four (4) MCQ questions and two (2) short answer questions
Untitled StuDocu is not sponsored or endorsed by any college or university Test July 2018, questions and answers Portfolio Theory & Management III (The University of Adelaide) StuDocu is not sponsored or endorsed by any college or university Test July 2018, questions and answers Portfolio Theory & Management III (The University of Adelaide) Downloaded by DAMON XD (
[email protected]) lOMoARcPSD|3850698 https://www.studocu.com/en-au?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers https://www.studocu.com/en-au/document/the-university-of-adelaide/portfolio-theory-management-iii/test-july-2018-questions-and-answers/3130637?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers https://www.studocu.com/en-au/course/the-university-of-adelaide/portfolio-theory-management-iii/1453115?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers https://www.studocu.com/en-au?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers https://www.studocu.com/en-au/document/the-university-of-adelaide/portfolio-theory-management-iii/test-july-2018-questions-and-answers/3130637?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers https://www.studocu.com/en-au/course/the-university-of-adelaide/portfolio-theory-management-iii/1453115?utm_campaign=shared-document&utm_source=studocu-document&utm_medium=social_sharing&utm_content=test-july-2018-questions-and-answers Sample Test Question 1 Using historical data, the Value at Risk (VaR) of a portfolio: a) is the probability of a portfolio return above a certain level with 95% confidence over a period of time. This statement should have read “portfolio return above a certain level with 95% confidence over a period of time” for it to be perfectly correct. Else (e) none of the above. b) is the standard deviation (square root of variance) of portfolio returns over a period of time. c) is the average loss of a portfolio over a period. d) is the probability of getting portfolio returns below equity market returns over a period of time. e) None of the above Question 2 A spending rule that is ___________ of last year’s assets value and ___________ of last year’s spending level will ensure stable spending over time but will not provide a match between spending and investments (asset value). a) High proportion; Low proportion. b) Low proportion; High proportion. c) Low proportion; Low proportion. d) High proportion; High proportion. e) None of the above Question 3 The following asset allocation (Cash: Bonds: Domestic Equities: International Equities) is an aggressive (growth) asset allocation: a) 10:40:40:10 b) 20:30:40:10 c) 10:30:30:30 d) 10:50:10:30 e) None of the above Question 4 An IPS also details the selection criterion of Investment Vehicles. Which of the following is not relevant to identify suitable Investment Vehicles? a) For Cash, select passive fund with at least 5 years of operations and at least $2.5billion in AUM. b) For Bonds, select 2 active funds that have performed 0.5% (after costs) above the relevant benchmark over the last 3 years. c) For Domestic Equities, select 2 funds that have different active investment styles and have shown (after costs) returns higher than the benchmark over the last 3 years. d) For International Equities, select a passive fund that has provided higher returns (before costs) than the benchmark over the last 3 years. Passive funds do not try to achieve above BM returns e) All of the above are correct in identifying suitable Investment Vehicles Question 5 One of the following does not form part of an investment objective: a) Preservation of capital in real terms. b) Maximum loss of 10% in any given 12 month period. c) Returns of the portfolio to cover 10% of operating costs. d) Allocate a maximum of 5% in Emerging markets. e) All of the above are part of an investment objective Downloaded by DAMON XD (
[email protected]) lOMoARcPSD|3850698 Question 6 Consider an investor who requires a return of 10% per annum and has liquidity needs of 6% per annum to fund living expenses. If the investment portfolio’s total returns are11% per annum, of which cash distribution (cash yield) are 3% per annum, which of the following action is most appropriate? a) Investor’s liquidity needs of 6% are made up by 3% cash distribution and the remaining 3% by short term borrowing. b) Investor’s liquidity needs of 6% are made up by the portfolio being re-allocated to lower risk, but more liquid, assets so that the new portfolio provides 7% returns with 6% distribution. c) Investor’s liquidity needs of 6% are made up by using up the 3% of cash distribution and the rest made up selling capital gains (assets) worth 3% each year. d) Actions A and B only. e) Actions B and C only. Question 7 A portfolio (e.g an endowment fund) usually requires splitting allocation for each asset class amongst several single-asset class fund managers, as investing with more than one fund manager allows