1) Consider two different hedge funds with the followingdata related to performance:

Hedge fund            Alpha          Beta

Fund A                     5%          1.6

Fund B                                 3%          0.8

Assuming that beta is consistent with the type ofinvesting we expected in both cases, which fund performedbetter.

A. Fund A, because it had the higher return

B. Fund A, because it had the higher alpha

C. Fund B, because its alpha is more impressive thanFund A when we consider how much less risk the fundtook.

D. Fund B, because the beta is closer to 1.

2) When we analyze the performance of an activelymanaged mutual fund we find that the fund generated a beta of 1 andan alpha of zero.

A. this result shows that the manager took no risk wheninvesting

B. this result shows that the manager did not add anyvalue to performance with his/her decision-making

C. both (A) and (B) are true

D. none of the above

3) Consider two different hedge funds with the followingdata related to performance:

Hedge fund            Alpha          Beta

Fund A                     1%          0.8

Fund B                                 3%          -0.3

Assuming that beta is consistent with the type ofinvesting we expected in both cases, which fund performedbetter?

A. Fund A, because Fund B should have negative alpha tomatch its negative beta

B. Fund A, because it had a higher beta than FundB

C. Fund B, because its alpha is higher than FundA.

D. Fund A, because the beta is closer to 1.

4) A positive alpha for a mutual fundmeans:

A. the fund invested in high-riskstrategies

B. the fund manager’s performance was bad

C. both (A) and (B)

D. none of the above

5) In the Wall Street Journal’s darts versus proscompetition, the difference in returns generated by the twoportfolios is explained by:

I. the darts were poorly thrown

II. the pros pick riskier stocks

III. other investors buying the stocks that the prospick

IV. the pros are simply good at pickingstocks

A. I and II

B. II only

C. IV only

D. II and III

6) __________ is a false statement regarding open-endmutual funds.

A. They offer investors a guaranteed rate ofreturn

B. They offer investors a well diversifiedportfolio

C. They redeem shares at their net assetvalue

D. None of the above (A, B, and C are alltrue)

7) When we analyze the performance of an activelymanaged mutual fund we find that the fund generated a beta of 1.5and an alpha of zero.

A. this result shows that the manager took relativelyhigh risk when investing

B.this result shows that the manager did not add anyvalue to performance with his/her decision-making

C. both (A) and (B) are true

D. none of the above

8) An attractive feature of Exchange Traded Funds (ETFs)is:

A. the price of the fund always matches the Net AssetValue

B. the investor has more control over tax implicationsof trading than with a mutual fund

C. ETFs only trade once a day, making it easier to keeptrack of their prices.

D. the fund is highly likely to produce a positivealpha