 1.33%", "B. 4.00%", "C. 8.67%", "D. 9.44%", "E. 37.14%" ]

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D

<ans_image_1>

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The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 3%. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.

[ "A. 2.6%", "B. 4.00%", "C. 8.67%", "D. 31.43%", "E. 37.14%" ]

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A

<ans_image_1>

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The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 3%. Calculate the information ratio for Sooner Stock Fund.

[ "A. 1.53", "B. 1.30", "C. 8.67", "D. 31.43", "E. 37.14" ]

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B

<ans_image_1>

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The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 4%. What is the information ratio measure of performance evaluation for Monarch Stock Fund?

[ "A. 1.00%", "B. 280.00%", "C. 44.00%", "D. 50.00%", "E. None of the options are correct" ]

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B

<ans_image_1>

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The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: <image_1> The risk-free return during the sample period was 4%. Calculate Sharpe's measure of performance for Monarch Stock Fund.

[ "A. 1%", "B. 46%", "C. 44%", "D. 50%", "E. None of the options are correct" ]

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B

(16-4)/26 = .46

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Andrei Zubov is a portfolio manager for Greenhill Trust based in Connecticut. Greenhill provides a range of wealth advisory and institutional client services. Zubov is preparing to meet with three new clients.CHM Corporation is a US based company that manufactures sports equipment. The company’s employees participate in a defined contribution plan in which investments in the plan is participant directed. Greenhill has been asked to develop an Investment Policy Statement for the plan and help select a menu of investment options for plan participants.Jennifer Zola is a member of the investment committee for the defined benefit pension plan for GIC Products, a company that manufactures beauty, healthcare and homecare products. The company’s pension assets are currently managed in- house and Zola would like Greenhill to assume management of their pension assets. Selected information regarding the company and its pension plan is provided in Exhibit 1. <image_1> Zola asks Zubov, “Based on the information provided could you give us some preliminary guidance on an appropriate return objective?” Zubov responds, “In this instance, a return objective of up to 100 basis points higher than the liability discount rate would be appropriate. This return objective would not only help the plan fund pension obligations but potentially minimize future pension obligations and maintain or increase future pension income.” Zola also provides the following additional information: ■■ the company has enjoyed steadily rising earnings for the past 10 years andexpects this trend to continue in the future ■■ the company has debt to total assets of approximately 10 percent ■■ the company would like to discuss the possibility of modifying the currentpension plan by offering an early retirement provision allowing for lump-sumdistributions Zola asks Zubov to explain his overall approach to pension asset risk management.Zubov explains that there are two important considerations, “The first consideration is portfolio allocations to different sectors. Specifically, the plan’s risk tolerance will be higher if we overweight the pension portfolio with equity investments in companies in the beauty, healthcare, and homecare industry. The second consideration is to view risk from an asset liability management approach. That is, the focus should be on managing the volatility of the pension surplus.” The Hoven University (HU) has asked Greenhill to manage the university’s endowment. The endowment’s spending rule dictates that it makes an annual contribution of 4% of its year-end portfolio market value to support HU’s operating budget. The annual endowment contribution represents 25% of HU’s annual operating budget. The university’s operating expenses are expected to grow at a rate of 2.5% annually, while the rate of inflation in the economy is expected to be 1% per year. Investment management expenses are estimated to be 0.65% of the market value of the endowment. The investment committee has asked Zubov to provide his views on the risk and return objectives and liquidity constraints for the endowment. Zubov responds with the following statements: ■■ “Based on the information provided, an annual total return objective in therange 7% to 7.5% would be appropriate for the fund. ■■ In order to meet the endowment’s spending needs for this year, the liquidityneed is in the range 4.5% to 5% of the year-end portfolio value. ■■ Given the return objective and liquidity needs, the endowment’s risk toleranceis high.”

Is Zubov’s response to Zola regarding the return objective most likely correct?

[ "A. No, he is incorrect with regard to future pension contributions.", "B. Yes", "C. No, he is incorrect with regard to future pension income." ]

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B

B is correct. The plan is fully funded with a surplus of $25 million and has minimal liquidity needs. Thus risk tolerance may be characterized as being above average. This justifies a more aggressive return objective in excess of the liability discount rate of 5% by up to 100 basis points. Furthermore, this desired return objective will likely help meet other objectives such as minimizing future pension obligations and maintaining or increasing future pension income.

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Based on information provided by Zola, a higher risk tolerance for GIC Products Pension Plan is least likely supported by:

[ "A. Zola’s proposed modification to the current pension plan.", "B. earnings expectations for the company.", "C. the debt to total asset ratio." ]

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A

A is correct. Zola would like GIC to introduce an early retirement provision that allows for lump-sum distributions. This increases immediate liquidity requirements and reduces the level of risk tolerance. In contrast, the company’s expected growth in earnings and the low debt to total asset ratio imply a higher risk tolerance.

