Unit 23: Portfolio Performance Measures

An investor purchases a 5% callable convertible subordinated debenture at par. Exactly one year later, the bond is called at $104. The investor's total return is.....

9% Total return consists of income plus gain. Buying a bond at par and having it called at $104 results in a $40 gain. With a 5% coupon, there will be two semiannual interest payments of $25 in a one-year holding period. Adding the $40 + $50 = $90 total return on an investment of $1,000 which = 9%.

The Sharpe ratio is defined as...

A fund's excess return (fund's return exceeding the risk-free rate) divided by the total risk (standard deviation)

The real rate of return is the...

Actual return less the inflation rate as measured by the CPI

The after-tax return is computed by taking the total return (___________________________) and taking the investor's tax rate into consideration.

Appreciation plus income

In connection with the solicitation of investment company shares, it is considered an unfair business practice to discuss returns without fully explaining the difference between...

Current yield and total return

The current yield is calculated by...

Dividing the annual dividend by the current market value

Which of the following indices or averages is based on the prices of only 65 stocks (30 industrial, 20 transportation, and 15 utility)?

Dow Jones Composite Average

When an investor's original value is subtracted from the ending value, and then has the income received over that time period added to it, which is then divided by the original cost, the result is...

Holding period return

Current dividend yield is income dividend divided by price. If the price of a stock decreases and the dividend remains the same, dividend yield will...

Increase

The yield to maturity (YTM), or ___________________, of a bond is the total return earned on a bond that is held to maturity.

Internal rate of return

The Dow Jones Industrial Average is a..

Price-weighted index

POP stand for..

Public offering price

The true rate of return is another way of saying...

Real rate of return

The Sharpe ratio measures the fund's...

Return over and above the risk-free rate

The true rate of return on a bond is the nominal rate minus...

The inflation rate

The real rate of return on a stock is another way of asking for...

The inflation-adjusted return

An investor's realized holding period return is the... That return includes...

Total return received over the specified holding period. Any income plus or minus any realized gain or loss.

Dollar-weighted returns are generally of more use than time-weighted returns to evaluate individual investor performance. True or false?

True

Time-weighted returns are generally of more use than dollar-weighted returns to evaluate portfolio manager performance. True or false?

True

The Sharpe ratio for a stock is computed as follows:

actual return minus the risk-free rate, divided by the standard deviation of the security

The higher the Sharpe ratio, the..

better the risk-adjusted performance of the portfolio and greater the implied level of active management skill

Risk-adjusted return is calculated by...

dividing the remainder of the risk-free rate subtracted from the security's actual return by its standard deviation

Risk-adjusted return is calculated by...

dividing the security's return in excess of the risk-free rate by its standard deviation

The expected return is the...

estimate of probable returns that an investment may yield when taking the sum of all probabilities.

The dollar-weighted return measures the...

internal rate of return (IRR) of a portfolio's actual performance between 2 dates, including all cash inflow and outflows.

The expected return is computed by...

taking the probability of each possible return outcome and multiplying it by the return outcome itself.

The minimum rate of return that a reasonable investor will accept to acquire an investment (required rate of return) is generally determined by

the current risk-free rate of return plus the risk premium

The TOTAL return of a mutual fund is equal to

the return attained by reinvestment of all dividend and capital gains distributions plus unrealized gains or minus unrealized losses

The Russell 2,000 is a...

value-weighted index of stock price performance of 2,000 small capitalization corporations.