CPS Performance Measurement and Evaluation 3

Question 1

In the Brinson attribution model, the 'selection effect' represents:

Accepted Answer

The value added from selecting individual securities within each sector versus holding the sector index

Answer

The impact of choosing which sectors to overweight or underweight

Answer

The combined contribution of both allocation and interaction effects

Answer

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

Question 2

The Global Investment Performance Standards (GIPS) were developed primarily to:

Accepted Answer

Create ethical standards for fair representation and full disclosure of investment performance

Answer

Require all investment managers to benchmark against the same index

Answer

Establish mandatory risk-adjusted return minimums for portfolio managers

Answer

Standardize fee structures across the global investment management industry

Question 3

A portfolio has a beta of 1.1 and an alpha of 2%. If the market returns 10% and the risk-free rate is 3%, what is the portfolio's actual return?

Accepted Answer

12.7%

Answer

10.7%

Answer

14.7%

Answer

9.7%

Question 4

Under GIPS, a composite is defined as:

Accepted Answer

An aggregation of portfolios managed according to the same investment mandate, objective, or strategy

Answer

A selection of a firm's top-performing portfolios for marketing purposes

Answer

All portfolios managed by a single named portfolio manager

Answer

A blended benchmark constructed from multiple indices

Question 5

The interaction effect in the Brinson performance attribution model represents:

Accepted Answer

The combined joint impact of both allocation and selection decisions together

Answer

The value added from using derivatives within the portfolio

Answer

The return contribution from currency exposure in international portfolios

Answer

The impact of leverage on total portfolio return attribution

Question 6

A key limitation of using the Sharpe Ratio for performance evaluation is that:

Accepted Answer

It assumes normally distributed returns, potentially underweighting tail risks in non-normal distributions

Answer

It does not incorporate the risk-free rate in its calculation

Answer

It can only be applied to fixed income portfolios with stable cash flows

Answer

It cannot compare portfolios invested in different asset classes

Question 7

Performance persistence in portfolio management refers to:

Accepted Answer

The tendency for past outperformance to predict continued future outperformance

Answer

A manager's proven ability to outperform in both bull and bear market cycles

Answer

The stability of a portfolio's target asset allocation over multiple time periods

Answer

The consistency of a manager's investment philosophy regardless of market conditions