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Martin Standish is an economic analyst with Exeter Asset Management, a British firm that specializes in global funds for institutional investors, most of whom are based in the United Kingdom. Standish is identifying potential countries and asset classes to include in a developed markets fund that Exeter intends to introduce later this year. He begins his work by collecting macroeconomic data with which he can assess the outlook and expectations for a set of investment opportunities he is considering. Standish observes the following data: <image_1> Deeba Kumar, Standish’s supervisor, stops by to see how his work is progressing. She asks him to research at least five additional countries for the new fund, and suggests Chile, Singapore, Great Britain, the United States and Denmark as potential candidates. She cautions Standish that he needs to be aware of interest rate linkages between these economies, and mentions three points that he should consider: 1 Since the Chilean peso appears to be undervalued relative to the British pound and is likely to rise, Chilean bond yields may be lower than they should be relative to British bonds. 2 The peg linking Denmark’s currency to the euro is considered to be at risk and likely to break. Therefore, Danish bond yields are expected to drop if the Danish krone weakens relative to the euro. 3 After removing expected inflation, the real bond yield is likely to be similar in Singapore and Sweden. Next, Standish begins to identify specific assets to include in the developed markets portfolio. He considers equally weighted positions in Chilean Real Estate, Swiss bonds, and US equities, among others. He reviews the forecasts of inflation for these three countries and notes that inflation is predicted to be above expected levels in Chile, but below expectations in both Switzerland and the United States. With this new information, he ponders how he should adjust the portfolio weights to reflect the economic forecast. Exeter also manages an emerging markets fund. Standish has been asked to help Mary Jones, a new trainee, review the country risk associated with assets in that fund. Standish tells Jones that the evaluation process is similar to the evaluation of assets in developed countries, but with more emphasis on several key factors. Jones responds that her country risk analysis will focus on the balance of payments, debt level, and the political situation in each country. Jones tells Standish that she is particularly concerned about currency risk in the emerging markets fund. She is worried that the fund’s positions in Thailand may be at risk if there is a change in the value of the Thai baht (THB) relative to the British pound (GBP). Jones has gathered some projections (Exhibit 2) to assist her in analyzing the risk; she believes that Purchasing Power Parity (PPP) should provide a good model for esr1marmg any currency change. <image_2> Jones and Standish discuss her estimate. Standish mentions that PPP can be combined with a relative economic strength forecast for a more complete analysis, and suggests to her that there are at least three strengths to the combined approach: 1 PPP provides a useful guide to the short-term direction of exchange rates; 2 Relative economic strength focuses on trade flows, so it is independent of short-term interest rates; 3 Relative economic strength captures the impact of news on the economy.

Based on the data provided in Exhibit 1, which country is most likely to show economic growth in the next several quarters?

[ "A. Switzerland", "B. Sweden", "C. Czech Republic" ]

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C

C is correct: The Czech Republic shows a marked decline in the inventory/sales ratio. When the inventory/sales ratio decreases over time, the economy is likely to be strong in the next few quarters as businesses try to rebuild inventory. <ans_image_1>

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Based on Exhibit 2 and her proposed forecasting model, the most accurate prediction that Jones can make about the THB/GBP exchange rate in five years is:

[ "A. THB 55.7674 per GBP", "B. THB 47.1928 per GBP", "C. THB 52.2523 per GBP" ]

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A

A is correct. According to purchasing power parity (PPP), the movement in the exchange rate should offset any difference in the inflation rates between the two countries. Accordingly, the THB/GBP exchange rate in five years is predicted to be: <ans_image_1>

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Of Kumar’s three points regarding interest rate linkages between countries proposed for the new fund, she is least likely correct with respect to bond yields in:

[ "A. Chile.", "B. Denmark.", "C. Singapore and Sweden." ]

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B

B is correct: Kumar’s second point regarding Danish bonds is incorrect. When two currencies are pegged or linked, the bond yields of the country with the weaker currency are nearly always higher unless the market is confident that the government will maintain the peg. Kumar stated that because Denmark’s currency may not remain pegged to the euro, if the Danish krone weakens relative to the euro, then Danish bond yields can be expected to drop. They should be expected to rise.

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Goldsboro Partners, an investment management firm, intends to offer more products invested in equities traded on the Singapore Exchange (SGX). Goldsboro is developing the Goldsboro Singapore Index (GSI); a proprietary index of Singapore equities comprised of five stocks traded on the SGX with the largest market capitalization. Goldsboro must decide how to structure the GSI. Information about the prices and market caps of these firms is found in Exhibit 1. <image_1> Goldsboro has four large, institutional clients who indicated that they might invest a total of USD 240 million in a fund indexed to the GSI. These clients are very cost sensitive. Goldsboro already offers two mutual funds that consist of stocks that are part of the Straits Times Index (STI), a value-weighted index of the 30 largest firms traded on the SGX. Exhibit 2 provides information about these two funds (GBl and GB2), the STI index, and all stocks traded on the SGX. <image_2> <image_3> Goldsboro also offers three independently managed funds, GB-STI-1, GB-STI-2, and GB-STI-3. The three funds are benchmarked against the STI index. For the year 2009, Jason Briggs, a client whose Singapore benchmark is the MSCI Singapore Free Index, pursued a core-satellite approach by investing in these three funds, earning a return of 12.4%. Information about these three funds, their returns, and Briggs’ investments is found in Exhibit 3. In 2009, the return on the MSCI Singapore Free Index was 11.7% and the return on the STI Index was 12.0% <image_4>

Based on Exhibit 1, for the year 2009, assuming no stock splits or stock dividends for the stock components and no rebalancing, which of these index structures would have most likely resulted in the largest return for the GSI

[ "A. A price-weighted index", "B. A value-weighted index", "C. An equal-weighted index" ]

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B

B is correct because this weighting methodology produced the largest return of 13.5% for the GSI. The return on a value-weighted index is the percentage change in the total market capitalization of the firms in the index.

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According to the information provided in Exhibit 2, Fund GB1 is best characterized as having what equity style

[ "A. Value", "B. Growth", "C. Market oriented" ]

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C

C is correct because a market oriented equity style is one that is neither value nor growth. Fund GB1 has characteristics that are almost identical to the broader STI index. While two (dividend yield and P/E) of the four reported characteristics lean slightly toward a growth style, the other two (P/B, projected EPS growth) lean slightly toward a value style.

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Goldsboro’s Fund GB2 would appeal to an investor who is most closely focused on:

[ "A. relative strength.", "B. earnings momentum.", "C. price relative to intrinsic value." ]

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C

C is correct because Fund GB2 follows a value style (higher dividend yield, lower P/E, P/B, and earnings growth). Value investors are focused on price relative too intrinsic value.

