Question 1

In returns-based style analysis a coefficient of determination of 95% would suggest that

Accepted Answer

A)  The portfolio manager outperformed 95% of his peers.
B)  The portfolio manager was outperformed by 95% of his peers.
C)  95% of the portfolio return variability could be attributed to portfolio style.
D)  95% of the portfolio return variability could be attributed to stock selection skills.
E)  5% of the portfolio return variability could be attributed to portfolio style.F) All of the above
G) A) and B)

Question 2

A fundamental tenet of the contrarian investment strategy is the notion that

Accepted Answer

A)  All stock returns are mean reverting.
B)  Certain stocks outperform others during different stages of the business cycle.
C)  Value stock investing is superior to growth stock investing.
D)  Growth stock investing is superior to value stock investing.
E)  None of the above.F) A) and C)
G) A) and E)

Question 3

Which of the following statements regarding 130/30 strategies is false?

Accepted Answer

A)  Analyst can make full use of their knowledge of undervalued and overvalued stocks.
B)  Long positions up to 130% of the value of the portfolio cab be made.
C)  Short positions up to 30% of the value of the portfolio can be made.
D)  130/30 strategies are not very popular due to the increased risk of hedging.
E)  The use of short positions creates leverage.F) A) and B)
G) A) and E)

Question 4

Which of the following statements about investment style is false?

Accepted Answer

A)  Growth stocks generally have smaller capitalizations than value stocks.
B)  Value stocks have P/E and P/B ratios significantly lower than those of growth stocks.
C)  Value stocks dividend yields are much higher than those of growth stocks.
D)  Growth and levels of earnings is higher in growth stocks.
E)  Value stocks have a higher risk premium.F) A) and B)
G) A) and C) A

Question 5

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Accepted Answer

A)  Sector rotation
B)  Price momentum
C)  Earnings momentum
D)  Return rotation
E)  None of the aboveF) B) and C)
G) A) and E)

Question 6

A Long futures positions in the S&P500 has the effect of ____ portfolio exposure to equities, while short futures positions in the S&P500 has the effect of ____ portfolio exposure to equities.

Accepted Answer

A)  Increasing, decreasing.
B)  Decreasing, increasing,
C)  Increasing, increasing.
D)  Decreasing, decreasing.
E)  None of the above.F) None of the above
G) A) and E)

Question 7

Which of the following is not considered a mainstream investment style?

Accepted Answer

A)  Value
B)  Growth
C)  Market-oriented
D)  Benchmark
E)  Small-capF) A) and B)
G) A) and E)

Question 8

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

Accepted Answer

A)  Tactical asset allocation.
B)  Indexing.
C)  Sector rotation.
D)  Contrarian investing.
E)  Bottom up investing.F) B) and C)
G) C) and E) C

Question 9

In backtesting, computers are used to examine the composition and returns of portfolios based on historical data in order to determine if the investment strategy would have worked in the past.

Accepted Answer

A) True 
 B)False

Question 10

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Accepted Answer

A) True 
 B)False

Question 11

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Accepted Answer

A) True 
 B)False

Question 12

Value stocks would have the following characteristics:

Accepted Answer

A)  Low price/book, high price/earnings.
B)  Low price/book, low price/earnings.
C)  High EPS growth, high profitability.
D)  Low EPS growth, high profitability.
E)  None of the above.F) C) and D)
G) B) and C)

Question 13

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Accepted Answer

A)  Integrated
B)  Strategic
C)  Tactical
D)  Insured
E)  None of the above.F) A) and E)
G) B) and E)

Question 14

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 16.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
A portfolio manager is trying to establish a strategic asset allocation for two different clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck has a risk tolerance factor of 6. The characteristics of the three model portfolios under consideration are provided in the table below.   Asset Mix Expected Portfolio  Stock  Bond  Return  Variance  A 0.750.250.120.45 B 0.40.60.080.16 C 0.30.70.050.06\begin{array}{ccccc}&	ext { Asset Mix}&&	ext { Expected}\	ext { Portfolio } & 	ext { Stock } & 	ext { Bond } & 	ext { Return } & 	ext { Variance } \\hline 	ext { A } & 0.75 & 0.25 & 0.12 & 0.45 \	ext { B } & 0.4 & 0.6 & 0.08 & 0.16 \	ext { C } & 0.3 & 0.7 & 0.05 & 0.06\end{array} Portfolio  A  B  C ​ Asset Mix Stock 0.750.40.3​ Bond 0.250.60.7​ Expected Return 0.120.080.05​ Variance 0.450.160.06​​ 
-Refer to Exhibit 16.1. The expected utilities of Portfolios A, B and C for Tom Luck are

Accepted Answer

A)  Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73
B)  Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0
C)  Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73
D)  Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73
E)  Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 6.75 F) All of the above
G) None of the above

Question 16

Which of the following statements regarding momentum strategies is true?

