P2.T8.17. Modigliani-squared (M^2) and T-squared measures

Discussion in 'Today's Daily Questions' started by David Harper CFA FRM CIPM, Mar 22, 2012.

  1. AIM: Describe the uses for the Modigliani-squared and Treynor’s measure in comparing two portfolios, and the graphical representation of these measures.

    Questions:

    17.1. The following data compares a Portfolio (P) to the Market (M):
    [​IMG]

    What is Modigliani-squared (M^2) measure of the portfolio?

    a. -2.5%
    b. +0.5%
    c. +3.0%
    d. +6.0%

    17.2. The following data compares two portfolios, Portfolio (A) and Portfolio (B), to the Market(M):
    [​IMG]

    If we rank the portfolios according to, respectively, the Modigliani-squared (M^2) measure and slope of the T-line (equalizing for beta), how do the portfolios rank against each other?

    a. Portfolio (A) offers both a higher M^2 and steeper T-line than Portfolio (B)
    b. Portfolio (A) offers a higher M^2, but Portfolio (B) has a steeper T-line
    c. Portfolio (B) offers a higher M^2, but Portfolio (A) has a steeper T-line
    d. Portfolio (B) offers both a higher M^2 and steeper T-line than Portfolio (A)

    17.3. The following data compares two portfolios, Portfolio (A) and Portfolio (B), to the Market(M):
    [​IMG]

    What are, respectively, the Treynor-squared (T^2) measure of Portfolio (A) and Portfolio (B)?

    a. T^2(A) = -1.0% and T^2(B) = 1.7%
    b. T^2(A) = 1.0% and T^2(B) = 2.8%
    c. T^2(A) = 3.0% and T^2(B) = 7.5%
    d. T^2(A) = 5.0% and T^2(B) = 10.0%

    Answers:

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