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The characterization of Briggs’ investment as following a core-satellite approach is most likely

[ "A. correct.", "B. incorrect, because too little of the portfolio was passively invested.", "C. incorrect, because the funds invested in are benchmarked against the wrong index." ]

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A

A is correct. Fund GB-STI3 has an expected alpha and expected tracking error of 0% and can therefore be characterized as an index fund. 20% of the investment was placed in this fund, creating a core, with the remainder invested in non-index funds creating a satellite. A small core allocation might be indicative of a high risk tolerance.

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During 2009, the “misfit” active return earned by Brigg’s investments was closest to:

[ "A. 0.3%", "B. 0.4%", "C. 0.7%" ]

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A

A is correct because “misfit” active return is equal to the return of the manager’s normal benchmark minus the return of the investor’s benchmark. 0.3% = 12% – 11.7%, where 12% is the return on the STI index fund and 11.7% is the return on the MSCI Singapore Free Index.

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Donna Everitt is a financial advisor at Mountainview Investment Counsel (MIC). Early Tuesday morning, she meets with a new client, Marjorie Sunnydale, to understand her financial history and objectives. Everitt mentions that she will be preparing an investment policy statement (IPS) for her. Marjorie says that one was prepared by her previous advisor, but that its purpose was not explained to her. The first question that Marjorie asks Everitt is what benefits an IPS might provide. Everitt prepares the following notes (Exhibit 1) as the meeting continues. After compiling the information in Exhibit 1, Everitt concludes that Marjorie has a low risk tolerance. As they continued their Tuesday meeting, Marjorie asks Everitt to determine whether she will be able to fund her immediate goals if she accepts King’s buyout offer. Just prior to ending their Tuesday meeting, Marjorie mentions that three months ago she met with Gardiner-Parkway Advisors (GPA), and they prepared an IPS for her. She said that she was not satisfied with their work and this is why she has sought out assistance from MIC. She mentions the following three statements that were included in GPA’s IPS:■ Marjorie has a multi-stage time horizon: the first stage is four years, until herintended retirement, followed by a second stage of 22 years;■ Marjorie intends to proceed with a planned donation to the engineering schoolfrom which she graduated, and there appears to be sufficient liquidity to meetthis goal;■ Currently, the sizable investment in Westmeyer shares provides both tax deferral and tax reduction benefits <image_1> <image_2> The Thursday afternoon phone call On Thursday afternoon, Everitt phones Marjorie to ask her to return to the office to sign-off on the IPS which she had just prepared. Marjorie indicates that in the intervening few days several important developments have taken place that need to be incorporated into her IPS:■ Further negotiations with King resulted in her immediately accepting an offer of$13,000 per share for all of her shares in SSE.■ King agreed to maintain her $150,000 salary only for the rest of the current yearduring which the planned transition will be completed.■ Marjorie decided to accept a reduced pension of $100,000 per year, starting atage 60.■ The donation to the engineering school will now be increased to $3 million.■ Anna’s education will now be funded immediately with a single contribution of$850,000 invested in the same way as the remainder of her portfolio.■ Marjorie plans on transferring the Westmeyer shares to Anna at age 21, eitherdirectly or through a trust set up in her will. In either case, Anna will beinformed about her great-grandmother’s wishes concerning the shares, with thehope that they will continue to be honored. Should Anna not survive to age 21,the shares will be donated to the engineering school. Marjorie had indicated that she wished to have her investment portfolio structuredto limit shortfall risk (defined as expected real return minus two standard deviations) to be no lower than a negative 12% in any one year. Before revising Marjorie’s IPS for the new information, Everitt carries out additional research on expected future college costs and general inflation, and now estimates that Marjorie requires a real after-tax return of 5% p.a. to meet her future needs. She provides summary statistics for three asset allocation alternatives (Exhibit 2) that she thinks will satisfy Marjorie’s requirements. <image_3>

Everitt’s least accurate response to Marjorie’s first question would be that it:

[ "A. summarizes the circumstances and constraints that govern the relationship between the advisor and client.", "B. ensures that both the advisor and underlying fund managers bear a duty of loyalty to the client.", "C. provides protection for both the advisor and client if management practices are subsequently questioned." ]

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B

B is correct. Ensuring that both the advisor and underlying fund managers bear a duty of loyalty to the client.is not a valid benefit of preparing an IPS. The advisor alone is bound by a duty of loyalty to a particular client. Any portfolio managers employed are bound to manage the fund according to the investment policy statement of the fund, and should not be influenced by the needs of any particular fund investor.

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Everitt’s conclusion about Marjorie’s risk tolerance, after compiling Exhibit 1, is most likely based on her:

[ "A. level of wealth.", "B. source of wealth.", "C. stage of life." ]

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C

C is correct. Situational profiling attempts to categorize individual investor characteristics by stage of life or by economic circumstances. At age 59, Marjorie is primarily in the maintenance phase in the life-stage classification, approaching retirement. This phase focuses on preserving accumulated wealth and risk tolerance normally begins to decline.

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If Marjorie accepts King’s offer from the previous Friday for an immediate purchase of 30% of her shares, based on the information provided in Exhibit 1, the amount by which her current liquidity requirements will be exceeded is closest to:

[ "A. $907,000", "B. $607,000", "C. $457,000" ]

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C

C is correct.

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Based on Exhibit 1, which of the statements in the Gardiner-Parkway IPS prepared for Marjorie is most appropriate? The statement regarding:

[ "A. Her time horizon.", "B. the Westmeyer investment.", "C. the planned donation." ]

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B

B is correct. The Westmeyer shares provide tax deferral benefits, as no taxes are to be paid until disposal; in addition, there are tax reduction benefits: no dividends are paid, and taxes on dividends are higher than that of capital gains.

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Based on Everitt’s revised return requirements, the summary statistics in Exhibit 2, and Marjorie’s stated preferences, which is the most appropriate asset allocation to meet her needs?

