1.

D
2. A
3. A
4. A
5. B
6. D

7. (A) beginning of the month and the cash contribution.

Interim MV = BMV + (CF / 2) = 52M + (500k / 2) = 52.25M
period from the beginning of the month to the cash contribution
MD Return = (Interim MV - BMV - CF) / (BMV + (CF / 2)) = (52.25M - 52M -
500k) / (52M + (500k / 2)) = -0.481%
period between the cash contribution and the end of the month
Interim MV = EMV - (CF / 2) = 53.2M - (500k / 2) = 52.95M
cash contribution to the end of the month
MD Return = (EMV - Interim MV - CF) / (Interim MV + (CF / 2)) = (53.2M -
52.95M - 500k) / (52.95M + (500k / 2)) = 0.569%
The time-weighted return for July 2022 is then calculated as the geometric
mean of the two Modified Dietz returns as follows:
TWRR = (1 + MD Return 1) x (1 + MD Return 2) - 1 = (1 - 0.00481) x (1 +
0.00569) - 1 = 0.77%

(B) TWR = [(1 + HPR1) x (1 + HPR2) x ... x (1 + HPRn)] - 1

period return for subperiod 1 can be calculated as follows:
HPR1 = (Interim MV - BMV - CF) / (BMV + CF) = (52.25M - 52M - 500k) / (52M +
500k) = -0.4808%
The holding period return for subperiod 2 can be calculated as follows:
HPR2 = (EMV - Interim MV - CF) / (Interim MV + CF) = (53.2M - 52.95M - 500k)
/ (52.95M + 500k) = 0.5672%
Now, we can calculate the true time-weighted rate of return for July as
follows:
TWR = [(1 + HPR1) x (1 + HPR2)] - 1 = [(1 - 0.004808) x (1 + 0.005672)] - 1
= 0.77%

8. A two-factor model can be used to evaluate TPM's expected return based on the
information given above. The two factors are the change in interest rates and the
growth in GDP.
The two-factor model is given by the following equation:
Expected Return = Rf + beta1 * (Change in Interest Rates) + beta2 * (Growth in
GDP) + firm specific surprise
= Rf - 1.4 * 1.75% + 2.4 * 4.5% + 4.5%
= Rf - 2.45% + 10.8% + 4.5%
= Rf + 12.85%
Therefore, to estimate the expected return of TPM using the two-factor model, we
need to know the risk-free rate. If we assume the risk-free rate to be 2%, then the
expected return for TPM would be:
Expected Return = 2% + 12.85%
Expected Return = 14.85% p.a.

9. For the first trade (200 shares sold at 11am for an execution price of $20.02):
Quoted spread: $20.08 - $20.00 = $0.08
Midpoint between bid and ask prices: ($20.08 + $20.00) / 2 = $20.04
Effective spread: $20.02 - $20.04 = -$0.02 (negative spread means the trader
received a better price than the midpoint)
For the second trade (300 shares sold at 12pm for an execution price of $20.11):
Since the bid price at 12pm is not given, we can only calculate the effective
spread:
 Midpoint between bid and ask prices (assumed to be the same as at 11am): ($20.08
+ $20.00) / 2 = $20.04
Effective spread: $20.11 - $20.04 = $0.07
For the third trade (500 shares sold at 2pm for an average execution price of
$20.09):
Quoted spread: $20.24 - $20.12 = $0.12
Midpoint between bid and ask prices: ($20.24 + $20.12) / 2 = $20.18
Effective spread: $20.18 - $20.09 = $0.09
Therefore, the quoted spreads were $0.08 and $0.12 for the first and third
trades respectively, while the effective spreads were -$0.02, $0.07, and $0.09 for
the first, second, and third trades respectively.

10. In an order-driven market, buy and sell orders from different investors are
matched directly with each other based on their respective prices and sizes.
The price at which a trade occurs is determined by the matching of orders in
the market, and the market depth is visible to all investors.
This means that the market price of a security is determined by supply and
demand forces and reflects the collective sentiment of all investors in the market.

In a quote-driven market, prices for securities are set by dealers or market

makers who quote prices at which they are willing to buy or sell the security.
Investors can then choose to buy or sell securities at the quoted prices, but
the market depth is not visible to all investors.
The dealers or market makers hold an inventory of the securities and make a
profit by buying at a lower price and selling at a higher price.

11.(A) HFT argue that it provides liquidity, lowers transaction costs, and
increases market efficiency. By using algorithms and computer programs to quickly
identify and execute trades,
HFT firms can make markets more efficient by quickly buying and selling
assets at prices that reflect the latest market information.
reasons
One concern is that HFT can exacerbate market volatility by amplifying
market movements
Another concern is that HFT can give some traders an unfair advantage over
others.
HFT firms use sophisticated algorithms and high-speed connectivity to gain a
millisecond advantage over other traders,
allowing them to front-run trades and profit from price discrepancies before
others can react

(B) (1)HFT firms rely on accurate and timely market data to make trading
decisions. This includes real-time price quotes, news feeds, and other market
indicators.
The quality and availability of market data can significantly impact the
success of HFT strategies.
(2)HFT strategies depend on liquidity in the markets. The more liquid the
markets, the easier it is to execute trades quickly and at favorable prices.
Conversely, illiquid markets can make it difficult to execute trades and can
lead to wider bid-ask spreads, which can erode profits.
(3)Regulations can have a significant impact on the success of HFT
strategies. Changes in regulations,
such as the implementation of circuit breakers or changes to market
structure, can impact the profitability of HFT strategies.

