Skip to content

NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

A portfolio manager's PMS strategy earned a return of 14% in a year, while its chosen benchmark returned 11% over the same period. What is the alpha (excess return over the benchmark) in simple terms?

The excess return is 3 percentage points, found by subtracting the benchmark return of 11% from the portfolio return of 14%. A positive difference shows the portfolio manager outperformed the benchmark over the period.

  1. A3 percentage pointsCorrect
  2. B25 percentage points
  3. C-3 percentage points
  4. D1.27 percentage points

Explanation

Simple excess return over the benchmark is the portfolio return minus the benchmark return: 14% - 11% = 3 percentage points. Reversing the subtraction gives -3, which would imply underperformance, and that is wrong here. Dividing 14 by 11 gives a ratio, not an excess return.

Did you get it right without looking?

One question tells you little. A timed set on Performance Measurement and Evaluation of Portfolio Managers shows your real accuracy, how long you take and where you lose marks.

Practise Performance Measurement and Evaluation of Portfolio ManagersFree diagnostic mock

More Performance Measurement and Evaluation of Portfolio Managers questions