[ "A. 3", "B. 1", "C. 2" ]

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A

A is correct. All three of the asset allocations meet the real after-tax return of 5% which Everitt has suggested is required. Marjorie has also stated a shortfall risk restriction, (shortfall in real after-tax terms not to exceed –12% in any year), and this is achieved only by asset allocation 3

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Val Mishum is a senior manager at Stone Bancorp, Inc. She, and two of her colleagues, Peg Todd and Nat Filbert, have just joined the in-house pension investment committee which oversees the investment process for Stone’s defined-benefit plan. As a team, they will help the investment committee measure overall return, consider benchmarks and evaluate outside investment managers. Todd initiates a discussion of the use of benchmarks applicable to various fund managers including hedge funds. Todd: “We should match the passive and active managers with the appropriate security market index. Any benchmark or index we use should fit the specific needs of the sponsor (Stone Bancorp) rather than just the manager. Also, excluding the hedge funds, the indexes should be widely available.” Filbert: “An appropriate benchmark will have risks similar to that of an active manager’s portfolio allowing us to better identify and reduce active risk exposure. If the benchmark and manager risk levels are aligned, we are indifferent whether positive excess returns are achieved by skill or by luck.” Mishum: “For active equity portfolios, we should at least be able to attribute returns to security selection or industry bets.” Mishum’s team reviews report summaries of recent overall investment results of the pension plan account (Exhibit 1) and the performance of the equity managers (Exhibit 2). The account experienced significant cash flows only in April and December. <image_1> Using the data in Exhibit 1, Filbert calculates an overall annual return of –2.2% while Mishum calculates a return of –1.8% for the year. The team verifies the return calculations and discusses why they differ: Mishum: “When evaluating project returns with cash flows, I was taught to use the internal rate of return (IRR). It accounts for the cash flows yet is not influenced by their timing.” Filbert: “You have calculated the time-weighted rate of return (TWR), whereas I have calculated the money-weighted rate of return (MWR).” Todd: “The money-weighted return should exceed the time-weighted return because the cash flows occurred at favorable times.” The team then considers the prior year’s investment performance of the equity managers. After reviewing the equity manager data in Exhibit 2, Todd comments that he is most impressed with the manager whose active return was the highest for those whose investment style was out of favor over the period. Six months later, Stone Bancorp announces a merger with another bank. When the deal closes, Stone will freeze and terminate the existing defined benefit pension plan. Employees will have access to a different plan with the new owner. The sponsor clarifies the pension obligations after these events as follows: ■■ No new employees will be added to the plan and existing vested employees willno longer accrue additional benefits. ■■ Current retired beneficiaries will continue to receive their normal flat, monthlypayments. They do not have any option for a lump sum distribution. ■■ Due to expected terminations including certain highly compensated executives,lump-sum distributions within a year are estimated to be about 15% of thecurrent plan value. ■■ The plan will be funded at 105% of ABO when terminated and no additionalfuture contributions are expected. ■■ Actuaries identify the duration of estimated payouts excluding lump-sum distributions to be 14 years. ■■ The estimated return necessary to meet the obligations of the plan is 3.9%. Mishum, Filbert, and Todd evaluate Stone’s new situation and work toward settingup a new benchmark that will mimic the obligations and risk of the terminated plan going forward. The benchmark structure will drive the realignment of the investments. Mishum: “We should design a benchmark that includes several bond funds, some inflation-sensitive securities, has a weighted average duration of 14 years, and sufficient liquidity to meet the lump sum payouts.” Todd: “I think we should identify a 3.9% required return as the primary objective since that estimate includes all of the expected payouts including inflation adjustments. We then select an assortment of asset classes that meet this required return while minimizing risk as much as possible.” Filbert: “Although you both make good points, the primary emphasis should be Sharpe style analysis. We should control investment risk using optimization procedures.” <image_2>

In the team’s discussion of the overall rates of return calculated from Exhibit 1, the most accurate statement is made by:

[ "A. Filbert", "B. Mishum", "C. Todd" ]

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C

C is correct. Todd’s statement is correct. The contribution occurred at an opportune time which causes the calculation for the MWR return to be greater than the TWR return. The initial sub-period of January 1 to April 20 has a negative return, but the period from April 21 through December 31 has a positive return. Buying into the fund April 21 means the $9 million addition will only experience the positive return period. Thus, the timing of this cash flow results in a calculation for the MWR return to be greater than the TWR return which is unaffected by cash flows. The distribution occurred at the end of the year and is included in the terminal value.

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Based on Exhibit 2, the manager that Todd is most impressed with is:

[ "A. Buck Growth", "B. Doe Value", "C. Fawn Small-Cap" ]

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A

A is correct. An investment which is “out of style” is indicated when its Style index (S) is negative; this occurs when the market index (M) outperforms the benchmark (B): S = (B – M) < 0. Using the data in Exhibit 2, the decomposition of the return into components for each manager is indicated in the table below. Both Buck Growth and Fawn Small-Cap experienced out of favor style index returns. Buck Growth added the greatest to return via active management (A), i.e., 0.4% versus only 0.1% for Fawn. <ans_image_1>

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Following Stone’s merger and the resultant changes in its pension plan, which team member best describes a returns-based benchmark?

[ "A. Todd", "B. Filbert", "C. Mishum" ]

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B

B is correct. Filbert describes a returns-based benchmark. To create a returns-based benchmark using Sharpe style analysis, an optimization procedure is used in which the portfolio’s sensitivities are forced to be non-negative and sum to 1. Todd describes an absolute return benchmark. Mishum describes a liability-based benchmark.

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Following Stone’s merger and the resultant changes to its pension plan, which team member describes the most appropriate new benchmark?

