CIC Performance Measurement and Reporting

Question 1

What does the Time-Weighted Rate of Return (TWR) measure?

Accepted Answer

The compound growth rate of one unit of currency invested over a period, eliminating the effect of external cash flows

Answer

The return generated per dollar invested by the client

Answer

The average return weighted by the number of trading days in each period

Answer

The return adjusted for inflation and taxes over the investment horizon

Question 2

Which of the following best describes the Sharpe Ratio?

Accepted Answer

Excess return per unit of total risk (standard deviation)

Answer

Excess return per unit of systematic risk (beta)

Answer

Annualized alpha divided by tracking error

Answer

Portfolio return minus benchmark return divided by market variance

Question 3

The Global Investment Performance Standards (GIPS) are maintained by which organization?

Accepted Answer

The CFA Institute

Answer

The Securities and Exchange Commission (SEC)

Answer

The Financial Industry Regulatory Authority (FINRA)

Answer

The Investment Adviser Association (IAA)

Question 4

What does 'alpha' represent in the context of portfolio performance measurement?

Accepted Answer

The excess return of a portfolio relative to its expected return given its beta

Answer

The portfolio's sensitivity to interest rate changes

Answer

The standard deviation of returns above the risk-free rate

Answer

The percentage of variance explained by the benchmark

Question 5

Which benchmark characteristic is most important when evaluating a domestic large-cap equity portfolio?

Accepted Answer

The benchmark should be investable, specified in advance, and appropriate to the manager's style

Answer

The benchmark must be equally weighted across all constituents

Answer

The benchmark should include international securities for diversification context

Answer

The benchmark must be constructed by a government regulatory agency

Question 6

Which method of return calculation is required under GIPS standards for portfolios with external cash flows?

Accepted Answer

Modified Dietz Method or daily valuation

Answer

Simple Dietz Method

Answer

Internal Rate of Return (IRR)

Answer

Arithmetic mean of monthly sub-period returns

Question 7

What is 'tracking error' in the context of portfolio performance?

Accepted Answer

The standard deviation of the difference between portfolio returns and benchmark returns

Answer

The difference between a portfolio's return and the risk-free rate

Answer

The error introduced when using estimated rather than actual transaction costs

Answer

The variance of alpha over a rolling 12-month period