Question 1

What would the after-tax yield be on an investment that offers a 6 percent fully taxable yield? Assume a marginal tax rate of 31%.

Accepted Answer

A) 2.79% 
B) 6.48% 
C) 4.14% 
D) 7.20% 
E) 12.50% 
A) 2.79% 
B) 6.48% 
C) 4.14% 
D) 7.20% 
E) 12.50%

Question 2

Important reasons for constructing a policy statement include:

Accepted Answer

A) Helps investors decide on realistic investment goals 
B) Create a standard by which to judge the performance of the portfolio manager 
C) Develop an instrument to judge risk 
D) Choices a and b 
E) All of the above 
A) Helps investors decide on realistic investment goals 
B) Create a standard by which to judge the performance of the portfolio manager 
C) Develop an instrument to judge risk 
D) Choices a and b 
E) All of the above

Question 3

For an investor with a time horizon of 15 years and moderate risk tolerance, an appropriate asset allocation strategy would be

Accepted Answer

A) 100% stocks 
B) 40% cash and 60% stocks 
C) 30% cash, 50% bonds, and 20% stocks 
D) 50% bonds, and 50% stocks 
E) 20% bonds, and 80% stocks 
A) 100% stocks 
B) 40% cash and 60% stocks 
C) 30% cash, 50% bonds, and 20% stocks 
D) 50% bonds, and 50% stocks 
E) 20% bonds, and 80% stocks

Question 4

The asset allocation decision must involve a consideration of

Accepted Answer

A) Cultural differences. 
B) The objectives stated in the investor's policy statement. 
C) The types of assets that are appropriate for the investor. 
D) The risk associated with different investments. 
E) All of the above. 
A) Cultural differences. 
B) The objectives stated in the investor's policy statement. 
C) The types of assets that are appropriate for the investor. 
D) The risk associated with different investments. 
E) All of the above.

Question 5

It is essential that both the client and the portfolio manager agree on an appropriate benchmark portfolio.

Accepted Answer

A) True 
 B)False

Question 6

____ are investment specialists that are responsible for managing the investments of others. There are often legal standards against which they must abide in the performance of their duties.

Accepted Answer

A) Underwriters 
B) Investments bankers 
C) Fiduciaries 
D) Account executives 
E) Trust officers 
A) Underwriters 
B) Investments bankers 
C) Fiduciaries 
D) Account executives 
E) Trust officers

Question 7

Banks typically

Accepted Answer

A) Have low liquidity needs. 
B) Face very few federal and state regulatory constraints. 
C) Don't have to compete for funds. 
D) Have high liquidity needs and a short time horizons constraint. 
E) Low investment risk. 
A) Have low liquidity needs. 
B) Face very few federal and state regulatory constraints. 
C) Don't have to compete for funds. 
D) Have high liquidity needs and a short time horizons constraint. 
E) Low investment risk.

Question 8

Individual security selection is far more important than the asset allocation decision.

Accepted Answer

A) True 
 B)False

Question 9

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund. The annual rate of interest that you expect to earn in this account is 5.25%. The amount in the account at the end of 20 years is

Accepted Answer

A) $60,000.00 
B) $105,039.84 
C) $37,009.35 
D) $123,510.52 
E) $115,637.37 
A) $60,000.00 
B) $105,039.84 
C) $37,009.35 
D) $123,510.52 
E) $115,637.37

Question 10

Banks have high liquidity needs and therefore, have a short time horizon.

Accepted Answer

A) True 
 B)False

Question 11

Risk tolerance is exclusively a function of an individual's psychological makeup.

Accepted Answer

A) True 
 B)False

Question 12

Term life insurance provides both a death benefit and a savings plan.

Accepted Answer

A) True 
 B)False

Question 13

Equity allocations of pension funds in Japan and Germany are similar to those in the United States.

Accepted Answer

A) True 
 B)False

Question 14

The gifting phase is similar to, and may be concurrent with, the spending phase.

Accepted Answer

A) True 
 B)False

Question 15

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account. What will be the value of a $10,000 investment after 5 years (assuming annual compounding)?

Accepted Answer

A) $ 6,805 
B) $14,693 
C) $15,528 
D) $20,114 
E) $50,000 
A) $ 6,805 
B) $14,693 
C) $15,528 
D) $20,114 
E) $50,000

Question 16

____ refer(s) to the ability to convert assets to cash quickly and at a fair market price and often increase(s) as one approaches the later stages of the investment life cycle.

Accepted Answer

A) Liquidity needs 
B) Time horizons 
C) Liquidation values 
D) Liquidation essentials 
E) Capital liquidations 
A) Liquidity needs 
B) Time horizons 
C) Liquidation values 
D) Liquidation essentials 
E) Capital liquidations

Question 17

You currently have $150,000 in an IRA designated for retirement. If you save an additional $100 at the end of every month and expect to earn an annual return of 12%, how much do you expect to have in the IRA in 10 years?

Accepted Answer

A) $467,632 
B) $518,062 
C) $732,546 
D) $949,328 
E) $1,215,234 
A) $467,632 
B) $518,062 
C) $732,546 
D) $949,328 
E) $1,215,234

Question 18

For an investor with a time horizon of 5 years and moderate 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, 30% bonds, and 60% 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, 30% bonds, and 60% stocks 
E) 100% bonds

Question 19

Non-life insurance companies have somewhat unpredictable cash outflows and are therefore faced with different investment constraints than life insurance companies.

Accepted Answer

A) True 
 B)False

Question 20

Long-term, high-priority goals include some form of financial independence.

Accepted Answer

A) True 
 B)False

Exam 2: The Asset Allocation Decision

What would the after-tax yield be on an investment that offers a 6 percent fully taxable yield? Assume a marginal tax rate of 31%.

Important reasons for constructing a policy statement include:

For an investor with a time horizon of 15 years and moderate risk tolerance, an appropriate asset allocation strategy would be

The asset allocation decision must involve a consideration of

It is essential that both the client and the portfolio manager agree on an appropriate benchmark portfolio.

____ are investment specialists that are responsible for managing the investments of others. There are often legal standards against which they must abide in the performance of their duties.

Banks typically

Individual security selection is far more important than the asset allocation decision.

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund. The annual rate of interest that you expect to earn in this account is 5.25%. The amount in the account at the end of 20 years is

Banks have high liquidity needs and therefore, have a short time horizon.

Risk tolerance is exclusively a function of an individual's psychological makeup.

Term life insurance provides both a death benefit and a savings plan.

Equity allocations of pension funds in Japan and Germany are similar to those in the United States.

The gifting phase is similar to, and may be concurrent with, the spending phase.

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account. What will be the value of a $10,000 investment after 5 years (assuming annual compounding)?

____ refer(s) to the ability to convert assets to cash quickly and at a fair market price and often increase(s) as one approaches the later stages of the investment life cycle.

You currently have $150,000 in an IRA designated for retirement. If you save an additional $100 at the end of every month and expect to earn an annual return of 12%, how much do you expect to have in the IRA in 10 years?

For an investor with a time horizon of 5 years and moderate risk tolerance, an appropriate asset allocation strategy would be

Non-life insurance companies have somewhat unpredictable cash outflows and are therefore faced with different investment constraints than life insurance companies.

Long-term, high-priority goals include some form of financial independence.

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

Filters