[ "A. Todd", "B. Mishum", "C. Filbert" ]

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B

B is correct. Mishum selects a custom liability-based benchmark which is more appropriate for the terminated pension than the benchmarks described by either Todd or Filbert. The primary feature of the liability-based benchmark is the duration comment which matches the needs identified by the sponsor. The cash liquidity need is also necessary and specified by Mishum.

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London-based Kingsbridge Partners has been selected to manage a GBP150 million global bond portfolio for a pension fund. Jonathan Bixby, Kingsbridge’s portfolio manager, meets with Iain Seymour, a fixed income analyst at the firm to review the portfolio and its holdings relative to the client’s objectives. The pension fund allows the use of 100% leverage to generate incremental returns. Bixby evaluates the use of leverage in the portfolio using the data in Exhibit 1. <image_1> Bixby's current macro view is that the economy is growing at a rate above the trend rate and, as a result, interest rates are likely to rise. Given his view, he is concerned the duration of the portfolio is inappropriate and plans to use the futures market to manage its interest rate risk. His new duration target for the asset portfolio is 4.25, and he uses the data in Exhibit 2 to reposition the portfolio. <image_2> Seymour suggests to Bixby that as an alternative to futures he could use interest rate swaps or options to alter the portfolio’s duration. He says he can alter the duration by receiving fixed and paying floating on a swap. Seymour also suggests that buying a protective put will achieve the hedging objective but provides more upside if Bixby is wrong about the future direction of interest rates. He says Bixby can also express his view by writing a covered call and not incur the cost of the premium. Seymour tells Bixby, “International interest rates are not perfectly correlated. We can see the impact of a change in US interest rates on our model global bond portfolio. This portfolio contains US and German bonds and is not currently hedged with regard to currency or interest rates. Our analysis shows that the country beta between the United States and Germany is 0.62.” Model global bond portfolio data is provided in Exhibit 3. <image_3> Bixby asks Seymour whether the model portfolio should be hedged back to its domestic currency, the pound sterling (GBP). Bixby tells him that actively managing currency risk is an expected source of incremental returns for the portfolio and has historically accounted for 25% of Kingsbridge’s alpha relative to the benchmark.Seymour refers to the data in Exhibit 4 to support his current view that currency exposure in the portfolio should be actively managed. <image_4> Bixby asks whether this global portfolio would benefit from including emerging market debt securities. Seymour responds that returns can be attractive in emerging markets during certain periods, but risks also abound. He notes the following risks: Risk 1: Returns are frequently characterized by significant negative skewness because the potential large downside is not offset by a comparable upside. Risk 2: Emerging markets offer less protection from interference by the executive branch than developed countries. Risk 3: Emerging market countries have limited access to secondary sources of liquidity.

Based on the data in Exhibit 1, the duration of equity in the leveraged portfolio is closest to:

[ "A. 4.50", "B. 5.00", "C. 10.00" ]

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C

C is correct. Kingsbridge can leverage the GBP150 million portfolio by 100% by borrowing an additional GBP150 million. <ans_image_1>

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Given Bixby’s new target duration and the data in Exhibits 1 and 2, the most appropriate action using Treasury futures is to sell:

[ "A. 646 contracts.", "B. 789 contracts.", "C. 811 contracts." ]

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C

C is correct. To hedge against rising rates, Bixby needs to reduce duration by selling the following number of Treasury futures contracts: <ans_image_2>

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Which of Seymour’s comments regarding alternative ways to alter the portfolio’s duration is most likely correct? The comment regarding:

[ "A. interest rate swaps.", "B. a protective put.", "C. the covered call." ]

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B

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Based on Seymour’s statement regarding international interest rates, as well as the data in Exhibit 3, the impact of a 100-basis-point decline in US interest rates on the model portfolio's value is closest to:

[ "A. 3.41%", "B. 4.02%", "C. 4.93%" ]

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C

C is correct because the UScomponent contributes 3.96 in duration to the portfolio (0.60 × 6.6 = 3.96); therefore, a 1.00 change will contribute ±3.96% to the value of the portfolio. The German component has a contribution to duration of 1.56 (0.4 × 3.9 = 1.56) but moves only 0.62 times the movement in US rates, thus contributing ±0.97% to portfolio return (1.56 × 0.62 = 0.97). The total impact is ±4.93% (3.96 + 0.97 = 4.93).

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Based on the data in Exhibit 4, the most likely action that Kingsbridge would take to actively manage the portfolio’s currency exposure in the currency forward markets is to sell:

[ "A. USD and buy EUR.", "B. EUR and buy USD.", "C. USD, sell EUR, and buy GBP." ]

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B

B is correct. The forward rates for both USD and EUR fully reflect the interest rate differentials as expected by interest rate parity. As such, forwards reflect that USD is expected to appreciate relative to GBP and EUR to depreciate relative to GBP. Kingsbridge’s view, however, is that USD will appreciate more than the forward implies and EUR will depreciate more than the forward implies. The result in actively managing the portfolio is that the EUR bonds should be hedged into USD.

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Seymour is least likely correct with respect to which risk regarding investing in emerging market debt?

[ "A. Risk 3", "B. Risk 2", "C. Risk 1" ]

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A

A is correct because this statement is incorrect, Emerging market countries in fact have access to lenders on the world stage, such as the International Monetary Fund and the World Bank.

