Name: Sec:
IAPM ET Time: 2 Hrs Date: 10 Aug 2023
Attempt all questions. Negative marking, if any, is indicated in the question itself. Marks are
mentioned along with respective questions. Write your answers only in the separate answer
sheet provided and not in the question paper. Overwriting and untidy work will not fetch
any marks. Use only ball pen for writing your final answers; answers in pencil will not be
awarded marks. Calculators are allowed. There are 3 pages and a total of 5 questions.
Max Marks 50
Part A: State TRUE or FALSE (50% negative marking) (10 marks)
1. Stock selection abilities are termed alpha management while sector selection abilities
as beta management.
2. Mispriced securities with lower total risk but higher non-systematic risk will be
awarded lower relative weights in Treynor-Black model.
3. Transaction costs would drag down more returns of a passive portfolio managed
through full replication as compared to that managed through stratification.
4. If the index constituents remain the same overtime, frequent rebalancing is required for
equally weighted portfolios on account of value-neutral corporate actions.
5. IS will be higher for stocks with higher trading prices.
6. A narrower corridor in percentage-of-portfolio rebalancing (PPR) can be setup for the
portfolios when assets are highly correlated within.
7. Portfolio returns are increasing at an increasing rate with positive stock returns in
constant mix rebalancing strategy.
8. Ranking of portfolios based on Jensen’s alpha and Treynor’s ratio can differ but
rankings based on Sharpe’s ratio and M2 cannot differ.
9. If you are a manager, you would prefer to use Treyor’s ratio over Jensen’s alpha as
performance measure.
10. Although contribution at the ‘net contribution’ level could be negative but contributions
at ‘risk free allocation’ level are always positive in a macro attribution analysis.
1
Part B: Solve and show all relevant steps for the questions below:
1. Incomplete information in the Table below pertains to a three-asset portfolio, P, based
on the single-index model.
Alpha Beta Unsystematic Returns Total Weights
Asset (αi) (βi) Risk ( ei )
2
(Ri) % Risk ( i ) (Xi)
2
A 65 15.50 500.14 0.35
B 1.00 0.8 162.09 0.25
C -1.50 1.3 45 14.75 420.20 0.40
If all the assets are correctly priced such that all of them lie on the security market line (SML),
estimate the following using the single index model: (10 marks)
a. Alpha (αi) for asset A.
b. Total portfolio returns for P.
c. Sharpe ratio for portfolio P.
2. Information in the Table below pertains to a subject portfolio ‘p’ whose correctly
comparable portfolio as per Fama’s (1972) attribution is ‘a’. (5 marks)
Portfolio Returns, Rp ??% Market portfolio returns, Rm 10%
Portfolio Returns, Ra 11.50% Market risk, σm 12%
Non-systematic risk of p 9% Risk free rate, Rf 7%
Calculate the following:
a. Portfolio Returns, Rp
b. Sharpe Ratio of p.
3. Information in the Table below pertains to the beginning of the two periods of
evaluation for a mutual fund. The TWRR of the fund for the two periods is 6% and for
the first period is 2.5%. Calculate the values of all the blank cells in the Table.
(10 marks)
2
Time, t= 0 1 2
Beginning value 1250.000 1511.875
Inflows/outflows at the
beginning of the period
Total initial investments 1710.150
Beginning NAV per unit 11.500
Beginning No. of units 134.350
4. Information in the Table below pertains to a mutual fund managed against a benchmark
for the month of June 2024.
Weights (%) Returns (%)
Sector Security Portfolio Benchmark Security
A1 5.06 4.78 1.42
Automobile A2 2.86 3.1 -0.87
A3 11.26 12.12 1.23
B1 4.37 4.02 1.67
Banking B2 11.86 10.78 2.23
B3 1.63 2.89 -0.76
C1 7.67 8.75 1.45
Cons Durable C2 13.38 13.01 1.35
C3 3.86 4.13 2.12
D1 2.79 1.89 1.96
Diversified D2 9.58 9.76 1.38
D3 25.68 24.77 2.01
Total 100 100
Answer the following questions: (15 marks)
a. Converting the data into the format that we discussed in the class for micro-attribution
analysis.
b. Conduct a micro-attribution analysis by showing all steps to calculate all the
components properly.
c. Check your workings by calculating the overall alpha with the sum of the attribution
components.
*****
