Portfolio performance is:
rarely measured in absolute terms, mostly measured in relative terms
rarely measured in relative terms, mostly measured in absolute terms
only ever measured in relative terms
only ever measured in absolute terms
Which of the following is a limitation rather than an assumption of the Capital Asset Pricing Model?
Investors are rational and risk averse
Investors hold a well-diversified portfolio
Investors make investment decisions based on mean variance analysis
Investors are rewarded for more than just their exposure to systemic risk
An investor allowed the principle of 'regret aversion' to influence his actions. This resulted in him:
declining to buy a stock based purely on a previous bad experience
B buying a badly performing stock from a friend as recompense for recommending it in the first place
holding a poorly performing stock for an irrationally long period
only selling stock once a specified loss threshold had been reached
Why is a time weighted return (TWR) preferred to a money weighted return (MWR) when evaluating performance?
TWR only requires portfolio values at the start and end of the investment period along with dates and size of each cash flow
TWR eliminates the timing effect of cash flows into and out of the fund
TWR measures the fund growth resulting from both the underlying performance of the portfolio and the size and timing of cash flows into and out of the fund
TWR calculates the risk adjusted return per unit of risk
Four bond portfolios each hold a variety of stock. Which one of them is BEST described as operating a barbell strategy?
Portfolio A, which consists solely of bills maturing in one year plus bonds maturing in 25 and 30 years
Portfolio B, which consists solely of bills maturing in six months plus bonds maturing in 5, 10, 15 and 20 years
Portfolio C, which consists solely of bonds maturing in 1, 3 and 5 years
Portfolio D, which consists solely of bonds maturing in 20, 25 and 30 years
Why do portfolios need a regular annual or periodic review?
To ensure that all assets are priced on a regular basis
To ensure that all assets are reconciled against the market
To ensure that all cash balances are reconciled against the actual bank
To ensure the portfolio still meets the client's objectives and is positioned correctly given the market conditions
The excess return of a portfolio or security above that of the risk adjusted benchmark is known as:
alpha
beta
duration
premium
An investment manager believes that markets are inefficient and that he can obtain abnormal returns after transaction charges. Which investment style is he most likely to adopt?
Passive
Indexation
Active
Satellite
An individual has been advised to invest in some shares by a friend. He wants to make sure that he invests in companies which do not have a volatile share price. To achieve this he should select shares which have a beta factor of:
1
1.25
1.5
1.75
Which of the following is a feature in Arbitrage Pricing Theory (APT)?
APT relies on identified factors being correlated
The variables of APT include real economic factors
The principal component of APT is the return on an index of all shares
APT is equivalent to a single factor Capital Asset Pricing Model
Based on the principles of Modern Portfolio theory, an equity fund will operate on the 'efficient frontier' if:
the optimum level of systematic risk is obtained
the best level of diversification is achieved
the fund's alpha value is negative
the fund's beta value is one or more
Bond portfolio X exclusively contains relatively long-dated stock whereas Bond portfolio Y operates a laddering strategy. This means that Bond X is likely to:
generate higher yields
present less of a credit risk
be more sensitive to interest rate changes
represent a more diversified approach
In which country can shareholders be assured that listed companies will comply with the OECD Principles for Corporate Governance?
France
Germany
UK
USA
An investor has a requirement for an 8% return and is considering choosing Stock X to satisfy this need. Based on the Capital Asset Pricing Model, if the beta value of this stock is recalibrated from 1.2 to 1.3, this would:
increase the likelihood that the stock would be suitable
decrease the likelihood that the stock would be suitable
automatically trigger an increase in the investor's required rate
automatically trigger a decrease in the investor's required rate
Using Modern Portfolio Theory to create a two stock portfolio, which of the following is TRUE?
The lower the correlation of stock returns, the greater the portfolio's diversification
The higher the correlation of stock returns, the greater the portfolio's diversification
The higher the correlation of stock returns, the lower the level of total risk associated with any given level of expected return
The lower the correlation of stock returns, the higher the level of total risk associated with any given level of expected return
Which of the following does a passive investment manager principally invest in?
Equities
An index
Fixed income
Other institutional funds