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William Gatchell, is an investment analyst with the Sonera Endowment Fund. Sonera is considering hiring a new equity investment manager. In preparation, Gatchell meets with Anjou Lafite, another analyst at the fund, to review a relevant part of the endowment’s investment policy statement: “Funds will be invested in the most efficient vehicle that meets the investment objective. Each manager must demonstrate the efficiency with which the tracking error they take on delivers active return. In addition, each manager must consistently adhere to his stated style.” Gatchell is given the task of reviewing three investment managers and selecting a manager that is most likely to adhere to Sonera’s investment policy statement. Information about the investment managers is found in Exhibit 1. <image_1> Gatchell is reviewing the fee structures proposed by the three investment managers. He finds the following reference in the investment policy statement: “The fee structure must be easy to understand and avoid undue complexity wherever possible. Also, the fee structure must be predictable, so Sonera can reasonably forecast these costs on a yearly basis as an input to the annual budgeting process.” PMHe understands there are many different fee structures, and he wants to make sure he chooses the most appropriate one for the Sonera Endowment Fund. He prepares a recommendation to the investment policy committee regarding the most appropriate fee structure.Sonera has followed an active investment style for many years. Gatchell would like to recommend to the investment policy committee that a portion of the funds be invested using a passive investment style. His research shows there are a number of methods used to weight the stocks in an index, each having its own characteristics. The one key feature he feels is important is that the method chosen not be biased towards small- capitalization stocks.Gatchell is also examining different ways to establish passive equity exposure. He states to Lafite, “There are a number of ways to get passive equity exposure; we can invest in an equity index mutual fund, a stock index futures contract, or a total return equity swap. Stock index futures and equity swaps are low- cost alternatives to equity index mutual funds; however, a drawback of stock index futures is they have to be rolled over periodically. One advantage of investing in equity mutual funds is that shares can be redeemed at any point during the trading day.”Gatchell is reviewing the performance of another investment manager, Far North, which employs a value- oriented approach and specializes in the Canadian market. Gatchell would like to recommend to the investment policy committee that the fund diversify geographically. The information for Far North and the related returns are found in Exhibit 2. <image_2> The investment policy committee reviews the information in Exhibit 2 and is not familiar with the terms true active return and misfit active return. Gatchell responds with the following statement: “The true active return is the return Far North made above its normal benchmark return. The misfit active return is the return Far North made above the investor’s benchmark return. The term investor’s benchmark refers to the benchmark the investor uses to evaluate performance for a given portfolio or asset class.”

Based on Exhibit 1, which investment manager most likely meets the criteria established in the endowment's investment policy statement?

[ "A. Manager A", "B. Manager B", "C. Manager C" ]

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B

B is correct because manager B has a positive information ratio, demonstrating that he has been able to deliver active returns relative to his level of tracking error. Manager B’s investment style is consistent with a value investment style, with a higher beta for the two value indices, the small-cap value index and the large-cap value index.

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Based on Exhibit 1, is there sufficient information for Gatchell to create and interpret the results of a style box?

[ "A. Yes", "B. No, because additional index data are required", "C. No, because additional holdings data are required" ]

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C

C is correct because holdings data are required to create a style box and interpret the results. Gatchell is given the styles and the assets under management but not each individual investment or holding that each investment manager has selected.

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Which fee structure is most appropriate for Sonera based on the criteria in the investment policy statement

[ "A. An ad valorem fee structure", "B. performance-based fee structure with a fee cap", "C. performance-based fee structure with a high water mark" ]

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A

A is correct because ad valorem fee structures are both simple and predictable. The ad valorem fee structure is calculated by multiplying the value of the assets by a percentage.

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If the investment policy committee decides to accept Gatchell’s recommendation to also use passive investing, the index structure that least likely meets Gatchell’s requirement is:

[ "A. a price-weighted index.", "B. a value-weighted index.", "C. an equal-weighted index." ]

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C

C is correct because an equal-weighted index is biased towards small-capitalization stocks.

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In his statement to Lafite, Gatchell is least likely correct with respect to:

[ "A. cost.", "B. redemption.", "C. periodic rollover." ]

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B

B is correct. Gatchell is correct that stock index futures and equity swaps are low-cost alternatives to equity index mutual funds. He is also correct that a drawback of stock index futures is they have to be rolled over periodically. He is incorrect about the pricing of mutual funds: They are priced once daily.

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Is Gatchell’s statement regarding true active return and misfit active return correct?

[ "A. Yes", "B. No, he is incorrect about true active return", "C. No, he is incorrect about misfit active return" ]

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C

C is correct because the definition of misfit active return is incorrect. Misfit active return is the difference between the normal benchmark and the investor’s benchmark.

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Nadia Ahmed is the head trader for Tweed Asset Management (Tweed) based in London, England. She is reviewing some of the trade requests the desk has received from its personal and institutional portfolio managers and is deciding on what tactics to recommend. Ahmed starts by reviewing the trade requests from one of Tweed’s personal portfolio managers, Edwin Moore. She passes the requests along to Vladimir Norsk, one of the firm’s traders. The first trade Ahmed asks Norsk to execute is a purchase of 2,000 shares of BDF Ltd., which trades on the SEAQ, London’s dealer market for infrequently traded shares. Norsk reviews the current limit order book for BDF shown in Exhibit 1. <image_1> Norsk was able to fill the order for BDF during the day by executing the trades shown in Exhibit 2. <image_2> The next request that Ahmed reviews is for the purchase of 300,000 shares of WWT pie from a client who is quite concerned about price execution. She reviews the trading volumes from the previous day (Exhibit 3) and, prepares her recommendation on the trade. <image_3> The final order from Moore that Ahmed asks Norsk to execute is a purchase of 1,000 shares of JAK pie with a limit order of £25.00 good for the day. Norsk was unsuccessful in filling the limit order on the first day and after consultation with the client they agree to revise the price. Two days later Norsk successfully purchases 800 shares of JAK at £26.25 with commission costs of £135.00. Moore decides to cancel the order for the remaining 200 shares when the shares close that day at £26.75. Moore and Ahmed discuss the implementation shortfall from the investment in JAK, based on the $25.50 closing price in Exhibit 3, and Moore makes the following statement: I know that market movement is a factor in the implementation shortfall. Because market movement is beyond Norsk’s control, when assessing his performance, we should adjust the calculation to only include the commission costs and the missed trading opportunity for the 200 shares.

