Free CFA-Level-III Exam Braindumps (page: 29)

Powerful Performance Presenters (PPP) is a performance attribution and evaluation firm for pension consulting firms and has recently been hired by Stober and Robertson to conduct a performance attribution analysis for TopTech. Tom Harrison and Wendy Powell are the principals for PPP. Although performance attribution has come under fire lately because of its shortcomings, Stober believes PPP provides a needed service to its clients. Robertson shares Stober's view of performance attribution analysis.
Stober and Robertson request that Harrison and Powell provide a discussion of performance measures. During a conversation on complements to attribution analysis, Harrison notes the uses of the Treynor ratio. He states that the Treynor ratio is appropriate only when the investor's portfolio is well diversified. Powell states that the Sharpe ratio and the Treynor ratio will typically yield the same performance rankings for a set of portfolios.
Stober requests that PPP do some performance attribution calculations on TopTech's managers. In order to facilitate the analysis, Stober provides the information in the following table:

Harrison states one of PPP's services is that it will determine if TopTech has chosen a valid benchmark. Stoher volunteers that indeed his firm's benchmark possesses the properties of a valid benchmark and describes its composition. The benchmark has the following characteristics:
• It uses the top 10% of U.S. portfolio managers each year in each asset class as the benchmark for TopTech managers;
• TopTech is very careful to make sure that its managers are familiar with the securities in each benchmark asset class;
• The identities and weights of various securities in the TopTech benchmark are clearly defined.
During a presentation to Stober, Robertson, and other TopTech executives, Harrison and Powell describe how macro attribution analysis can decompose an entire fund's excess returns into various levels. In his introduction, Robertson delineates the six levels as net contributions, risk-free return, asset categories, benchmarks, investment managers, and allocations effects.
Robertson states that TopTech has performed impressively at the investment managers level tor three years in a row. Harrison and Powell then describe the levels in greater detail. Harrison describes the benchmark level as the difference between active managers' returns and their benchmark returns. Powell states that the investment managers' level reflects the returns to active management on the part of the fund's managers, weighted by the amount actually allocated to each manager.
At the request of Stober, Harrison and Powell explore alternatives to the benchmark TopTech is currently using for its small-cap value manager. After some investigation of the small-cap value manager's emphasis, Harrison and Powell derive four potential custom benchmarks and calculate two measures to evaluate the benchmarks:
(1) the return to the manager's active management or A = portfolio return - benchmark return; and (2) the return to the manager's style or S = benchmark return - broad market return.
The following characteristics are presented below for each benchmark: (1) the beta between the benchmark and the small-cap value portfolio; (2) the tracking error (i.e., the standard deviation of A); (3) the turnover of the benchmark; and (4) the correlation between A and S.

Harrison and Powell evaluate the benchmarks based on the four measures.
Of the three benchmarks, determine which would be most appropriate for the small cap value manager.

Security analysts Andrew Tian, CFA, and Cameron Wong, CFA, are attending an investment symposium at the Singapore Investment Analyst Society. The focus of the symposium is capital market expectations and relative asset valuations across markets. Many highly-respected practitioners and academics from across the Asia- Pacific region are on hand to make presentations and participate in panel discussions.
The first presenter, Lillian So, President of the Society, speaks on market expectations and tools for estimating intrinsic valuations. She notes that analysts attempting to gauge expectations are often subject to various pitfalls that subjectively skew their estimates. She also points out that there are potential problems relating to a choice of models, not all of which describe risk the same way. She then provides the following data to illustrate how analysts might go about estimating expectations and intrinsic values.

The next speaker, Clive Smyth, is a member of the exchange rate committee at the Bank of New Zealand. His presentation concerns the links between spot currency rates and forecasted exchange rates. He states that foreign exchange rates are linked by several forces including purchasing power parity (PPP) and interest rate parity (IRP). He tells his audience that the relationship between exchange rates and PPP is strongest in the short run, while the relationship between exchange rates and IRP is strongest in the long run. Smyth goes on to say that when a country's economy becomes more integrated with the larger world economy, this can have a profound impact on the cost of capital and asset valuations in that country.

