Questions and Answers of Investment Analysis Portfolio

1. What adjustments are made to earnings in determining P/10-year MA(E)?2. Assume P/10-year MA(E) reached an all-time high of 42.5 in 2000. Use the regression results in Exhibit 11-15 to determine
Which of Yellow’s statements regarding the factors affecting the selection of a trading strategy is correct?A. Statement 1 B. Statement 2 C. Statement 3 Robert Harding is a portfolio manager at
Given the parameters for the benchmark given by Harding, Yellow should recommend a benchmark that is based on the:A. arrival price.B. time-weighted average price.C. volume-weighted average
To fill the remaining portion of the ABC order, Yellow is using:A. an arrival price trading strategy.B. a TWAP participation strategy.C. a VWAP participation strategy.Robert Harding is a portfolio
What type of algorithm should be used to purchase the XYZ shares given Harding’s priority in building the XYZ position and his belief about potential price movements?A. Scheduled algorithm B.
Which of Yellow’s statements regarding the trade implementation of non-equity investments is correct?A. Only Statement 4 B. Only Statement 5 C. Both Statement 4 and Statement 5 Robert Harding is a
Based on Exhibit 1, the execution cost for purchasing the 90,000 shares of BYYP is:A. $$60$,000.B. $$82$,500.C. $$127$,500.Robert Harding is a portfolio manager at ValleyRise, a hedge fund
Based on Exhibit 1, the opportunity cost for purchasing the 90,000 shares of BYYP is:A. $$22$,500.B. $$60$,000.C. $$75$,000.Robert Harding is a portfolio manager at ValleyRise, a hedge fund
The arrival cost for purchasing the 90,000 shares of BYYP is:A. 164.4 bp.B. 227.2 bp.C. 355.0 bp.Robert Harding is a portfolio manager at ValleyRise, a hedge fund based in the United States.Harding
As it relates to the trade policy document, ValleyRise should implement Yellow’s recommendation related to:A. the list of eligible brokers.B. a policy for the treatment of trade errors.C. a policy
The most appropriate price benchmark for the sell order of Music Plus shares is the:A. closing price.B. decision price.C. time-weighted average price (TWAP).Michelle Wong is a portfolio manager at
The most appropriate trading strategy for the sell order of Music Plus shares is:A. trading in the open market.B. selling at the closing auction for the day.C. passive trading over the course of the
The trade algorithm that Wong should consider for the sell order of Music Plus shares is:A. a POV algorithm.B. an arrival price algorithm.C. a liquidity-seeking algorithm.Michelle Wong is a portfolio
The implementation shortfall, in basis points (bps), for the sell order of West Commerce shares is closest to:A. 139.B. 198.C. 206.Michelle Wong is a portfolio manager at Star Wealth Management
The delay cost in dollars for the sell order of West Commerce shares is:A. $$1$,800.B. $$2$,000.C. $$2$,700.Michelle Wong is a portfolio manager at Star Wealth Management (SWM), an investment
The market-adjusted cost in basis points for the sell order of West Commerce shares is closest to a:A. cost of 249 bps.B. savings of 50 bps.C. savings of 68 bps.Michelle Wong is a portfolio manager
Which of SWM’s trading policies identified by the client are consistent with good trade governance?A. Only Policy 1 B. Only Policy 2 C. Both Policy 1 and Policy 2 Michelle Wong is a portfolio
Determine, based on Beamon’s description of the Ogive Fund’s characteristics, his likely inclination to aggressively implement the fund’s strategy. Justify your response.Morris next meets Robin
Describe an appropriate cash management strategy for Barker.Lindsey Morris is a trader at North Circle Advisors, an investment management firm and adviser to a suite of value-oriented equity mutual
Identify one difference between the trading features of Valley Ranch and North Circle, as noted by Sailors, for each trade strategy selection criterion.The next day, Sailors is asked to implement the
Determine which trades are most likely to exhibit the greatest execution risk and market impact. Justify each selection.Last year, Larry Sailors left his trading position at Valley Ranch Partners, a
Identify the likely appropriate price benchmark for the LIM trade. Justify your response.Bradley also performs a cost analysis on the LIM trade. Noting the time gap between his trade instructions and
Calculate the delay cost incurred in trading the LIM order.Bradley also sees that following a 10 a.m. Federal Reserve press conference, the market rose significantly throughout that day. He wants to
Calculate the market-adjusted cost of the trade. Discuss the finding.Although focused on long-term value, North Circle Advisors will exploit temporary mispricings to open positions. For example,
Determine which algorithm Minchow is likely to use for the Dynopax sell order.Justify your response.Minchow is also tasked to help EEP exit from a large position in a widely-traded blue chip stock.
