Ch. 22, Chapter 22: Evaluation of Investment Performance
Multiple Choice
1. The major question when evaluating the performance of a portfolio is:
a. “Does the portfolio match the investor characteristics of the individual investor?”
b. “Does the expected return of the portfolio meet the needs of the individual
investor?”
c. “Is the return on the portfolio adequate to compensate for the risk taken?”
d. “Is the risk on the portfolio in line with the personal characteristics of the
investor?”
Ans: c
Difficulty: Difficult
Ref: Performance Measurement Issues
2. The --------------------- is the legitimate alternative to a portfolio that accurately
reflects the objectives of the portfolio owners.
a. market average index
b. efficient portfolio
c. benchmark portfolio
d. performance standard
Ans: c
Difficulty: Moderate
Ref: Performance Measurement Issues
3. Which of the following indices would be most appropriate as a benchmark portfolio
for a large-cap mutual fund?
a. Wilshire 5000.
b. S&P 500.
c. Dow Jones Industrial Average.
d. Russell 2000.
Ans: b
Difficulty: easy
Ref: Performance Measurement Issues
4. The __________ indicates the percentage of the variance in the portfolio's returns
explained by the market's returns.
a. standard deviation
Chapter Twenty-Two 283
Evaluation of Investment Performance
, b. coefficient of determination
c. beta
d. alpha
Ans: b
Difficulty: Moderate
Ref: Performance Measurement Issues
5. If we are to assess performance carefully, we must do so on what kind of basis?
a. quarterly
b. annual
c. attribution-weighted
d. risk-adjusted
Ans: d
Difficulty: Moderate
Ref: Performance Measurement Issues
6. The Global Investment Performance Standards (GIPS®) were created by:
a. CFA Institute, the successor to AIMR.
b. Russell/Mellon Financial, now Bank of New York Mellon Financial
c. Morningstar.
d. MSCI.
Ans: a
Difficulty: Moderate
Ref: Performance Measurement Issues
7. The reward-to-variability ratio measures:
a. return above the risk-free rate.
b. excess return per unit of total risk.
c. total risk per unit of excess return.
d. return above the risk-free rate relative to the risk-free rate.
Ans: b
Difficulty: easy
Ref: Risk-Adjusted Measures of Performance
8. Which one of the following statements is true?
Notation: RVAR: Sharpe’s reward-to-variability measure
RVOL: Treynor’s reward-to-volatility measure
a. RVOL is based on total risk while RVAR is based on systematic risk.
b. RVAR is based on total risk while RVOL is based on systematic risk.
c. RVAR is based on unsystematic risk while RVOL is based on systematic risk.
d. RVOL is based on systematic risk while RVAR is based on unsystematic risk.
Chapter Twenty-Two 284
Evaluation of Investment Performance
Multiple Choice
1. The major question when evaluating the performance of a portfolio is:
a. “Does the portfolio match the investor characteristics of the individual investor?”
b. “Does the expected return of the portfolio meet the needs of the individual
investor?”
c. “Is the return on the portfolio adequate to compensate for the risk taken?”
d. “Is the risk on the portfolio in line with the personal characteristics of the
investor?”
Ans: c
Difficulty: Difficult
Ref: Performance Measurement Issues
2. The --------------------- is the legitimate alternative to a portfolio that accurately
reflects the objectives of the portfolio owners.
a. market average index
b. efficient portfolio
c. benchmark portfolio
d. performance standard
Ans: c
Difficulty: Moderate
Ref: Performance Measurement Issues
3. Which of the following indices would be most appropriate as a benchmark portfolio
for a large-cap mutual fund?
a. Wilshire 5000.
b. S&P 500.
c. Dow Jones Industrial Average.
d. Russell 2000.
Ans: b
Difficulty: easy
Ref: Performance Measurement Issues
4. The __________ indicates the percentage of the variance in the portfolio's returns
explained by the market's returns.
a. standard deviation
Chapter Twenty-Two 283
Evaluation of Investment Performance
, b. coefficient of determination
c. beta
d. alpha
Ans: b
Difficulty: Moderate
Ref: Performance Measurement Issues
5. If we are to assess performance carefully, we must do so on what kind of basis?
a. quarterly
b. annual
c. attribution-weighted
d. risk-adjusted
Ans: d
Difficulty: Moderate
Ref: Performance Measurement Issues
6. The Global Investment Performance Standards (GIPS®) were created by:
a. CFA Institute, the successor to AIMR.
b. Russell/Mellon Financial, now Bank of New York Mellon Financial
c. Morningstar.
d. MSCI.
Ans: a
Difficulty: Moderate
Ref: Performance Measurement Issues
7. The reward-to-variability ratio measures:
a. return above the risk-free rate.
b. excess return per unit of total risk.
c. total risk per unit of excess return.
d. return above the risk-free rate relative to the risk-free rate.
Ans: b
Difficulty: easy
Ref: Risk-Adjusted Measures of Performance
8. Which one of the following statements is true?
Notation: RVAR: Sharpe’s reward-to-variability measure
RVOL: Treynor’s reward-to-volatility measure
a. RVOL is based on total risk while RVAR is based on systematic risk.
b. RVAR is based on total risk while RVOL is based on systematic risk.
c. RVAR is based on unsystematic risk while RVOL is based on systematic risk.
d. RVOL is based on systematic risk while RVAR is based on unsystematic risk.
Chapter Twenty-Two 284
Evaluation of Investment Performance
