finm8016-Mid-Semester-Exam

Page1SCHOOLOFFINANCE,ACTUARIALSTUDIESANDAPPLIEDSTATISTICSMid-SemesterExaminationAppliedPortfolioConstruction(FINM3008)StudyPeriod:15minutesTimeAllowed:2hoursPermittedMaterial:A4sheetofnotes(2-sided),calculator,dictionaryInstructionstoCandidates:•Thisexamisworthatotalof20marks.Itcomprises19questionsintwoparts.PartAcontainssixteen(16)multiplechoicequestions,eachworth0.5marks.PartBcontainsthree(3)questionsrequiringwrittenanswers,eachworth4marks.•PartA:Multiplechoice–Selectonlyoneanswerfromthefiveoptionsprovided.Answersaretobesubmittedviaamultiplechoiceanswersheet.Itishighlyrecommendedthatstudentscompletetheanswersheetwitha2Bpencil,asthismakesalterationofanswerseasier.(Note:Deductionswillnotbemadeforincorrectmultiplechoiceanswers.)•PartB:Writtenanswerquestions–Answersaretobesubmittedviaascriptbook.Wherethequestionreferstoeither‘describe’or‘identify’or‘list’,afact-basedanswerisexpected.Wherethequestionreferstoeither‘explain’,‘discuss’or‘outline’,theanswershoulddemonstrateanunderstandingoftheunderlyingconceptsandtheirapplication.•CandidatesareexpectedtoattemptALLquestions.•Thisexaminationpaperconsistsof8pagesintotal,includingthecoverpage.Page2FINM3008,AppliedPortfolioConstructionMid-SemesterExam-Semester2,2011PARTA:MULTIPLECHOICE(16questions,0.5markseach)Question1Whichofthesetrendshasbeenobservedinthefundmanagementindustryoverthelast5-10years?(a)Highindustrygrowthrates-inexcessofGDP(b)Movementtowardsdefinedcontributionpensionfunds,relativetodefinedbenefit(c)Growthinthehedgefundindustry(d)Concentrationoffundmanagers,especiallyatthelargerend(e)AlloftheaboveQuestion2Whichofthefollowingtypesoffundsarelesslikelytobeconsideredpartofthewholesale(i.e.institutional)segmentofthefundmanagementindustry?(a)DefinedBenefitSuperannuationFunds(b)RetailSuperannuationFunds(c)Self-ManagedSuperannuationFunds(SMSFs)(d)EndowmentsandFoundations(e)SovereignWealthFundsQuestion3Whichofthefollowinginvestorsismostlikelytobeconcernedabouttrackingerrorrisk?(a)Privateinvestor(b)Insurancecompany(c)Fundmanager(d)Definedbenefitsuperannuationfund(e)SovereignwealthfundPage3FINM3008,AppliedPortfolioConstructionMid-SemesterExam-Semester2,2011Question4Investorstypicallyreceivethesamegross‘market’return.Listedbelowaresomewaysinwhichinvestorsmaydiffer.Forthesakeofargument,assumethatinvestorsdifferalongonlyoneofthesedimensions.Whichwouldbeleastlikelytoimplythatinvestorsplacedifferentvaluesonthereturnstheyreceive?(a)Taxrates(b)Costsincurredwheninvesting(c)Objectives(d)Riskaversion(e)Baseline(i.e.reference)portfolioQuestion5Whichofthefollowingstatementsaboutilliquidityismorecorrect?(a)Illiquidityrelatestotheadditionalcostoftradingilliquidsecurities.(b)Illiquiditycanhaveasignificantlydifferentimpactacrossinvestors.(c)Illiquidityriskrelatestothepossibilitythataninvestormaynotbeabletosell.(d)Illiquidityriskisaconstantinthemarket.(e)Illiquidityissimpletoanalyze.Question6Whichofthefollowingstatementsisincorrect?a)Confidenceintervalaroundper-annumexpectedreturnusuallynarrowswithinvestmenthorizon.b)Confidenceintervalaroundwealthcaneitherwidenornarrowwithinvestmenthorizon.c)Varianceisalinearfunctionoftimehorizononlyifreturnsareindependent.d)Riskasmeasuredbyashortfallconstraintdependsonthemeanandvarianceofreturns.e)Riskasmeasuredbyashortfallconstraintdoesnotdependoninvestmenthorizon.Page4FINM3008,AppliedPortfolioConstructionMid-SemesterExam-Semester2,2011Question7AssumeyouintendtoestimatetheSharperatioandcompoundreturnsforaportfolio.Youranalysisistobebasedonatimeseriesofhistoricalassetreturns,withthemeanoftheseriesadjustedinlinewiththeexpectedreturnaccordingtothe‘impliedviews’method.WhichofthefollowingsetofExcelfunctionscanbeusedtoperformthisanalysis?(a)AVERAGE(),SUMPRODUCT(),SLOPE(),STDEV(),LN(),EXP()(b)MEAN(),SUMPRODUCT(),BETA(),STDEV(),LOG(),EXP()(c)AVERAGE(),SUMPRODUCT(),BETA(),STDEV(),LN(),EXP()(d)AVERAGE(),PRODUCT(),BETA(),STDEV(),LOG(),EXP()(e)MEAN(),PRODUCT(),SLOPE(),STDEV(),LN(),EXPON()Question8Nominatewhichofthefollowingstatementsbestdescribestheconceptof‘sequentialrisk’whenappliedtodefinedcontributionpensionfunds,asdiscussedinthecoursereadingbySmithandCollie(2008).(a)Thetimingofcontributionshasanimportantinfluenceonpensionfundrisk.(b)Pensionfundinvestorslosethemostwhentheysufferasequenceofnegativereturns.(c)Theimpactofnegativereturnsisgreatestwhenitoccursearlyintheaccumulationphase.(d)Theimpactofnegativereturnsisgreatestwhenitoccursclosetoretirement.(e)NoneoftheabovedescribessequentialriskasdiscussedbySmithandCollie.Question9Assumeareturnseriesdemonstratessignificantpositiveserialcorrelation.Whichofthefollowingstatementsismostlikelytobeincorrectunderthissituation?(a)Varianceofwealthtendstodecreasewithinvestmenthorizon.(b)Varianceofperannumreturnstendstodecreasewithinvestmenthorizon.(c)Varianceofwealthtendstoincreasewithinvestmenthorizon.(d)Varianceofperannumreturnstendstoincreasewithinvestmenthorizon.(e)Theunderlyingassetmaybethinly-traded.Page5FINM3008,AppliedPortfolioConstructionMid-SemesterExam-Semester2,2011Question10Anoptimizerisusedtogeneratemean-va