Question 1

For an investor with a time horizon of 4 years and higher risk tolerance, an appropriate asset allocation strategy would be

Accepted Answer

A) 100% cash 
B) 30% cash, 50% bonds, and 20% stocks 
C) 20% cash, 40% bonds, and 40% stocks 
D) 10% cash, 40% bonds, and 50% stocks 
E) 100% bonds 
A) 100% cash 
B) 30% cash, 50% bonds, and 20% stocks 
C) 20% cash, 40% bonds, and 40% stocks 
D) 10% cash, 40% bonds, and 50% stocks 
E) 100% bonds C

Question 2

The portfolio mixes of institutional investors around the world are approximately the same.

Accepted Answer

A) True 
 B)False  False

Question 3

____ must be stated in terms of expected returns and risk. An investor's tolerance for risk must be established before returns objectives can be stated.

Accepted Answer

A) Investment requirements 
B) Investment constraints 
C) Investment rewards 
D) Investment objectives 
E) Investment policy 
A) Investment requirements 
B) Investment constraints 
C) Investment rewards 
D) Investment objectives 
E) Investment policy D

Question 4

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund. You currently have $10,000 in the mutual fund. The annual rate of interest that you expect to earn in this account is 4.35%. The amount in the account at the end of 15 years is

Accepted Answer

A) $58,940.30 
B) $28,750.00 
C) $37,009.35 
D) $44,630.81 
E) $25,690.50 
A) $58,940.30 
B) $28,750.00 
C) $37,009.35 
D) $44,630.81 
E) $25,690.50

Question 5

It is not a good idea to get too specific when constructing your policy statement.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not considered to be an investment objective?

Accepted Answer

A) Capital preservation 
B) Capital appreciation 
C) Current income 
D) Total return 
E) None of the above (that is, all are considered investment objectives) 
A) Capital preservation 
B) Capital appreciation 
C) Current income 
D) Total return 
E) None of the above (that is, all are considered investment objectives)

Question 7

In an investment policy statement the objectives of an investor are expressed in terms of

Accepted Answer

A) risk and return 
B) risk 
C) return 
D) time horizon 
E) liquidity needs 
A) risk and return 
B) risk 
C) return 
D) time horizon 
E) liquidity needs

Question 8

The future value of $50,000 invested today, at the end of 10 years assuming an interest rate of 7.5% per year, with semiannual compounding, is

Accepted Answer

A) $104,407.60 
B) $103,051.58 
C) $123,510.52 
D) $210,673.43 
E) $105,117.46 
A) $104,407.60 
B) $103,051.58 
C) $123,510.52 
D) $210,673.43 
E) $105,117.46

Question 9

Many endowments are tax-exempt.

Accepted Answer

A) True 
 B)False

Question 10

Investment planning is complicated by the tax code.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements concerning defined benefit plans is false?

Accepted Answer

A) The company bears the risk of investments 
B) Employees are entitled to either a lump-sum payment or income stream at retirement 
C) Risk tolerance depends on funding status and its actuarial rate 
D) Defined benefit plans for young workers are typically more conservatively invested than defined contribution plans 
E) All of the above are true statements 
A) The company bears the risk of investments 
B) Employees are entitled to either a lump-sum payment or income stream at retirement 
C) Risk tolerance depends on funding status and its actuarial rate 
D) Defined benefit plans for young workers are typically more conservatively invested than defined contribution plans 
E) All of the above are true statements

Question 12

Which of the following is not a step in the portfolio management process?

Accepted Answer

A) Develop a policy statement. 
B) Study current financial and economic conditions. 
C) Construct the portfolio. 
D) Monitor investor's needs and market conditions. 
E) Sell all assets and reinvestment proceeds at least once a year. 
A) Develop a policy statement. 
B) Study current financial and economic conditions. 
C) Construct the portfolio. 
D) Monitor investor's needs and market conditions. 
E) Sell all assets and reinvestment proceeds at least once a year.

Question 13

____ is an appropriate objective for investors who want their portfolio to grow in real terms, i.e., exceed the rate of inflation.

Accepted Answer

A) Capital preservation 
B) Capital appreciation 
C) Portfolio growth 
D) Value additivity 
E) Nominal preservation 
A) Capital preservation 
B) Capital appreciation 
C) Portfolio growth 
D) Value additivity 
E) Nominal preservation

Question 14

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred. What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding)?

Accepted Answer

A) $10,680 
B) $11,765 
C) $13,895 
D) $14,693 
E) $15,528 
A) $10,680 
B) $11,765 
C) $13,895 
D) $14,693 
E) $15,528

Question 15

Which of the following statements is false?