Determine the veracity of each comment. Justify each response.Beatrice Minchow designs and implements algorithmic trading strategies for Enlightenment Era Partners LLC (EEP). Minchow is working with
Identify two inappropriate themes in the partners’ set. Justify your response.Karen Swanson and Gabriel Russell recently co-founded Green Savanah Securities, an asset management firm conducting
Which of Bragg’s responses regarding effective performance attribution is correct?A. Only Response 1 B. Only Response 2 C. Both Response 1 and Response 2 Alexandra Jones, a senior adviser at
The most appropriate risk attribution approach for the fixed-income manager is to:A. decompose historical returns into a top-down factor framework.B. evaluate the marginal contribution to total risk
Based on Exhibit 1, the target semideviation for the portfolio is closest to:A. 2.78%.B. 3.68%.C. 4.35%.Alexandra Jones, a senior adviser at Federalist Investors (FI), meets with Erin Bragg, a junior
Based on Exhibit 1, the capture ratios of the portfolio indicate:A. a concave return profile.B. positive asymmetry of returns.C. that the portfolio generates higher returns than the benchmark during
The maximum drawdown and drawdown duration in Exhibit 1 indicate that:A. the portfolio recovered quickly from its maximum loss.B. over the 10-year period, the average maximum loss was –24.00%.C. a
Of the three attribution approaches referenced by Tolmach, the method requested by the committee:A. is the least accurate.B. uses the underlying holdings of the actual portfolio.C. is the most
Based on Exhibit 1 and relative to the benchmark, the manager of Fund 1 most likely used a:A. growth tilt.B. greater tilt toward small cap.C. momentum-based investing approach.Stephanie Tolmach is a
Based on Exhibit 1, which of the following factors contributed the least to active return?A. HML B. SMB C. RMRF Stephanie Tolmach is a consultant hired to create a performance attribution report on
Based on Exhibit 1, the manager could have delivered more value to the portfolio during the investment period by weighting more toward:A. value stocks.B. small-cap stocks.C. momentum stocks.Stephanie
Based on Exhibit 2, the allocation effect for South America is closest to:A. –0.04%.B. 0.03%.C. 0.20%.Stephanie Tolmach is a consultant hired to create a performance attribution report on three
Based on Exhibit 2, the decision to overweight or underweight which of the following regions contributed positively to performance at the overall fund level?A. North America B. Greater Europe C.
Based on Exhibit 2, the underperformance at the overall fund level is predominantly the result of poor security selection decisions in:A. South America.B. greater Europe.C. developed Asia and
The benchmark for Fund 3 has which of the following characteristics of a valid benchmark?A. Investable B. Measurable C. Appropriate Stephanie Tolmach is a consultant hired to create a performance
Based on the final section of Tolmach’s report, the Plan should use:A. a liability-based benchmark.B. an absolute return benchmark.C. a manager universe benchmark.Stephanie Tolmach is a consultant
Which of the following qualitative considerations is most associated with determining whether investment manager selection will result in superior repeatable performance?A. Transparency B. Investment
Which of the following is most likely a key consideration in investment due diligence?A. Suitability of the investment vehicle B. Back office processes and procedures C. Depth of expertise and
A decision-making investor is most likely to worry more about making a Type I error than a Type II error because:A. Type II errors are errors of commission.B. Type I errors are more easily
An investor is considering hiring three managers who have the following skill levels:Type I and Type II errors both occur when the investor is:A. hiring Manager 1 for large-cap stocks and not hiring
Suppose that the results of a style analysis for an investment manager are not consistent with the stated philosophy of the manager and the manager’s stated investment process.These facts suggest
Compared with holdings-based style analysis (HBSA), a returns-based style analysis(RBSA):A. is subject to window dressing.B. requires less effort to acquire data.C. is more accurate when illiquid
A manager whose relative performance is worse during market downturns most likely has a capture ratio that is:A. less than one.B. equal to one.C. greater than one.
