1. At the beginning of the year, a mutual fund has a NAV of $20. At the end of the year, the NAV is $21 and the fund has received no dividends or other distributions throughout the year. The return on the fund’s benchmark over the same period of time was 10%. What was the return to investors in the fund? Did the fund’s return to investors beat the benchmark return? a. 5%; No, the fund did not beat its benchmark b. 10%; No, the fund did not beat its benchmark c. 15%; No, the fund did not beat its benchmark d. 20%; Yes, the fund beat its benchmark e. None of the above 2. You are advising a pension fund that is required to have a portfolio risk of 5%. Which of the following would be the portfolio optimization problem for constructing their fund? a. Maximize return subject to a constraint that portfolio volatility is 5% b. Not enough information c. Maximize the Sharpe ratio with no additional constraints d. Minimize the risk needed to get their long-term return target e. None of the above 3. Which of the following are reasons that stocks are more likely to trade on exchanges relative to bonds? a. Stocks from a given company are near perfect substitutes, while different bonds from the same company are not. This facilitates trading in a central location like an exchange. b. Different bonds from a given company are near perfect substitutes, while different shares of stock from the same company are not. Exchanges work well when assets are not close substitutes c. Stocks are used in more sophisticated strategies than bonds are, and sophisticated investors trade on exchanges. d. Dealers buy and sell stock, and dealers only operate in exchanges. e. None of the above. 4. Which of the following would be a good reason to add (long-term) Treasury bonds to a portfolio that consists entirely of stocks? a. Treasury bonds’ low correlation with stocks makes them a good diversifier b. The bonds have very high expected returns, so investors could earn higher returns than they could with just stocks c. The high volatility of bonds results in the possibility of very high returns relative to stocks alone d. Treasury bonds have a higher Sharpe ratio than stocks e. Long-term Treasury bonds are essentially risk-free 5. Which of the following is not a benefit mutual funds provide for their shareholders? a. The ability to trade continuously throughout the day b. Diversification c. Record keeping and administration d. Economizing on transaction costs e. None of the above
1. At the beginning of the year, a mutual fund has a NAV of $20. At the end of the year, the NAV is $21 and the fund has received no dividends or other distributions throughout the year. The return on the fund’s benchmark over the same period of time was 10%. What was the return to investors in the fund? Did the fund’s return to investors beat the benchmark return?
a. 5%; No, the fund did not beat its benchmark
b. 10%; No, the fund did not beat its benchmark
c. 15%; No, the fund did not beat its benchmark
d. 20%; Yes, the fund beat its benchmark
e. None of the above
2. You are advising a pension fund that is required to have a portfolio risk of 5%. Which of the following would be the portfolio optimization problem for constructing their fund?
a. Maximize return subject to a constraint that portfolio volatility is 5%
b. Not enough information
c. Maximize the Sharpe ratio with no additional constraints
d. Minimize the risk needed to get their long-term return target
e. None of the above
3. Which of the following are reasons that stocks are more likely to trade on exchanges relative to bonds?
a. Stocks from a given company are near perfect substitutes, while different bonds from the same company are not. This facilitates trading in a central location like an exchange.
b. Different bonds from a given company are near perfect substitutes, while different shares of stock from the same company are not. Exchanges work well when assets are not close substitutes
c. Stocks are used in more sophisticated strategies than bonds are, and sophisticated investors trade on exchanges.
d. Dealers buy and sell stock, and dealers only operate in exchanges.
e. None of the above.
4. Which of the following would be a good reason to add (long-term) Treasury bonds to a portfolio that consists entirely of stocks?
a. Treasury bonds’ low correlation with stocks makes them a good diversifier
b. The bonds have very high expected returns, so investors could earn higher returns than they could with just stocks
c. The high volatility of bonds results in the possibility of very high returns relative to stocks alone
d. Treasury bonds have a higher Sharpe ratio than stocks
e. Long-term Treasury bonds are essentially risk-free
5. Which of the following is not a benefit mutual funds provide for their shareholders?
a. The ability to trade continuously throughout the day
b. Diversification
c. Record keeping and administration
d. Economizing on transaction costs
e. None of the above
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