The final speaker in the session directed his discussion toward emerging market investments. This discussion, by Hector Ruiz, head of emerging market investment for the Chilean Investment Board, was primarily concerned with how emerging market risk differs from that in developed markets and how to evaluate the potential of emerging market investments. He noted that sometimes an economic crisis in one country can spread to other countries in the area, and that asset returns often exhibit a greater degree of non-normality than in developed markets.


Ruiz concluded his presentation with the data in the tables below to illustrate factors that should be considered during the decision-making process for portfolio managers who are evaluating investments in emerging markets.

When the first presenter refers to skewed estimates and problems with a choice of models, she is referring to:

Security analysts Andrew Tian, CFA, and Cameron Wong, CFA, are attending an investment symposium at the Singapore Investment Analyst Society. The focus of the symposium is capital market expectations and relative asset valuations across markets. Many highly-respected practitioners and academics from across the Asia- Pacific region are on hand to make presentations and participate in panel discussions.
The first presenter, Lillian So, President of the Society, speaks on market expectations and tools for estimating intrinsic valuations. She notes that analysts attempting to gauge expectations are often subject to various pitfalls that subjectively skew their estimates. She also points out that there are potential problems relating to a choice of models, not all of which describe risk the same way. She then provides the following data to illustrate how analysts might go about estimating expectations and intrinsic values.

The next speaker, Clive Smyth, is a member of the exchange rate committee at the Bank of New Zealand. His presentation concerns the links between spot currency rates and forecasted exchange rates. He states that foreign exchange rates are linked by several forces including purchasing power parity (PPP) and interest rate parity (IRP). He tells his audience that the relationship between exchange rates and PPP is strongest in the short run, while the relationship between exchange rates and IRP is strongest in the long run. Smyth goes on to say that when a country's economy becomes more integrated with the larger world economy, this can have a profound impact on the cost of capital and asset valuations in that country.

The final speaker in the session directed his discussion toward emerging market investments. This discussion, by Hector Ruiz, head of emerging market investment for the Chilean Investment Board, was primarily concerned with how emerging market risk differs from that in developed markets and how to evaluate the potential of emerging market investments. He noted that sometimes an economic crisis in one country can spread to other countries in the area, and that asset returns often exhibit a greater degree of non-normality than in developed markets.


Ruiz concluded his presentation with the data in the tables below to illustrate factors that should be considered during the decision-making process for portfolio managers who are evaluating investments in emerging markets.

Based upon the information provided by So, the equity risk premium in Singapore and the intrinsic value of the Taiwan index are closest to:
Singapore E(risk prem.) Taiwan Index Value

Security analysts Andrew Tian, CFA, and Cameron Wong, CFA, are attending an investment symposium at the Singapore Investment Analyst Society. The focus of the symposium is capital market expectations and relative asset valuations across markets. Many highly-respected practitioners and academics from across the Asia- Pacific region are on hand to make presentations and participate in panel discussions.
The first presenter, Lillian So, President of the Society, speaks on market expectations and tools for estimating intrinsic valuations. She notes that analysts attempting to gauge expectations are often subject to various pitfalls that subjectively skew their estimates. She also points out that there are potential problems relating to a choice of models, not all of which describe risk the same way. She then provides the following data to illustrate how analysts might go about estimating expectations and intrinsic values.

The next speaker, Clive Smyth, is a member of the exchange rate committee at the Bank of New Zealand. His presentation concerns the links between spot currency rates and forecasted exchange rates. He states that foreign exchange rates are linked by several forces including purchasing power parity (PPP) and interest rate parity (IRP). He tells his audience that the relationship between exchange rates and PPP is strongest in the short run, while the relationship between exchange rates and IRP is strongest in the long run. Smyth goes on to say that when a country's economy becomes more integrated with the larger world economy, this can have a profound impact on the cost of capital and asset valuations in that country.

The final speaker in the session directed his discussion toward emerging market investments. This discussion, by Hector Ruiz, head of emerging market investment for the Chilean Investment Board, was primarily concerned with how emerging market risk differs from that in developed markets and how to evaluate the potential of emerging market investments. He noted that sometimes an economic crisis in one country can spread to other countries in the area, and that asset returns often exhibit a greater degree of non-normality than in developed markets.


Ruiz concluded his presentation with the data in the tables below to illustrate factors that should be considered during the decision-making process for portfolio managers who are evaluating investments in emerging markets.

Regarding Smyth's statements concerning exchange rate links: