IFC Analyzing Mutual Fund Performance 2

Question 1

A mutual fund's standard deviation increased from 8% to 14% over the past year. What does this indicate?

Accepted Answer

The fund's returns became more volatile

Answer

Standard deviation measures return volatility, so an increase means returns varied more widely around the mean.

Question 2

Which metric best measures how much excess return a fund generates per unit of total risk taken?

Accepted Answer

Sharpe ratio

Answer

The Sharpe ratio divides excess return over the risk-free rate by the fund's standard deviation (total risk).

Question 3

A fund has a beta of 0.75. If the market rises 10%, the fund is expected to rise approximately:

Accepted Answer

7.5%

Answer

Beta of 0.75 means the fund moves 75% as much as the market, so 0.75 × 10% = 7.5%.

Question 4

The information ratio compares a fund manager's excess return against which benchmark?

Accepted Answer

The fund's designated benchmark index

Answer

The information ratio measures active return (fund return minus benchmark return) relative to tracking error against the benchmark.

Question 5

A fund's R-squared value is 0.35 relative to the S&P/TSX Composite. What does this mean?

Accepted Answer

35% of the fund's movement is explained by the benchmark

Answer

R-squared indicates what percentage of a fund's variability is explained by movements in the benchmark index.

IFC - Investment Funds in Canada Practice Test