The share-volume-weighted effective spread for the purchases of BDF is closest to:

[ "A. £0.10.", "B. £0.08.", "C. £0.04." ]

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B

B is correct. <ans_image_1> <ans_image_2>

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Using the information in Exhibits 1 and 2, which of the following statements about the execution of the trade for BDF is most accurate?

[ "A. The price movement for the first trade resulted in an effective spread higher than the quoted spread.", "B. The trader should have been able to fill the order completely with Dealer B.", "C. The price movement for the first trade was favorable for Tweed’s trader." ]

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C

C is correct. The first trade at 11:15:09 was executed for 1,500 shares at £15.46 (Exhibit 2) when the ask was £15.48 (Exhibit 1), therefore Tweed’s trader was able to purchase the shares for less than the ask which is a favorable price movement for the trader.

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The strategy Ahmed will most likely recommend in executing the purchase order for WWT is a(n):

[ "A. principal trade.", "B. market on open order.", "C. iceberg order." ]

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C

C is correct. Because the order represents a substantial portion of the daily volume of WWT (450,000 shares, see Exhibit 2) and could affect the price, which is important to the client, Moore would most likely use an iceberg order. An iceberg order is a limit order with instructions to show only a portion of the order at a time, to try to avoid moving the market price unfavorably. A principal trade would not be suitable because it often requires price concessions and price is important in this situation.

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The implementation shortfall, in basis points, on the purchase of the JAK shares is closest to:

[ "A. 360", "B. 386", "C. 332" ]

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B

B is correct. The implementation shortfall is the difference between the money return on a paper portfolio based on the benchmark or decision price ($25.50 in Exhibit 3) and the actual portfolio’s money return. <ans_image_3>

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Moore’s statement about assessing the trader’s performance is best described as:

[ "A. incorrect, as only commission costs should be included.", "B. correct.", "C. incorrect, as delay costs should also be included." ]

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A

A is correct. Moore’s statement is incorrect, only explicit costs such as the £135 commission cost should be included in assessing the trader’s performance. The missed trading opportunity cost is also a result of market movement.

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Kate Baker is in charge of assessing investment managers hired by KTB Funds. KTB states its investment strategy as being adept at investing in undervalued securities in equity and debt markets. Baker is assisted by Trent Coates and Gerry Manders. The group are examining the performance (Exhibit 1) of three managers who separately specialize in large-cap, mid-cap, and small-cap equities. In addition to overall return, Baker reminds the group that they also need to focus on whether the managers have been consistent with KTB’s investment strategy. <image_1> Given the under-performance of the small-cap fund, Baker and her assistants examine the investments being made in that fund. The fund holdings are primarily in stocks that trade infrequently and seldom have dealer quotes. Consequently, there is a concern that the small-cap benchmark may be inappropriate. Coates suggests using a custom security-based benchmark that has the following criteria: 1 broadly representative of the small-cap market, 2 includes a cash position weighting, and 3 weighted according to the market capitalization of infrequently traded small cap stocks. Baker and her assistants then turn their attention to the large-cap manager’s performance. The large-cap benchmark is viewed as being representative of the market portfolio that is used in the Capital Asset Pricing Model (CAPM). Upon gathering more information (Exhibit 2), they want to assess whether the large-cap manager is skillful based on the generation of ex-post alpha relative to the CAPM and having a ratio of active return relative to active risk being above 0.10. <image_2> Manders suggests using a performance quality control chart to assess the large-cap manager. He makes the following statements to support his point: ■■ such a chart utilizes a confidence band that widens with the time horizon. ■■ a skillful manager only needs to outperform the benchmark regularly with deviation within the confidence band. ■■ the analysis is based on three criteria: 1) an initial testable null hypothesis thatthe manager has no investment skill, 2) an assumption that value-added returnsare normally distributed and independent from period to period, and 3) anassumption that the manager’s investment process is consistent from period toperiod. The group now turns its attention to three bond funds in which KTB holds positions (Exhibit 3). Similar to KTB’s equity strategy, the bond strategy is one of being adept at finding undervalued debt securities. <image_3> Coates asks Baker. “Given all of the assessment we are performing on equity and bond managers, what are the consequences of firing a manager?” Baker answers, “The expense of frequent manager turnover is only of concern if we commit Type 2 errors. However, we should also be concerned with discontinuing the services of skillful managers solely based on our quantitative assessment metrics, which is an example of a Type I error. Consequently, in addition to quantitative assessment, we should also interview the fund manager face-to-face before either deciding to retain or terminate him or her, just as was done at the initial hire.”

In assessing the equity manager’s performance relative to KTB’s investment strategy, the metric that is most useful is:

[ "A. with-in sector selection return.", "B. pure sector allocation return.", "C. the excess return of the portfolio over its benchmark." ]

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A

A is correct. KTB’s equity strategy is to identify undervalued securities. A given manager will be consistent with this investment strategy if the within-sector selection return represents a large portion of the incremental return of the portfolio over its benchmark.

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The most appropriate criteria suggested by Coates for a custom security-based benchmark for the small-cap fund is:

[ "A. 1", "B. 2", "C. 3" ]

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B

B is correct. Including a weight for a cash position, criteria 2, should be part of a custom benchmark. Broadly representing the small-cap market, criteria 1, and market capitalization weighted, criteria 3, may not be consistent with the small-cap manager’s approach.

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Based on the information in Exhibit 2 and the criteria for active return, which of the following measures most likely indicates that the large-cap manager is skillful?

