CFA Examination Level III
During the annual review of Acme’s pension plan, several trustees questioned Lucy Graham, a pension consultant, about various aspects of performance measurement and risk assessment. In particular, one trustee asked about the appropriateness of using each of the following benchmarks:
a. Explain two different weaknesses of using each of the three benchmarks to measure the performance of a portfolio. Another trustee asked how to distinguish among the following performance measures:
b. (1) Describe how each of the three performance measures is calculated.
(2) State whether each measure assumes that the relevant risk is systematic, unsystematic, or total. Explain how each measure relates excess return and the relevant risk.
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