Advanced Portfolio Management (ADMS 4501)
W2012 Midterm Exam – February 5, 2012
Student #: _____________________
Section (circle one):
Section M: (Thursday day) or
Section N: (Thursday evening)
Questions Marks Grade
I – Multiple Choice # 1-20 40%
II – Short Answer # 21-25 60%
1. Please use the scantron sheet for the Multiple Choice questions.
2. Please use the exam booklet for the Short Answer questions.
Page 1 of 11 I – MULTIPLE CHOICE (2 marks each) – Please use the scantron sheet
1. During the financial crisis of 2008, in which order did the crises take place?
a) Financial, Liquidity, Credit¸ Economic
b) Liquidity, Credit, Financial, Economic
c) Credit, Liquidity, Financial, Economic
d) Economic, Liquidity, Credit, Financial
e) None of the above are correct.
2. Which of the following is not a cause of the current global crisis?
a) U.S. Fed Fund rate lowered to 1%
b) Human psychology
c) Explosion in other derivatives
d) Huge growth in subprime mortgages
e) All of the above are causes.
3. According to Mark Carney’s speech on Growth in the Age of Deleveraging, which of
the following comments is/are true?
a) Canadian debt has risen less than its G-7 peers.
b) Corporate leverage in Canada is at a record low.
c) One possible consequence from a period of prolonged deleveraging is inflation.
Page 2 of 11 d) Both A and B are true.
e) All of the above are true statements.
4. According to the article “How Prem Watsa turned SickKids’ portfolio around”, Mr.
Watsa’s investment strategy was:
a) Capital preservation.
b) Keep the asset mix relatively steady and look for value.
c) To invest a majority of the portfolio in corporate bonds.
d) To invest a majority of the portfolio in growth companies.
e) None of the above are correct.
5. Which of the following statements regarding Arithmetic Mean (AM) and Geometric
Mean (GM) is incorrect?
a) When rates of return are the same for all years, GM will be equal to the AM.
b) If the rates of return vary over the years, AM will be higher than the GM.
c) The GM is the most correct way of measuring long-term performance.
d) Most mutual fund companies prefer to report the GM.
e) Larger volatility in returns will lead to larger differences between the AM and GM.
6. In a two stock portfolio, if the correlation coefficient between two stocks were to
decrease over time everything else remaining constant the portfolio's risk would:
b) remain constant.
d) be a negative value.
Page 3 of 11 e) both A and D are correct.
7. What is the annual Holding Period Yield for the following portfolio? Assume you own
the securities for two years. (Please use 4 decimals in your calculations)
Security # Shares Beginning Price Ending Price
X 10,000 $10 $14
Y 50,000 $14 $12
Z 20,000 $8 $17
8. Important reasons for constructing a policy statement include:
a) Helps investors decide on realistic investment goals
b) Creates a standard by which to judge the performance of the portfolio manager
c) Develops an instrument to judge risk
d) Both A and B are correct
e) All of the above are correct
9. From 1993 to 2009, which of the following securities had the highest correlation?
a) Canadian government bonds and U.S. government bonds.
b) Canadian government bonds and Japanese government bonds.
c) Canadian government bonds and German government bonds.
Page 4 of 11 d) Canadian equities (TSX) and Japanese equities (Nikkei 225).
e) Canadian equities (TSX) and U.K. equities (FTSE 100).
10. In the Fama and French APT models, the factor “HML” is designed to capture:
a) Risk elements associated with large firms versus small firms.
b) Risk elements associated with growth versus value firms
c) Risk elements associated with changes in inflation.
d) Risk elements associated with changes in GDP.
e) Risk elements associated with dividend yield
11. The slope of the efficient frontier is calculated as follows:
a) E(R portfolio(σ portfolio
b) E(σ portfolio(R portfolio
c) ΔE(R portfolioE(σ portfolio
d) ΔE(σ portfolioE(R portfolio
e) None of the above
12. The slope of the utility curves for a less risk-averse investor, relative to the slope of
the utility curves for a more risk-averse investor, will be
e) the same
13. The market price of a closed-end fund’s units is determined by:
a) The fund’s net asset value per unit.
b) The value weighted closing price of the shares inside the fund.
c) The supply and demand for the units in the secondary market.
d) Their issue price.
e) The price the investment company is willing to redeem the units.
Page 5 of 11 14. A deferred sales load is charged:
a) When a fund is held for less than a stated minimum time period.
b) To compensate fund managers for their expertise.
c) To reward top sellers of mutual funds.
d) To offset price discounts on closed-end funds.
e) When an investor cannot afford to pay the load up front.
15. An investment fund which only holds foreign securities is referred to as:
a) A global fund
b) A foreign investment fund
c) An alien fund
d) An international fund
e) A non-domiciled mutual fund
16. Which of the following investors are prohibited by securities regulations from
investing in hedge funds?
a) Pension funds
b) High-net worth individuals
c) Insurance companies
e) None of the above (they all invest in hedge funds)
17. Convertible Arbitrage hedge funds are an example of which type of strategy?