[ "A. Sharpe ratio", "B. Treynor measure", "C. Information ratio" ]

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B

B is correct. <ans_image_1>

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Manders’ most accurate statement in regard to a performance quality control chart is the:

[ "A. three criteria necessary for analysis.", "B. description of the confidence band through time.", "C. skillful manager performance relative to the confidence band." ]

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A

A is correct. Manders is correct in his statement about the three criteria for analysis using a performance quality control chart. The other two points are incorrect. The width of the confidence band depends on the standard deviation of value-added returns, as time passes, the confidence band will narrow rather than widen, converging on the benchmark line. Evidence of a skillful manager would be performance that is above the benchmark and outside the confidence band on a consistent basis.

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Based on Exhibit 3, the bond fund that is most consistent with KTB’s investment strategy is:

[ "A. TQZ.", "B. MKK.", "C. BCM." ]

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B

B is correct. The incremental return due to the management process is measured by the difference between the total return for each fund and the benchmark. To assess the success of a particular investment strategy, analyze the components of the incremental return. For the strategy of investing in undervalued securities a significant proportion of the incremental bond fund return should come from bond selectivity. <image_4>

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Edvard Richards is president and sole owner of More Than Lumber Corporation (MTL), a privately held building materials company. Founded by the Richards family, the company has been run by Edvard Richards for over 40 years. Richards also owns investment real estate in the form of a warehouse unrelated to MTL, as well as 70,000 common shares of publicly traded Cintas (CTAS) that he inherited. He wants these two items to be considered concentrated positions. Now 68, Richards is seeking advice on how to transition to retirement. He provides information about his holdings (Exhibit 1) to two competing financial advisers, Todd Adams and Linda Boshe: <image_1> Richards asks each adviser to apply a goal-based planning framework he has read about that uses three risk buckets: personal, market, and aspirational. As a first step, he estimates his own after-tax primary capital assuming that all assets are sold today and converted into cash. He asks the two advisers to assess his after-tax primary capital under the same assumptions (all three estimates are provided in Exhibit 2). <image_2> Richards wants to monetize and eliminate the concentration risk of his CTAS holding without paying taxes on capital gains and then invest the proceeds in a balanced portfolio. He notes the following comments in his discussions with the two advisers: Richards: “My broker says he can arrange a cashless collar against CTAS or a short sale against the box. I understand that both methods will avoid incurring an immediate capital gain and both will expose me to the same level of market risk. I can borrow against the position in both cases and offset the cost of borrowing with the CTAS dividends.” Adams: “We could help you complete a short against the box transaction. This strategy will provide a high loan-to-value (LTV) ratio and avoid counterparty risk. A total return equity swap has these same advantages. You can thus realize the economic gain on CTAS while deferring capital gains taxes.” Boshe: “We suggest either a forward conversion with options or an equity forward sale. Either will achieve high LTV ratio monetization without incurring immediate capital gains taxes, and both methods avoid counterparty risk.” Adams has strong connections to the real estate market and informs Richards that the market value estimate of $3 million for the warehouse is much too low. He advises Richards to consider reducing his real estate risk directly by, using the immediate cash inflows, net of tax liabilities and costs, to increase his stock and bond portfolios. Adams is confident he can arrange any of the following real estate offers: 1. Sell the warehouse for $4.8 million to an outside investor. 2. Enter into a recourse mortgage loan with the warehouse valued at $5.8 million by the lender and an LTV ratio of 80%. 3. Enter into a sale-and-leaseback, with the warehouse valued at $4.9 million and the first year’s rental payment of $150,000 payable at the start of the lease. Boshe has strong connections to the investment banking community. Richards has authorized her to ascertain the level of interest for the sale of MTL. Boshe is confident she can arrange any of the following strategies: MTL Strategy 1: A private equity firm can arrange to leverage MTL, paying Richards 40% of his estimated value of MTL (as shown in Exhibit 1), in cash up front and rolling the remaining 60% of the value into new shares that pay no dividends. Richards will stay on as president for five years, during which time he will help transition leadership to a new team. After five years, he will sell or monetize the remaining ownership. MTL Strategy 2: A small but rapidly growing publicly traded building materials company is willing to acquire 100% ownership and pay Richards $7 million in cash up front and employee stock options that he can exercise after two years and that expire in five years. The public company is too small to support publicly traded stock options. Should the public company’s stock rise, Richards can exercise his employee stock options, which will be taxed as ordinary income. To protect the value of his appreciated stock while participating in further upside potential, he can purchase long-term protective put options on an industry ETF that closely tracks the building materials industry. If the public company’s stock subsequently drops along with the industry, he can sell the puts. MTL Strategy 3: Create an employee stock ownership plan (ESOP) that would borrow sufficient funds to purchase 40% of Richards’ ownership. Richards would maintain upside potential in his retained shares, which could be sold at some point in the future.

Using the planning framework that Richards suggests, which person's estimate of the after-tax primary capital is most accurate

[ "A. Boshe", "B. Adams", "C. Richards" ]

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B

Answer = B . Primary capital is the sum of assets that fall into the personal and market risk buckets. It includes the residence, municipal bond portfolio, global equity fund and cash equivalents. It excludes the values of MTL and the concentrated positions in CTAS public stock and the warehouse (investment real estate) – those are considered aspirational. <image_3> Adams has the correct value.

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multiple-choice

portfolio management

english

160

1

0

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199

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nan

Richards's understanding about monetizing CTAS is most accurate with respect to

[ "A. the risk exposure of both strategies.", "B. using the CTAS dividends to offset borrowing costs.", "C. avoiding immediate capital gains under both strategies" ]

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C

Answer = C . Richards’s understanding about avoiding immediate capital gains is correct. The short sale against the box approach defers capital gains. No sale of stock occurs in establishing the collar. The short against the box strategy is riskless, whereas the collar does carry risk within the range between the exercise prices of the put and the call. The dividends will continue to be paid to Richards only in the collar. The dividends will pass through to the lender of the shares that were borrowed in the short against the box strategy and are thus not available to Richards.

easy

multiple-choice

portfolio management

english

160

2

0

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