CPS Performance Measurement and Evaluation 2

Question 1

The Information Ratio 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

Excess return divided by total portfolio risk

Question 2

Tracking error in portfolio performance measurement is defined as:

Accepted Answer

The standard deviation of a portfolio's excess returns relative to its benchmark

Answer

The total cumulative return difference between a portfolio and its benchmark

Answer

The portfolio's beta multiplied by the market's standard deviation

Answer

The average monthly deviation of the portfolio from its benchmark

Question 3

The Sortino Ratio improves upon the Sharpe Ratio by:

Accepted Answer

Using only downside deviation rather than total standard deviation

Answer

Using beta instead of standard deviation as the risk measure

Answer

Incorporating alpha to adjust for manager skill in the numerator

Answer

Using geometric mean returns instead of arithmetic mean returns

Question 4

Maximum drawdown is best defined as:

Accepted Answer

The largest peak-to-trough decline in portfolio value during a specified period

Answer

The average monthly loss of a portfolio over a given period

Answer

The standard deviation of all negative monthly returns in the period

Answer

The single worst one-month return recorded in the portfolio's history

Question 5

The Calmar Ratio is particularly useful for evaluating which type of investment strategy?

Accepted Answer

Hedge funds and managed futures programs with non-normal return distributions

Answer

Passive index funds with low tracking error

Answer

Large-cap equity portfolios relative to the S&P 500

Answer

Fixed income portfolios managed against an aggregate bond index

Question 6

In the Brinson performance attribution model, the 'allocation effect' specifically measures the value added by:

Accepted Answer

Overweighting or underweighting sectors relative to the benchmark

Answer

Selecting individual securities that outperform within each sector

Answer

Correctly timing market entry and exit points

Answer

Using derivatives to hedge systematic portfolio risk

Question 7

Under GIPS (Global Investment Performance Standards), firms must present a minimum of how many years of compliant performance history?

Accepted Answer

5 years

Answer

3 years

Answer

7 years

Answer

10 years