RIA Performance Reporting & Benchmarking 2

Question 1

The Sharpe ratio of a portfolio is calculated as which of the following?

Accepted Answer

(Portfolio Return – Risk-Free Rate) / Standard Deviation

Answer

(Portfolio Return – Benchmark Return) / Tracking Error

Answer

(Portfolio Return – Risk-Free Rate) / Beta

Answer

Alpha / Residual Risk

Question 2

In investment performance attribution, 'alpha' most accurately refers to:

Accepted Answer

The excess return of a portfolio above what would be predicted by its level of systematic risk

Answer

The portfolio's total return over the measurement period

Answer

The difference between gross and net of fees returns

Answer

The portfolio's standard deviation relative to the benchmark

Question 3

Which type of benchmark is most commonly used for domestic large-cap equity portfolios in the United States?

Accepted Answer

S&P 500 Index

Answer

Custom liability-based benchmark

Answer

Bloomberg Aggregate Bond Index

Answer

MSCI EAFE Index

Question 4

Performance attribution analysis is primarily used to:

Accepted Answer

Identify the sources of a portfolio's return relative to its benchmark

Answer

Determine a client's risk tolerance score

Answer

Calculate the portfolio's after-tax return

Answer

Establish the minimum return required to meet a client's goals

Question 5

The information ratio is best described as:

Accepted Answer

Active return divided by tracking error

Answer

Portfolio return divided by standard deviation

Answer

Excess return divided by beta

Answer

Benchmark return divided by portfolio return

Question 6

Under GIPS, what is a 'carve-out'?

Accepted Answer

A portion of a multi-asset portfolio managed separately as a standalone segment

Answer

The removal of underperforming accounts from a composite

Answer

A benchmark constructed to match a specific portion of a composite

Answer

An audit exemption for small firms

Question 7

To initially claim GIPS compliance, a firm must present at minimum how many years of compliant performance history?

Accepted Answer

5 years

Answer

1 year

Answer

3 years

Answer

10 years