CFA Level III

Your discussion with a client has turned to the measurement of investment performance,
particularly with respect to international portfolios.

Performance and Attribution Data: Annualized Return for 5 Years Ended 12/31/94

International Total Country/Security Currency

Manager/Index Return Return Return

Manager A -6.0% 2.0% -8.0%

Manager B -2.0 -1.0 -1.0
EAFE Index -5.0 0.2 -5.2

a) Assume that the data in the table for Manager A and B accurately reflect their
investment skills and that both managers actively manage currency exposure.
Briefly describe one strength and one weakness for each manager.

b) Recommend and justify a strategy that would enable the fund to take advantage of
the strength of each of the two managers while minimizing the weakness.
CFA Level III

An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks,

using both the Treynor and Sharpe measures of portfolio performance. The following
table provides the average annual rate of return for Portfolio X, the market portfolio (as
measured by the S&P 500 index), and Treasury bills during the past 8 years.

Annual Average Std. Dev. Beta

Rate of Return of Return

Portfolio X 10% 18% 0.60

S&P 500 12% 13% 1.00
T-bills 6% n/a n/a

a) Calculate both the Treynor measure and the Sharpe measure for both Portfolio X
and the S&P 500. Briefly explain whether Portfolio X underperformed, equaled,
or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor
measure and the Sharpe measure.

b) Based on the performance of Portfolio X relative to the S&P 500 calculated in

Part a), briefly explain the reason for the conflicting results when using the
Treynor measure vs. the Sharpe measure.
 Attribution Analysis

Investment Weights Returns

_______________________ ______________________
Asset Class Actual Benchmark Excess Actual Benchmark Excess

Stock 0.50 0.60 -0.10 9.70% 8.60% 1.10%

Bond 0.38 0.30 0.08 9.10 9.20 -0.10
Cash 0.12 0.10 0.02 5.60 5.40 0.20