Which of the following is consistent with the expectation that exploiting a structural inefficiency is repeatable?A. The inefficiency is a unique event that occurs infrequently.B. The level of gross
Which of the following is not a reason that an investor might favor a separately managed account rather than a pooled vehicle? The investor:A. is tax exempt.B. requires real-time details on
Which of the following investment vehicles provide investors with the highest degree of liquidity?A. Open-end funds B. Private equity funds C. Limited partnerships
Which of the following statements is consistent with the manager adhering to a stated investment philosophy and investment decision-making process?A. Senior investment team members have left to form
A manager has a mandate to be fully invested with a benchmark that is a blend of largecap stocks and investment-grade bonds. Which of the following is not an indication that style drift has occurred?
The manager selection process begins by defining the universe of feasible managers.When defining this manager universe, the selection process should avoid:A. excluding managers based on historical
A return distribution of skilled managers that is highly distinct from the return distribution of unskilled managers, most likely implies a:A. highly efficient market.B. low opportunity cost of not
An advantage of a returns-based style analysis is that such analysis:A. is comparable across managers.B. is suitable for portfolios that contain illiquid securities.C. can effectively profile a
Which of the following types of style analysis use(s) a bottom-up approach to estimate the risk exposures in a portfolio?A. Returns-based style analysis only B. Holdings-based style analysis only C.
In a quarter, an investment manager’s upside capture is 75% and downside capture is 125%. We can conclude that the manager underperforms the benchmark:A. only when the benchmark return is
Which of the following fee structures most likely decreases the volatility of a portfolio’s net returns?A. Incentive fees only B. Management fees only C. Neither incentive fees nor management fees
An investor should prefer a pooled investment vehicle to a separately managed account when she:A. is cost sensitive.B. focuses on tax efficiency.C. requires clear legal ownership of assets.
Which of the following investment types is the most liquid?A. ETFs B. Hedge funds C. Private equity funds
Based on Exhibit 1, which fund has a symmetrical fee structure?A. Red Grass B. Blue Water C. Yellow Wood The Tree Fallers Endowment plans to allocate part of its portfolio to alternative investment
Based on the fee schedules in Exhibit 1, the portfolio manager of which fund has the greatest incentive to assume additional risk to earn a higher investment management fee?A. Red Grass B. Blue Water
Based on Exhibit 1 and Exhibit 2, the Yellow Wood Fund’s 2016 investment management fee is:A. 3.00%.B. 4.20%.C. 4.50%.The Tree Fallers Endowment plans to allocate part of its portfolio to
Based on Exhibit 1 and Exhibit 2, the RedGrass Fund’s 2017 investmentmanagement fee is:A. 0.40%.B. 1.00%.C. 2.60%.The Tree Fallers Endowment plans to allocate part of its portfolio to alternative
Based on Exhibit 1 and Exhibit 2, the Blue Water Fund’s 2018 investment management fee is:A. 2.40%B. 2.50%.C. 2.90%The Tree Fallers Endowment plans to allocate part of its portfolio to alternative
In which year would the Red Grass Fund’s investment management fee be affected by Summer’s recalculation using the high-water mark?A. 2016 B. 2017 C. 2018 The Tree Fallers Endowment plans to
Select the fund, based on the Exhibit 1 data, that is most appropriate for Connell’s needs. Justify your selection with two reasons.Connell elects to defer fund selection and places his inheritance
Identify the type of error Connell is at risk of committing and its associated cost for each alternative. Justify your selection.Connell asks the adviser about the conditions under which any form of
Identify the conditions under which the adviser would find style analysis most useful.Connell elects to defer fund selection and places his inheritance in a short-term money market account. A year
Select the best fund for Yang, using only the information provided. Justify your selection.Yang is also considering Aspen Investments (Aspen) for a portion of her money market funds. Aspen’s
Determine whether Yang is likely to judge that Aspen follows a consistent investment philosophy, using only the information provided. Justify your response with two reasons.Cassandra Yang, age 59, is
Describe two considerations for each type of component recommended to Grimmett for her manager selection process.Grimmett asks the adviser if any other preparatory steps should be taken before
Describe the content of the adviser’s checklist related to manager selection.Donna Grimmett is working with a financial adviser to establish her investment goals for $850,000, which she recently