12. Portfolio financial sector weighted return = 18.53% x 2.98% = 0.551%

Benchmark financial sector weighted return = 16.56% x 2.22% = 0.367%

The difference between these two figures represents the performance impact due
to the financial sector allocation:

Performance impact due to financial sector allocation = Portfolio financial

sector weighted return - Benchmark financial sector weighted return
= 0.551% - 0.367%
= 0.184%

13. The portfolio's utilities sector weight is 9.22%, and its return is 0.54%.
Therefore, the utilities sector's contribution to the portfolio's overall return
is:
Utilities sector contribution to portfolio return = 9.22% x 0.54%
= 0.050%

The benchmark's utilities sector weight is 7.12%, and its return is -0.42%.
Therefore, the utilities sector's contribution to the benchmark's overall return
is:
Utilities sector contribution to benchmark return = 7.12% x (-0.42%)
= -0.030%
The difference between these two figures represents the utilities within-sector
allocation return:

Utilities within-sector allocation return = Utilities sector contribution to

portfolio return - Utilities sector contribution to benchmark return
= 0.050% - (-0.030%)
= 0.080%

14. The consumer durables sector weight in the portfolio is 36.22%, and its return
is 1.96%. Therefore, the consumer durables sector's contribution to the portfolio's
overall return is:
Consumer durables sector contribution to portfolio return = 36.22% x 1.96%
= 0.708%

The consumer durables sector weight in the benchmark is 37.36%, and its return
is 1.98%. Therefore, the consumer durables sector's contribution to the benchmark's
overall return is:
Consumer durables sector contribution to benchmark return = 37.36% x 1.98%
= 0.740%
The difference in sector weights between the two is 37.36% - 36.22% = 1.14%.
This represents the difference in allocation between the portfolio and the
benchmark.
To calculate the allocation/sector interaction return, we need to adjust the
benchmark's sector return by the difference in allocation:
Adjusted benchmark consumer durables sector return = 1.98% - 1.14% = 0.84%
The allocation/sector interaction return for consumer durables is the
difference between the portfolio's consumer durables sector return and the adjusted
benchmark consumer durables sector return:
Allocation/sector interaction return for consumer durables = Consumer durables
sector contribution to portfolio return - Adjusted benchmark consumer durables
sector return
= 0.708% - 0.84%
= -0.132%

15. Portfolio return = (weight of Australian equity * return of Australian equity)

+ (weight of US equity * return of US equity) + (weight of EM credit * return of EM
credit)
= (0.5 * 0.18) + (0.3 * 0.22) + (0.2 * 0.06)
= 0.108 + 0.066 + 0.012
= 0.186 or 18.6%
16. the increased popularity of passive investing could lead to a more homogenous
market, with stocks in indices receiving a disproportionate amount of buying
pressure, leading to a potential distortion in the market prices of those stocks.
This could create opportunities for active managers to exploit mispricings,
although it may become increasingly challenging to do so as the market becomes more
efficient.
the shift towards passive investing could also result in reduced market
efficiency, as fewer market participants may be dedicated to conducting fundamental
research on individual stocks.
This could lead to a greater reliance on market prices as a reflection of
underlying fundamentals, potentially leading to greater volatility and more
frequent market bubbles and crashes.
the rise of smart beta strategies could lead to increased factor investing, as
investors seek to exploit specific factors such as value, quality, and momentum.
This could result in increased volatility in these factor portfolios,
potentially leading to greater market-wide volatility as investors shift between
factors.
Overall, while the shift towards passive investing has several potential
consequences for markets, the long-term impact is likely to depend on how
effectively investors can balance the benefits of passive investing,
such as lower fees and diversification, with the potential drawbacks, such as
market homogeneity and reduced market efficiency.

17. “ESG,” “responsible investing,” and “sustainable investing” are broad umbrella
terms that
refer to the incorporation of environmental, social, and governance (ESG)
considerations
into investors’ portfolio decisions. ESG implementation has not been defined
consistently, partly because ESG investing is evolving. In the asset management

industry, where active management faces competitive pressure from index

investing,
ESG strategies have been the bright spot in terms of new funds being launched
and
receiving inflows.
Discuss the reasons why ESG investing has become mainstream and the challenges
in
integrating ESG into existing investment portfolios.
Another challenge is that ESG considerations can have different levels of
importance depending on the sector and the company.
incorporating ESG into existing investment portfolios can also be challenging
due to concerns around performance.
Critics argue that ESG strategies may sacrifice returns in pursuit of non-
financial objectives,
but there is growing evidence to suggest that companies with strong ESG
practices can outperform their peers over the long term.

18. (a) high risk

(b) high risk
(c) high liquidity
(d) long term