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Investments, 4th Canadian Edition, 4/e

Zvi Bodie, Boston University School of Management
Alex Kane, University of California, San Diego
Alan Marcus, Boston College
Stylianos Perrakis, Concordia University
Peter Ryan, University of Ottawa

Portfolio Management Techniques

Multiple Choice Quiz

Prepared by William Lim, University of New Brunswick.


1	A purely passive strategy is defined as
		A)	a. one that uses only index funds.
		B)	b. one that is mean-variance efficient.
		C)	c. one that allocates assets in fixed proportions that do not vary with market conditions.
		D)	both a and c.
		E)	a., b. and c.


2	One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's
		A)	Sharpe ratio.
		B)	alpha
		C)	appraisal ratio.
		D)	Treynor measure.
		E)	none of the above.


3	Portfolio theory is substantiated by
		A)	a. the relatively accurate pricing of financial assets by the CAPM.
		B)	b. mutual fund managers' lack of success in beating the market
		C)	c. the general refutation of anomalies and violations of weak and semistrong forms of market efficiency
		D)	both b. and c.
		E)	a., b. and c.


4	The efficient and low-cost method to holding the market portfolio has come to be known as
		A)	arbitrage.
		B)	indexing.
		C)	hedging.
		D)	short-selling.
		E)	market timing.


5	In the final analysis, the value of active management depends on
		A)	forecast quality.
		B)	market timing.
		C)	asset allocation.
		D)	all of the above.
		E)	none of the above.


6	The dollar change in portfolio value divided by the profit on one futures contract is known as
		A)	the hedge ratio.
		B)	the Sharpe ratio.
		C)	the appraisal ratio.
		D)	the return on one futures contract.
		E)	none of the above.


7	The price value of a basis point or PVBP
		A)	represents the sensitivity of the portfolio's dollar value to changes in market returns.
		B)	represents the sensitivity of the portfolio's dollar value to changes in interest rates.
		C)	represents the market exposure of the portfolio.
		D)	is the unit of measure in the Treynor-Black model.
		E)	is the unit of measure in performance attribution.


8	A selected benchmark portfolio in performance attribution is called a
		A)	market portfolio.
		B)	managed portfolio.
		C)	bogey.
		D)	component.
		E)	weight.


9	The proportions of capital invested in stocks, bonds and cash is known as
		A)	security analysis.
		B)	performance attribution.
		C)	passive management.
		D)	asset allocation.
		E)	sector allocation.


10	In the Treynor-Black model, the weight of each analyzed security is proportional to
		A)	its alpha.
		B)	its beta.
		C)	its Treynor measure.
		D)	the ratio of its alpha to its systematic risk.
		E)	the ratio of its alpha to its nonsystematic risk.

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