Identify the firm associated with Boinic’s Type I and Type II error. Justify your selection for each error type, discussing the psychological effects of its Year 1 performance on Boinic.Boinic
Identify which investment manager is most suitable for Patnode. Justify your response based solely on each manager’s investment philosophy and approachSusan Patnode, age 66, was recently widowed
Identify which manager is most appropriate for Parade. Justify your response.Upon choosing a manager, Lute must allocate the funds either to a separately managed account (SMA) customized for Parade
Identify which investment vehicle best addresses each characteristic highlighted in Parade’s IPS by placing a check mark where appropriate. Justify your response.Lute is particularly concerned
Determine which of the three investment vehicles is most appropriate for Circue’s IPS.Justify your response.Porter and Smith next consider how the performance-based fee structures of the
Discuss how Smith’s stated expectation would be reflected in estimated portfolio risk under the fee structure identified by Porter.After narrowing their choice to three managers with different fee
Calculate the net active return based on each possible gross active return provided using the selected data in Exhibit 1. Show your calculations.Jack Porter and Melissa Smith are co-managers for the
Identify whether each detail from Moore’s summary is most likely a benefit or a drawback of the strategy. Justify your selection.Brickridge Investment Consultants meets weekly to review the
Discuss one advantage and one disadvantage to the client of each manager’s contracted fee structure.Institutional investment consultant Wilsot Consultants (Wilsot) is reviewing multiple investment
Identify which manager’s fee structure is most similar to a call option on a share of active return. Justify your selection.At a meeting for the local municipal pension fund, a group of
Analyze the movement of the USD against the foreign currency for Portfolio A. Justify your choice.Kamala Gupta, a currency management consultant, is hired to evaluate the performance of two
Analyze the foreign-currency return for Portfolio B. Justify your choice.The fund manager of Portfolio B is evaluating an internally-managed 100% foreigncurrency hedged strategy.Kamala Gupta, a
Discuss two forms of trading costs associated with this currency management strategy.Gupta tells the fund manager of Portfolio B:“We need to seriously consider the potential costs associated with
Explain Gupta’s statement in light of the strategic choices in currency management available to the portfolio manager.The investment policy statement (IPS) for Portfolio A provides the manager with
Recommend a solution that will provide the fund manager the opportunity to earn currency alpha through active foreign exchange management.Gupta and the fund manager of Portfolio A discuss the
Evaluate each statement independently and select the active currency approach it best describes. Justify each choice.Kamala Gupta, a currency management consultant, is hired to evaluate the
Compare Statement 1 and Statement 2 and identify which best explains the view of a speculative volatility trader and which best explains the view of a hedger of volatility.Justify your response.Gupta
Explain how the hedge, as described by the fund manager, will eventually expose the portfolio to currency risk.Kamala Gupta, a currency management consultant, is hired to evaluate the performance of
Recommend an alternative hedging strategy that will keep the hedge ratio close to the target hedge ratio. Identify the main disadvantage of implementing such a strategy.Kamala Gupta, a currency
Based on Exhibit 1, the domestic-currency return over the last year (measured in EUR terms) was higher than the foreign-currency return for:A. USD-denominated assets.B. GBP-denominated assets.C.
Based on Ostermann’s correlation forecast, the expected domestic-currency return(measured in EUR terms) on USD-denominated assets will most likely:A. increase.B. decrease.C. remain unchanged.Guten
Based on Ostermann’s views regarding active currency management, the percentage of currency exposure in her discretionary accounts that is hedged is most likely:A. 0%.B. 50%.C. 100%.Guten
The active currency management approach that Umlauf Management is least likely to employ is based on:A. volatility trading.B. technical analysis.C. economic fundamentals.Guten Investments GmbH, based
Based on Exhibit 2, the currency overlay program most appropriate for Braunt Pensionskasse would:A. be fully passive.B. allow limited directional views.C. actively manage foreign exchange as an asset
Based on Exhibit 2, the client most likely to benefit from the introduction of an additional overlay manager is:A. Adele Kastner.B. Braunt Pensionskasse.C. Franz Trading GmbH.Guten Investments GmbH,
For Subscriber 1, the most significant factor to consider would be:A. margin requirements.B. transaction costs of using futures contracts.C. different quoting conventions for future contracts.Li

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