c
  c



  

 c


. Suppose two portfolios have the same average return, the same standard deviation of returns, but
portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of
portfolio A __________.
A. is better than the performance of portfolio B
B. is the same as the performance of portfolio B
C. is poorer than the performance of portfolio B
D. cannot be measured as there is no data on the alpha of the portfolio
E. none of the above is true.

. Suppose two portfolios have the same average return, the same standard deviation of returns, but
portfolio A has a higher beta than portfolio B. According to the Treynor measure, the performance of
portfolio A __________.
A. is better than the performance of portfolio B
B. is the same as the performance of portfolio B
C. is poorer than the performance of portfolio B
D. cannot be measured as there is no data on the alpha of the portfolio
E. none of the above is true.

. Suppose two portfolios have the same average return, the same standard deviation of returns, but
Aggie Fund has a higher beta than Raider Fund. According to the Sharp measure, the performance of
Aggie Fund
A. is better than the performance of Raider Fund.
B. is the same as the performance of Raider Fund.
C. is poorer than the performance of Raider Fund.
D. cannot be measured as there is no data on the alpha of the portfolio
E. none of the above is true.

. Suppose two portfolios have the same average return, the same standard deviation of returns, but
Aggie Fund has a lower beta than Raider Fund. According to the Treynor measure, the performance
of Aggie Fund
is better than the performance of Raider Fund.
B. is the same as the performance of Raider Fund.
C. is poorer than the performance of Raider Fund.
D. cannot be measured as there is no data on the alpha of the portfolio
E. none of the above is true.

. Consider the Sharpe and Treynor performance measures. When a pension fund is large and has
many managers, the __________ measure is better for evaluating individual managers while the
__________ measure is better for evaluating the manager of a small fund with only one manager
responsible for all investments.
A. Sharpe, Sharpe
B. Sharpe, Treynor
C. Treynor, Sharpe
D. Treynor, Treynor
E. Both measures are equally good in both cases.

ã. Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is
0%, and the average return is 16%. Based on Jensen's measure of portfolio performance,
you would calculate the return on the market portfolio as
A. 12.3%
B. 10.4%
C. 15.1%
D. 16.7%
E. none of the above

. Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is
3%, and the average return is 18%. Based on Jensen's measure of portfolio performance,
you would calculate the return on the market portfolio as
A. 12%
B. 14%
C. 15%
D. 16%
E. none of the above

. Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% in

year 2 and 30% in year 3. The geometric average return for the year period will be
__________.
A. greater than the arithmetic average return
B. equal to the arithmetic average return
C. less than the arithmetic average return
D. equal to the market return
E. cannot tell from the information given

. Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning of
year 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price at
the end of year 1 is $100, the price $120 at the end of year 2, and the price is $150 at the
end of year 3. The stock price declines to $100 at the end of year 4, and you sell your 100
shares. For the four years, your geometric average return is
A. 0.0%
B. 1.0%
C. 5.7%
D. 9.2%
E. 34.5%


. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock
B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11%
return. __________ has the higher arithmetic average return.
A. stock A
B. stock B
C. the two stocks have the same arithmetic average return
D. at least three periods are needed to calculate the arithmetic average return
E. none of the above

. The price that the buyer of a put option pays to acquire the option is called the
A. strike price
B. exercise price
C. execution price
D. acquisition price
E. premium

. The price that the writer of a call option receives to sell the option is called the
A. strike price
B. exercise price
C. execution price
D. acquisition price
E. premium

. An American put option allows the holder to

A. buy the underlying asset at the striking price on or before the expiration date.
B. sell the underlying asset at the striking price on or before the expiration date.
C. potentially benefit from a stock price decrease with less risk than short selling the
stock.
D. B and C.
E. A and C.

. A European put option allows the holder to

A. buy the underlying asset at the striking price on or before the expiration date.
B. sell the underlying asset at the striking price on or before the expiration date.
C. potentially benefit from a stock price decrease with less risk than short selling the
stock.
D. sell the underlying asset at the striking price on the expiration date.
C and D.





 
  


The Sharpe index is a measure of average portfolio returns (in excess of the risk free return) per unit
of total risk (as measured by standard deviation)

The Treynor index is a measure of average portfolio returns (in excess of the risk free return) per unit
of systematic risk (as measured by beta).

The Sharpe index is a measure of average portfolio returns (in excess of the risk free return) per unit
of total risk (as measured by standard deviation).
 
The Treynor index is a measure of average portfolio returns (in excess of the risk free return) per unit
of unit of systematic risk (as measured by beta).

The Treynor measure is the superior measure if the portfolio is a small portion of many portfolios
combined into a large investment fund. The Sharpe measure is superior if the portfolio represents the
investor's total risky investment position.
ã
0% = 16% - [3% + 1.75(x - 3%)]; x = 10.4%.

3% = 18% - [6% + 1.5(x - 6%)]; x = 12%.


The geometric mean will always be less than the arithmetic mean unless the returns in all
periods are equal (in which case the two means will be equal).

[(1.25)(1.20)(1.25)(0.6667)]1/4 - 1.0 = 5.7%

A: (2% + 18%)/2 = 10%; B: (9% + 11%)/2 = 10%.

The price that the buyer of a put option pays to acquire the option is called the premium.

The price that the writer of a call option receives to sell the option is called the premium

An American put option allows the buyer to sell the underlying asset at the striking price
on or before the expiration date. The put option also allows the investor to benefit from
an expected stock price decrease while risking only the amount invested in the contract.

A European put option allows the buyer to sell the underlying asset at the striking price
on or before the expiration date. The put option also allows the investor to benefit from
an expected stock price decrease while risking only the amount invested in the contractp