for: a) Diversification of fund manager’s risk. b) Multiple focused exposures within each asset class. c) Multiple investment strategies (active and passive) within the same asset class. d) All of the above. e) None of the above Question 8 Consider that the ASX 200 securities were used to create an efficient frontier using 20 years of historical annual data. The 200 stocks were then plotted on the Security Market Line (SML) to identify all mispriced securities. An active equity fund consisting of the 200 stocks was then constructed. Identify the statement that is incorrect regarding this active equity fund: a) The fund attempts to provide higher risk-adjusted returns against the ASX200. b) The fund charges higher fees than a passive ASX200 fund. c) The fund carries higher systematic risk than the ASX200. d) The fund carries higher total risk than the ASX200. e) None of the above Question 9 Ranges are required in an asset allocation so that: a) The portfolio remains well-diversified amongst the selected asset classes. b) Portfolio manager is able to take advantage of market movements. c) A clear trigger point is available to rebalance the portfolio. d) All of the above. e) None of the above Question 10 - 12 Use the details for the UBS Australian Bond that you used in the second tutorial to answer these questions. Question 10 What is the minimum investment and the management fee for this fund? a) $20,000 and 0.05%. b) $20,000 and 0.025%. c) 20,000 and 0.45%. d) $10,000 and 0.45%. e) $10,000 and 0.025% Downloaded by DAMON XD (
[email protected]) lOMoARcPSD|3850698 Question 11 The benchmark used by this fund is: a) UBS Australian Fund Index b) Bloomberg AusBond Composite 0+Years Index c) ASX 200 Index d) ASX 300 Index e) No benchmark is specified Question 12 The fund strategy (Active or Passive) is: a) Active: because the fund’s investment objective says it is an active fund b) Passive: because it does not outperform the benchmark by a large margin c) Active: because the fund’s modified duration and its yield to maturity is different from the benchmark d) Not enough details are provided in the factsheet e) A and C only Question 13 Risk for an institutional investor depends primarily on: a) The willingness to take risk b) The ability to take risk c) Both. If one is higher than the other, counselling of the investor is required d) Nether. Institutional investors only care about returns e) Depends on the risk tolerance of the portfolio manager Question 14-17 refer to JAKE’s case as discussed in your tutorial: Question 14 Which of the statements is correct regarding BU’s endowment fund: a) The endowment fund is currently overfunded as 3.5% of the assets are more than sufficient to cover 10% of the annual expense budget b) The endowment fund is currently underfunded as 3.5% of the assets are insufficient to cover 10% of the annual expense budget c) The endowment fund is only required to provide 3.5% of the annual spending budget. d) The fund is very large as it has $800m. e) All of the above statements are incorrect regarding the endowment fund Question 15 The benchmark for the endowment fund is: a) To ensuring the fund provides 10% of the annual expense budget b) A 60:40 equity:bond c) Not mentioned explicitly but it will most likely be based on the policy weights. d) CPI. e) A 50:50 equal weighted portfolio Question 16 A time line for Implementation is provided by the JAKE so that: a) The current allocation can be moved to the suggested asset allocation b) It considers the liquidity of the assets that are being purchased and sold c) Considers mispricing of the assets that are being purchased and sold. d) All of the above. e) A and B only Downloaded by DAMON XD (
[email protected]) lOMoARcPSD|3850698 Question 17 The implementation of the asset allocation requires JAKE to: a) Invest all assets with passive fund managers b) Invest all assets with active fund managers c) A mix of passive and active based on the size of allocation – higher allocation with active managers and smaller allocation with passive managers. d) A mix of passive and active based on the liquidity and efficiency of the assets – asset classes that are less efficient are managed actively and asset classes that are more efficient managed passively. e) No information was provided in the case Question 18 To ensure that all the investment is invested in a portfolio of risky assets, the constraint that is necessary is: a) The total weight must add to 1. b) Each asset weight is equal to or greater than 0. c) Each asset weight is equal to or less than 1. d) A required return of the portfolio of 10% is explicitly stated. e) A VaR of -10% is explicitly stated. Question 19 To ensure that a certain level of required return of 10% is achieved, the constraint that is necessary is: a) The total weight must add to 1. b) Each asset weight is equal to or greater than 0. c) Each asset weight is equal to or less than 1. d) A required return of