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Question 1 of 12
1. Question
Andrew Ang summarizes the dismal performance of risky assets during the global financial crisis (GFC): “During the financial crisis of 2008 and 2009, the price of most risky assets plunged … U.S. large cap equities returned –37.0%; international and emerging markets equities had even larger losses [43.0% and 53.2%, respectively]. The riskier fixed income securities, like corporate bonds, emerging market bonds [9.7%], and high yield bonds [26.3%], also fell, tumbling along with real estate [16.9% for private real estate and 37.7% for equity REITs]. Alternative investments like hedge funds, which trumpeted their immunity to market disruptions, were no safe refuge: equity hedge funds and their fixed income counterparts fell approximately 20%. Commodities had losses exceeding 30%. The only assets to go up during 2008 were cash (U.S. Treasury bills) and safehaven sovereign bonds, especially longterm U.S. Treasuries.” According to Ang’s factor theory, we can accurately observe about the 20082009 Financial Crisis each of the following as accurate EXCEPT which is inaccurate?
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Question 2 of 12
2. Question
While the universe of potential factors is very large, Ang emphasizes relatively few factors. According to Ang, each of the following statements is true EXCEPT which is false?
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Question 3 of 12
3. Question
Consider the following regression of a portfolio’s daily excess returns against its benchmark over the last year:
Please note that “excess return” refers to return in excess of the riskfree rate. Key output from the regression includes:
 Sample size: 250 trading days
 The portfolio’s average excess return is 1.79% with volatility of 3.03%
 The benchmark’s average excess return is 0.91% with volatility of 2.05%
 The average difference in return between the portfolio and the benchmark which is also called the “active return,” avg(PM), is 0.88%
 The regression intercept is 0.00954 and regression slope is 0.92204 (as displayed on plot)
 Tracking error (standard error of the regression) = 2.38%
Each of the following is true EXCEPT which is false?
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Question 4 of 12
4. Question
Consider a $100.0 million portfolio with two positions, Position AAA and Position BBB. The weights, volatilities, and betas are shown below; please note that the betas, β(i,P), represent the position betas with respect to the portfolio:
Which is nearest to the 95.0% component value at risk (VaR) of Position BBB?
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Question 5 of 12
5. Question
Consider a $500.0 million portfolio with two positions, Position KLM and Position NOP. The weights, volatilities, and betas are shown below; please note that the betas, β(i,P), represent the position betas with respect to the portfolio:
Each of the following statements is true EXCEPT which is false?
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Question 6 of 12
6. Question
At the beginning of the year, a pension fund has $2.00 billion in assets and $1.80 billion in liabilities. The expected return and volatility, respectively of assets and liabilities are shown below:
The return correlation is 0.60. Which is nearest to the pension’s 99.0% oneyear worst expected shortfall (note that a shortfall is when liabilities are greater than assets; or equivalently, negative surplus)?
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Question 7 of 12
7. Question
Over a twoyear period, Peter conducts the following three transactions:
 On January 1st 2018, at a price of $100.00 per share, Peter purchases three (3) shares at a total cost of $300.00. At the end of this first year, the shares pays a 3.0% dividend ($3.00 per share)
 One year later, on January 1st 2019, the share price increases to $110.00 and Peter decided to sell one share. At the end of this second year, the remaining shares continue to pay a 3.0% dividend which will now be $3.30 per share.
 One year later, on January 1st 2020, the share price jumps to $129.00 and Peter decides to exit the position entirely.
If we compare the timeweighted return (TWR) to the dollarweighted return (DWR), which of the following is TRUE?
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Question 8 of 12
8. Question
Over the most recent performance period, Stacy’s Portfolio easily beat the benchmark. The riskfree rate was 3.0%. The benchmark index generated an excess return of 9.0% (that is, a gross return of 12.0%) with volatility of 15.0%. Stacy’s Portfolio generated an excess return 15.0% (gross return of 18.0%) but with a volatility of 30.0%, which was fully twice the index’s volatility. She observes that the benchmark’s Sharpe ratio of 0.60 was actually higher than her Portfolio’s Sharpe ratio of 0.50. Their correlation was 0.80 such that the portfolio’s beta with respect to the index, β(P,I) = 0.80 * 0.30/0.15 = 1.60. Stacy wonders what is her Portfolio’s Modiglianisquared (M^2) measures of performance.
Which of the following is nearest to her Portfolio’s M^2 measure?
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Question 9 of 12
9. Question
A managed portfolio underperformed its benchmark (aka, bogey) with a return of 5.30% compared to the bogey’s return of 7.0%. In addition to a different asset allocation–among equities, bonds and cash–the managed portfolio also engaged in security selection. With respect to its security selection WITHIN MARKETS, its bond portfolio beat the market (i.e., 6.0% versus 5.0%) but its equity portfolio underperformed the market (i.e., 8.0% versus 9.0%). The details are shown below:
Which of the following is the correct contribution, respectively, of asset allocation and security selection?
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Question 10 of 12
10. Question
Your firm has been retained to evaluate a roster of hedge fund managers, all of whom claim to be successful market timers. Each of the following is a valid hypothesis with respect to at least some apparent successful market timing by the manger and its associated methodology for the determination of successful market timing EXCEPT which of these is the LEAST LIKELY to be an effective (hypothesis and) test of successful timing?
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Question 11 of 12
11. Question
A hedge fund manager’s monthly returns (over the last three years) are regressed against the benchmark, with the highlevel results shown below:
As shown per the regression intercept, the observed monthly alpha (α) is +53.0 basis points. Not displayed on the chart is the standard error of the regression (SER) which represents the residualbased tracking error; in this regression, this tracking error value (TE; or SER) is 2.250%. This implies an residualbased information ratio of 0.00530/0.02250 = 0.23556.If we wanted to demonstrate that this manager’s alpha is significant with 99.0% confidence, which of the below is nearest length of the sample required?
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Question 12 of 12
12. Question
Over the last 15 quarters, a macroeconomic analyst made a bullish forecast 60.0% of the time (9 out of 15 quarters), but the market was up fully 86.7% of the periods (13 out of 15 quarters). Each of the 15 quarters is shown below both the analyst’s prediction and the actual quarter’s performance:
One simple measure of market timing ability is Bodie’s forecasting measure given by P(1) + P(2) – 1.0, where P(1) is the proportion of correct forecasts of bull markets and P(2) is the proportion for bear markets. Under the measure, a perfect forecaster would score 1.0. Which is nearest to the macroeconomic analyst’s score over the 15 quarter period?
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