PORTFOLIO MANAGEMENT – 3rd INTERNAL QUESTION BANK

Module VI: Portfolio Revision

2 marks Questions
1) What is portfolio revision?
2) Why is portfolio revision necessary?
3) Mention two factors that necessitate Portfolio Revision.
4) Mention two constraints in Portfolio Revision.
5) What is Active revision strategy in Portfolio Revision?
6) What is Passive revision strategy in Portfolio Revision?
7) Mention any two differences between active and passive revision strategy.
8) What are formula plans?
9) When are formula plans suitable in portfolio revision?
10) What is Constant rupee value plan?
11) What is Constant ratio plan?
12) What is Dollar cost averaging plan?
13) What is meant by aggressive portfolio?
14) What is meant by defensive portfolio?
15) What is the difference between Constant rupee value plan and Constant ratio plan?

5 marks Questions
1. What is portfolio revision? Explain the constraints in carrying portfolio revision.
2. Explain the “Constant rupee plan” of Portfolio Revision.
3. Explain the “Constant ratio plan” of Portfolio Revision.
4. Explain “Rupee cost averaging formula plan” of Portfolio revision.
5. Illustrate the portfolio revision strategies adopted.
6. What are formula plans? Explain any two formula plans.
VII: Portfolio Evaluation
2 marks Questions
1) What is portfolio evaluation?
2) Mention different situations where evaluation of performance of portfolios becomes
necessary.
3) Mention different perspectives that can be adopted for evaluation of performance of
investment activity.
4) What are the risk adjusted measures? Name them.
5) How does Sharpe’s ratio help Portfolio evaluation?
6) What is Treynor’s ratio? How is it calculated?
7) Distinguish between Sharpe ratio and Treynor ratio.
8) What is differential return? How is it calculated?
9) What is Jenson’s ratio? What does it measure?
10) What is Fama’s decomposition of performance?
11) What does “R1” measure in decomposition of fund performance? How is it determined?
12) What does “R2” measure in decomposition of fund performance? How is it determined?
13) What does “R3” measure in decomposition of fund performance? How is it determined?
14) What does Fama’s net selectivity measure? How is it calculated?
15) Why is portfolio evaluation necessary in portfolio management?

5 marks Questions
1) What are the risk adjusted return measures? Explain any two of them.
2) Explain the different perspectives that can be adopted for evaluation of performance of
investment activity?
3) Describe how the total return of a portfolio can be decomposed into different sources,
using Fama’s decomposition formula.
4) Explain the main purposes of investing in a mutual fund?
5) Write notes on: (i) Sharpe’s Ratio (ii) Treynor’s Ratio
(iii) Fama’s Ratio (iv) Jenson’s Ratio

6) Given below are the historical performance information on the capital market and a
mutual fund:
 Year 1 2 3 4 5 6 7 8 9 10
Mutual fund
17 33 41 13 29 11 6 26 15 21
Return (%)
Mutual Fund
1.35 1.3 1.27 1.3 1.35 1.45 1.4 1.35 1.2 1.15
Beta
Market
6 21 28 11 22 7 13 19 21 26
Return (%)
Return on
Government
8 7 8 9 9 6 6 9 9 8
Securities
(%)
Calculate the Sharpe’s ratio and Treyner’s ratio and comment on the fund performance.

7) A Mutual fund has earned an average annual return of 24% over a five year period while
the average market return over the same period was only 18%. The risk free rate
prevailing at the time was 7.5%. The mutual fund had a beta of 1.45. The S.D. of returns
of the mutual fund and the market index were 40 and 30% respectively. Calculate Fama’s
net selectivity for the fund, showing the decomposition of performance.

8) Information regarding 4 mutual funds and the Market Index are given below:
Fund Return (%) Standard Deviation Beta
(%)
A 10 20 0.5
B 16 25 0.8
C 21 30 1.1
D 28 35 1.2
Market Index 15 30 1
Assuming the risk free rate of return as 7%, calculate the differential returns of the funds
and comment.