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

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

  1. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    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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