CFA一級百題進階：組合

10.PORTFOLIOMANAGEMENT

Q-1.

Thetimingofpayoutsforpropertyandcasualtyinsurersisunpredictable("lumpy")in

comparisonwiththetimingofpayoutsforlifeinsurancecompanies.Therefore,in

general,propertyandcasualtyinsurershave:

A.lowerliquidityneedsthanlifeinsurancecompanies.

B.greaterliquidityneedsthanlifeinsurancecompanies.

C.ahigherreturnobjectivethanlifeinsurancecompanies.

Solution:B.

Theunpredictablenatureofpropertyandcasualty(P&C)claimsforcesP&Cinsurerstoallocatea

substantialproportionoftheirinvestmentsintoliquid,shortmaturityassets.Thisneedfor

liquidityalsoforcesP&Ccompaniestoacceptinvestmentswithrelativelylowexpectedreturns.

Liquidityisoflessconcerntolifeinsurancecompaniesgiventhegreaterpredictabilityoflife

insurancepayouts.

1-10

Q-2.

Aninvestorwhoseportfolioislocatedonthecapitalmarketlinetotheleftofthe

marketportfoliomostlikelyhas:

A.Lowerunsystematicriskthanthemarketportfolio.

B.Higherunsystematicriskthanthemarketportfolio.

C.Lessthan100percentofhiswealthinvestedinthemarketportfolio.

Solution:C.

AportfoliothatisontheCMLtotheleftofthemarketportfolioisalendingportfoliowithpartof

theinvestor’swealthinvestedintherisk-freeasset(loanedattherisk-freerate).

2-10

Q-3.

Withrespecttothesecuritymarketline,iftworiskyassetshavethesamecovariance

withthemarketportfoliobuthavedifferentestimatedratesofreturn,themost

accurateconclusionisthatthetworiskyassetshave:

A.Thesameamountofsystematicrisk,andbothassetsareproperlyvalued.

B.Differentamountsofsystematicrisk,andbothassetsareproperlyvalued.

C.Thesameamountofsystematicrisk,andatleastoneoftheassetsiseitherovervaluedor

undervalued.

Solution:C.

Betaisthecovarianceofanassetwiththemarketportfoliodividedbythevarianceofthemarket

portfolio.Thevarianceofthemarketportfolioisthesameforallassets.Soifthecovariancewith

themarketportfolioisthesame,theassetsmusthavethesamebeta(amountofsystematicrisk),

shouldplotatthesameplaceontheSML,andhavethesamerequiredrateofreturn.Ifthe

estimatedratesofreturnforthetwoassetsaredifferent,atleastoneofthemisnotproperly

valuedandwillnotplotontheSML.

3-10

Q-4.

Theslopeofthesecuritycharacteristiclineisanasset's:

A.beta.

B.excessreturn.

C.riskpremium.

Solution:A.

Thesecuritycharacteristiclineisaplotoftheexcessreturnofthesecurityonthereturnofthe

market.Insuchagraph,Jensen'salphaistheinterceptandthebetaistheslope.

4-10

Q-5.

Portfoliomanagerswhoaremaximizingrisk–adjustedreturnswillseektoinvestlessin

securitieswith:

A.lowervaluesfornonsystematicvariance.

B.valuesofnonsystematicvarianceequalto0.

C.highervaluesfornonsystematicvariance.

Solution:C.

Sincemanagersareconcernedwithmaximizingrisk–adjustedreturns,securitieswithgreater

nonsystematicriskshouldbegivenlessweightintheportfolio.

5-10

Q-6.

Afterinterviewingaclientinordertoprepareawritteninvestmentpolicystatement

(IPS),youhaveestablishedthefollowing:

Theclienthasearningsthatvarydramaticallybetween￡30,000and￡70,000

(pre-tax)dependingonweatherpatternsinBritain.

Inthreeofthepreviousfiveyears,theafter-taxincomeoftheclienthasbeenless

than￡20,000.

Theclient’smotherisdependentonherson(theclient)forapproximately￡9,000

peryearsupport.

Theclient’sownsubsistenceneedsareapproximately￡12,000peryear.

Theclienthasmorethan10years’experiencetradinginvestmentsincluding

commodityfutures,stockoptions,andsellingstockshort.

Theclient’sresponsestoastandardriskassessmentquestionnairesuggesthehas

aboveaveragerisktolerance.

Theclientisbestdescribedashavinga:

A.lowabilitytotakerisk,butahighwillingnesstotakerisk.

B.highabilitytotakerisk,butalowwillingnesstotakerisk.

C.highabilitytotakeriskandahighwillingnesstotakerisk.

Solutions:A.

Thevolatilityoftheclient’sincomeandthesignificantsupportneedsforhismotherand

himselfsuggestthattheclienthasalowabilitytotakerisk.Theclient’stradingexperience

andhisresponsestotheriskassessmentquestionnaireindicatethattheclienthasanabove

averagewillingnesstotakerisk.

6-10

Q-7.

Akeydifferencebetweenawrapaccountandamutualfundisthatwrapaccounts:

A.haveassetsthatareowneddirectlybytheindividual.

B.cannotbetailoredtothetaxneedsofaclient.

C.havealowerrequiredminimuminvestment.

Solution:A.

Thekeydifferencebetweenawrapaccountandamutualfundisthatinawrapaccount,the

assetsareowneddirectlybytheindividual.

7-10

Q-8.

Aninvestor'stransactionsinamutualfundandthefund'sreturnsoverafour-year

periodareprovidedinthefollowingtable:

Year

1

2

3

4

Newinvestmentatthebeginningoftheyear(US$)

Investmentreturnfortheyear

2,600

-21%

0

1,600

66%

-600

1,100

-26%

-600

0

10%

0

Withdrawlbyinvestorattheendoftheyear(US$)

Basedonthisdata,themoney-weightedreturn(orinternalrateofreturn)fortheinvestoris

closestto:

A.7.50%.

B.2.15%.

C.3.57%.

Solution:C.

Year

1

2

3

4

4,258.57

0.00

Startingbalance(US$)

0.00

2,054.005,465.64

Newinvestmentatthebeginningoftheyear(US$)2,600.001,600.001,100.00

Netbalanceatthebeginningofyear(US$)

Investmentreturnfortheyear

Investmentgain(loss)(US$)

2,600.003,654.006,565.64

4,258.57

10%

-21%

66%

2,411.64-1,707.07

-600.00-600.00

-26%

-546.00

425.86

0.00

Withdrawalbyinvestorattheendofthe0.00

year(US$)

Balanceattheendofyear(US$)

Themoneyweightedreturniscalculatedbysolvingforiinthefollowingequation:

?1600?5006004684.43

(1+?)1(1+?)2(1+?)3(1+?)4

2,054.005,465.644,258.57

4,684.43

2600=

+

+

+

CF0=–2,600

CF1=–1,600(newinvestmentbeginningofYear2)

CF2=–500(withdrawalof600,endofYear2;–1100newinvestmentbeginningYear3)

CF3=600(withdrawalof600,endofYear3)

CF4=4,684.43(balanceatendofYear4),i=3.57%.

8-10

Q-9.

Areturn-generatingmodelthatprovidesanestimateoftheexpectedreturnofa

securitybasedonfactorssuchasearningsgrowthandcashflowgenerationisbest

describedasa:

A.marketfactormodel.

B.fundamentalfactormodel.

C.macroeconomicfactormodel.

Solution:B.

Explainreturngeneratingmodels(inclu