1. What is the formula for operating ROA?
    operating ROA = Operating Income/Average total assets
  2. What is the formula for Return on total capital?
    Return on total capital = EBIT/ short & long ter debt and equity
  3. what is the formual for ROE?
    ROE = net income/average total equity
  4. what is the formual for return on common equity
    return on common equity =

    • net income - preferred divs
    • Average commone equity
  5. Seven Properties of a Valid Benchmark
    • 1. Specified in advance
    • 2. Appropriate
    • 3. Measurable
    • 4. Unambiguous
    • 5. Reflective of (the manager’s) current
    • investment opinions
    • 6. Accountable
    • 7. Investable
  6. Seven Benchmark Types
    • 1. Absolute
    • 2. Manager universes
    • 3. Broad market indices
    • 4. Style indices
    • 5. Factor-model-based
    • 6. Returns-based
    • 7. Custom security-based
  7. -Absolute (return benchmark) – return
    • objective (e.g., aims to exceed a minimum
    • return target)
    • -Manager universes – usually associated
    • with the “median manager” – the fund that
    • falls at the median when funds are ranked
    • from highest to lowest by performance
    • -Broad market indexes – well known broad
    • market indices that are used as benchmarks
  8. define Optimization as an indexing strategy.
    Optimization uses a factor model to match the factor exposures of the index. It accounts for the covariances between the risk factors but the risk sensitivities may change through time. It may also provide misleading results and lead to frequent rebalancing. An optimization approach, however, leads to lower tracking risk than stratified sampling.
  9. what are the two justifications to value investing?
    The first is that although a firm’s earnings are depressed now, the earnings will rise in the future as they revert to the mean. The second justification for value investors is that growth investors expose themselves to the risk that earnings and price multiples will contract for high-priced growth stocks.
  10. Buy-side equity research is used to?
    Buy-side equity research is used to formulate investment recommendations for an investment management firm. The analyst usually must present their investment recommendations to and have them approved by a committee. Buy-side research is not usually available to those outside the firm because this is how the firm hopes to establish their competitive advantage.
  11. Sell-side research is?
    Sell-side research is often used by an investment bank to promote stocks the bank is selling. It is thus available to the public
Card Set
Performance evaluation and attribution