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Question No: 1

MultipleChoice

HAS THREE PARTS One year has passed since HNW Advisors first started operations. Their overall equity portfolio has returned 28.2% versus a return of 22.4% for the S&P 500. The standard deviation of the S&P 500 is 20%, and Maggie Day, CFA, has estimated the standard deviation of HNW Advisor's equity portfolio at 45%. HNW Advisor's equity portfolio has a beta of 1.35, and the risk-free rate is 4.4%. A major HNW client is attempting to evaluate the relative performance of HNW's equity fund. The client is unsure whether the Sharpe measure or the Treynor measure is appropriate for the HNW portfolio.

Options

AUsing the Sharpe and Treynor measures for the HNW portfolio and the S&P 500, determine how HNW has performed relative to the S&P 500.

BAssume that, using the Sharpe ratio to measure performance, the S&P 500 outperformed the HNW portfolio, but using the Treynor measure, the HNW portfolio outperformed the S&P 500. Explain, in terms of systematic and unsystematic risk, how this change in ranking could have occurred.

CCompute M2 for the HNW portfolio, assuming management uses the market as a benchmark. Explain, in terms of relative returns and volatility, the circumstances under which M2 for HNW would equal M2 for the market.

Question No: 2

MultipleChoice

HAS ONE PART Bailey Investments is a U.S.-based investment management firm. They began operations on January 1, 2004. Their client base has grown considerably over the last few years and in order to ensure accurate and consistent performance data they have decided to pursue GIPS compliance. The following includes composite data and notes relating to the first presentation for one of their composites in which they claim GIPS compliance. Bailey Investments has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS).

Notes:

1. Valuations are obtained by Reuters and computed using the U.S. dollar.

2. Bailey Investments is a dedicated equity portfolio manager that invests entirely in U.S. securities and has no affiliates.

3. The benchmark composition is 100% S&P 500. The annualized compound benchmark return is 8.15%. The annualized compound composite return is 8.06%.

4. Composite dispersion is the annualized monthly standard deviation of composite returns.

5. No modifications to the composites as presented here have occurred as a result of changes in personnel or for any other reason at any time.

6. Performance results are presented before management and custodial fees but after all trading commissions.

7. The composite includes discretionary and non-discretionary fee-paying portfolios. ListJour noncompliant items in the presentation. For each, state the necessary corrective action.

Options

ATemplete 4

BTemplete of Question 8 in the template provied.

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