CPS Performance Measurement and Evaluation

Question 1

The Sharpe Ratio measures which of the following?

Accepted Answer

Excess return per unit of total risk (standard deviation)

Answer

Excess return per unit of systematic risk (beta)

Answer

Portfolio alpha relative to a benchmark

Answer

The percentage of return explained by the market

Question 2

The Treynor Ratio differs from the Sharpe Ratio in that it uses which measure of risk in its denominator?

Accepted Answer

Beta

Answer

Standard deviation

Answer

Semi-deviation

Answer

Tracking error

Question 3

When evaluating a portfolio manager's skill in selecting individual securities, which metric is most directly appropriate?

Accepted Answer

Jensen's Alpha

Answer

Sharpe Ratio

Answer

Standard Deviation

Answer

Tracking Error

Question 4

Time-weighted return (TWR) is preferred over money-weighted return (MWR) primarily when:

Accepted Answer

Evaluating manager performance independent of client cash flows

Answer

Measuring total wealth accumulation for a specific investor

Answer

Calculating the internal rate of return on an investment

Answer

Comparing portfolios with very similar cash flow patterns

Question 5

A portfolio has a standard deviation of 15% and the market has a standard deviation of 10%. If the correlation between them is 0.8, what is the portfolio's beta?

Accepted Answer

1.20

Answer

0.80

Answer

1.00

Answer

1.50

Question 6

Which of the following best describes the primary purpose of selecting an appropriate benchmark for a portfolio?

Accepted Answer

To provide a relevant standard for evaluating manager performance

Answer

To ensure the portfolio outperforms all competing portfolios

Answer

To guarantee a minimum return for investors

Answer

To automatically reduce the portfolio's overall risk

Question 7

R-squared (R²) in portfolio performance analysis measures:

Accepted Answer

The percentage of portfolio return variation explained by benchmark movements

Answer

The portfolio's risk-adjusted return relative to the risk-free rate

Answer

The manager's ability to generate consistent alpha over time

Answer

The correlation between two different managed portfolios