CIC Performance Measurement and Reporting 2

Question 1

What is the primary difference between the Money-Weighted Return (MWR) and the Time-Weighted Return (TWR)?

Accepted Answer

MWR is affected by the timing and size of client cash flows while TWR is not

Answer

MWR ignores dividends while TWR includes all income

Answer

TWR is used for private equity while MWR is used for public equities

Answer

MWR annualizes returns while TWR reports them on a simple basis

Question 2

The Treynor Ratio measures excess return per unit of which type of risk?

Accepted Answer

Systematic risk (beta)

Answer

Total risk (standard deviation)

Answer

Unsystematic (idiosyncratic) risk

Answer

Downside risk (semi-deviation)

Question 3

In Brinson-Hood-Beebower (BHB) performance attribution, which three effects are analyzed?

Accepted Answer

Allocation effect, selection effect, and interaction effect

Answer

Alpha effect, beta effect, and gamma effect

Answer

Market effect, sector effect, and security effect

Answer

Systematic effect, unsystematic effect, and timing effect

Question 4

What is 'survivorship bias' in investment performance reporting?

Accepted Answer

The overstatement of historical returns caused by excluding funds that failed or were liquidated

Answer

The tendency for investors to hold winning positions too long

Answer

The systematic underperformance of new funds relative to established ones

Answer

A reporting error caused by omitting dividends from total return calculations

Question 5

Under GIPS standards, what is a 'composite'?

Accepted Answer

An aggregation of all discretionary portfolios managed according to a similar investment mandate or strategy

Answer

A blended benchmark combining multiple indices

Answer

A performance record spanning at least 10 years of verified returns

Answer

A risk-adjusted return metric required for institutional reporting

Question 6

The Information Ratio (IR) is calculated as:

Accepted Answer

Active return divided by tracking error

Answer

Portfolio return divided by portfolio standard deviation

Answer

Alpha divided by beta

Answer

Sharpe Ratio minus the benchmark's Sharpe Ratio

Question 7

Which of the following is a requirement for GIPS compliance regarding performance history presentation?

Accepted Answer

Firms must show a minimum of 5 years, building to 10 years over time

Answer

Firms must show a minimum of 3 years or since inception if shorter

Answer

Firms must show the full history since the firm's founding

Answer

Firms must show at least 2 years of audited and 3 years of unaudited returns