Accepted Answer

A)  Price momentum is a fundamental strategy.
B)  Earnings momentum is a technical strategy.
C)  Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings.
D)  The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises.
E)  All of the above statements are trueF) A) and B)
G) C) and E)

Question 17

Which of the following statements is false?

Accepted Answer

A)  A manager's choice to align with an investment style communicates information to clients about the investor's focus, area of expertise, and stock evaluation methods.
B)  An investment manager's style cannot be used as a basis for measuring the manager's performance relative to a benchmark.
C)  Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.
D)  Style investing allows control of the total portfolio to be shared between the investment managers and a knowledgeable sponsor.
E)  None of the above (all are true statements) F) A) and B)
G) All of the above

Question 18

The goal of the passive portfolio manager is to minimize

Accepted Answer

A)  Alpha
B)  Beta
C)  Standard error
D)  Tracking error
E)  Portfolio riskF) A) and D)
G) C) and D)

Question 19

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Accepted Answer

A) True 
 B)False

Question 20

The three basic techniques for constructing a passive index are: full replication, sampling and linear programming.

Accepted Answer

A) True 
 B)False  False

Exam 16: Equity Portfolio Management Strategies

In returns-based style analysis a coefficient of determination of 95% would suggest that

Correct Answer
verified

A fundamental tenet of the contrarian investment strategy is the notion that

Correct Answer
verified

Which of the following statements regarding 130/30 strategies is false?

Correct Answer
verified

Which of the following statements about investment style is false?

Correct Answer
verified
A

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Correct Answer
verified

A Long futures positions in the S&P500 has the effect of portfolio exposure to equities, while short futures positions in the S&P500 has the effect of portfolio exposure to equities.

Correct Answer
verified

Which of the following is not considered a mainstream investment style?

Correct Answer
verified

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

Correct Answer
verified
C

In backtesting, computers are used to examine the composition and returns of portfolios based on historical data in order to determine if the investment strategy would have worked in the past.

Correct Answer
verified

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Correct Answer
verified

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Correct Answer
verified

Value stocks would have the following characteristics:

Correct Answer
verified

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Correct Answer
verified

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

Correct Answer
verified

Correct Answer
verified

Which of the following statements regarding momentum strategies is true?

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

The goal of the passive portfolio manager is to minimize

Correct Answer
verified

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Correct Answer
verified

The three basic techniques for constructing a passive index are: full replication, sampling and linear programming.

Correct Answer
verified
False

Exam 16: Equity Portfolio Management Strategies

In returns-based style analysis a coefficient of determination of 95% would suggest that

Correct AnswerverifiedShow Answer

A fundamental tenet of the contrarian investment strategy is the notion that

Correct AnswerverifiedShow Answer

Which of the following statements regarding 130/30 strategies is false?

Correct AnswerverifiedShow Answer

Which of the following statements about investment style is false?

Correct AnswerverifiedA

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Correct AnswerverifiedShow Answer

A Long futures positions in the S&P500 has the effect of ____ portfolio exposure to equities, while short futures positions in the S&P500 has the effect of ____ portfolio exposure to equities.

Correct AnswerverifiedShow Answer

Which of the following is not considered a mainstream investment style?

Correct AnswerverifiedShow Answer

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

Correct AnswerverifiedC

In backtesting, computers are used to examine the composition and returns of portfolios based on historical data in order to determine if the investment strategy would have worked in the past.

Correct AnswerverifiedShow Answer

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Correct AnswerverifiedShow Answer

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Correct AnswerverifiedShow Answer

Value stocks would have the following characteristics:

Correct AnswerverifiedShow Answer

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Correct AnswerverifiedShow Answer

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements regarding momentum strategies is true?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

The goal of the passive portfolio manager is to minimize

Correct AnswerverifiedShow Answer

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Correct AnswerverifiedShow Answer

The three basic techniques for constructing a passive index are: full replication, sampling and linear programming.

Correct AnswerverifiedFalse

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

A Long futures positions in the S&P500 has the effect of portfolio exposure to equities, while short futures positions in the S&P500 has the effect of portfolio exposure to equities.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False