Data Analysis and Interpretation Flashcards

An investor holds a fund for 5 years with annual returns of +10%, -5%, +8%, +12%, and -3%. What is the approximate arithmetic mean return?

Answer: 4.4%

Arithmetic mean = (10 + (-5) + 8 + 12 + (-3)) / 5 = 22 / 5 = 4.4%.

A portfolio manager consistently achieves a positive alpha. This most likely indicates:

Answer: The manager generates returns above what market risk alone explains

Positive alpha means the portfolio earns more than predicted by its level of systematic risk, suggesting manager skill or style tilt.

What does a beta of 1.5 indicate about a mutual fund relative to the market?

Answer: The fund is expected to move 1.5% for every 1% move in the market

Beta of 1.5 means the fund is expected to rise or fall 1.5% for every 1% change in the market, indicating higher sensitivity.

A fund's information ratio compares:

Answer: Active return to tracking error

The information ratio divides active return (excess return over benchmark) by tracking error (variability of that excess return).

An investor wants to compare two funds with different risk levels. Which metric is most appropriate?

Answer: Risk-adjusted return such as the Sharpe ratio

Risk-adjusted metrics like the Sharpe ratio allow fair comparison between funds with different levels of risk.

A fund's trailing 12-month yield is 3.2%. If NAVPU is $18.00, what is the approximate annual distribution per unit?

Answer: $0.58

Annual distribution = 3.2% × $18.00 = 0.032 × $18.00 = $0.576, approximately $0.58 per unit.

When interpreting a scatter plot of a fund's monthly returns versus the benchmark, a tight cluster of points near a straight line indicates:

Answer: High R-squared and close tracking of the benchmark

Points tightly clustered around a trend line indicate high R-squared, meaning the benchmark explains most of the fund's return variability.