Accepted Answer

A) Unrealized capital gains are taxable. 
B) Realized capital gains are taxable. 
C) Tax-exempt investments are attractive to individuals with high tax liabilities. 
D) Returns comparisons should be made on an equivalent tax basis. 
E) Tax exempt investors prefer tax exempt investments. 
A) Unrealized capital gains are taxable. 
B) Realized capital gains are taxable. 
C) Tax-exempt investments are attractive to individuals with high tax liabilities. 
D) Returns comparisons should be made on an equivalent tax basis. 
E) Tax exempt investors prefer tax exempt investments.

Question 16

Which of the following statements is true?

Accepted Answer

A) Except for tax-exempt investors and tax-deferred accounts, annual tax payments increase investment returns. 
B) The only way to maintain purchasing power over time is to invest in bonds. 
C) After adjusting for taxes, long-term bonds consistently outperform stocks. 
D) An asset allocation decision for a taxable portfolio that does not include a substantial commitment to common stocks may make it difficult for the portfolio to maintain real value over time. 
E) None of the above 
A) Except for tax-exempt investors and tax-deferred accounts, annual tax payments increase investment returns. 
B) The only way to maintain purchasing power over time is to invest in bonds. 
C) After adjusting for taxes, long-term bonds consistently outperform stocks. 
D) An asset allocation decision for a taxable portfolio that does not include a substantial commitment to common stocks may make it difficult for the portfolio to maintain real value over time. 
E) None of the above

Question 17

John is 55 years old has $55,000 outstanding on a mortgage and no other debt. John typically saves $5,000 in an IRA account and another $10,000 in a company pension. John is most likely in the:

Accepted Answer

A) Discovery phase 
B) Accumulation phase 
C) Consolidation phase 
D) Spending phase 
E) Gifting phase 
A) Discovery phase 
B) Accumulation phase 
C) Consolidation phase 
D) Spending phase 
E) Gifting phase

Question 18

What would the equivalent taxable yield be on an investment that offers a 6 percent tax exempt yield? Assume a marginal tax rate of 28%.

Accepted Answer

A) 0.125% 
B) 7.20% 
C) 6.48% 
D) 8.33% 
E) 32.14% 
A) 0.125% 
B) 7.20% 
C) 6.48% 
D) 8.33% 
E) 32.14%

Question 19

Endowment funds

Accepted Answer

A) Are formed from the contributions to charitable and educational institutions. 
B) Are attractive investments for individuals with low liquidity needs. 
C) Usually have very short investment horizons. 
D) Provide retirement benefits for public employees. 
E) Provide death benefits for its contributor's survivors. 
A) Are formed from the contributions to charitable and educational institutions. 
B) Are attractive investments for individuals with low liquidity needs. 
C) Usually have very short investment horizons. 
D) Provide retirement benefits for public employees. 
E) Provide death benefits for its contributor's survivors.

Question 20

Most experts recommend a cash reserve of at least one year's worth of living expenses.

Accepted Answer

A) True 
 B)False

Exam 2: The Asset Allocation Decision

For an investor with a time horizon of 4 years and higher risk tolerance, an appropriate asset allocation strategy would be

The portfolio mixes of institutional investors around the world are approximately the same.

____ must be stated in terms of expected returns and risk. An investor's tolerance for risk must be established before returns objectives can be stated.

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund. You currently have $10,000 in the mutual fund. The annual rate of interest that you expect to earn in this account is 4.35%. The amount in the account at the end of 15 years is

It is not a good idea to get too specific when constructing your policy statement.

Which of the following is not considered to be an investment objective?

In an investment policy statement the objectives of an investor are expressed in terms of

The future value of $50,000 invested today, at the end of 10 years assuming an interest rate of 7.5% per year, with semiannual compounding, is

Many endowments are tax-exempt.

Investment planning is complicated by the tax code.

Which of the following statements concerning defined benefit plans is false?

Which of the following is not a step in the portfolio management process?

____ is an appropriate objective for investors who want their portfolio to grow in real terms, i.e., exceed the rate of inflation.

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred. What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding)?

Which of the following statements is false?

Which of the following statements is true?

John is 55 years old has $55,000 outstanding on a mortgage and no other debt. John typically saves $5,000 in an IRA account and another $10,000 in a company pension. John is most likely in the:

What would the equivalent taxable yield be on an investment that offers a 6 percent tax exempt yield? Assume a marginal tax rate of 28%.

Endowment funds

Most experts recommend a cash reserve of at least one year's worth of living expenses.

The Investment Setting

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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