Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Investing 30 to 40 percent of your retirement funds in the company you work for is reasonable when they match funds.

Accepted Answer

A) True 
 B)False

Question 3

For an investor with a time horizon of 12 years and higher risk tolerance, an appropriate asset allocation strategy would be

Accepted Answer

A) 100% stocks 
B) 30% cash, 50% bonds, and 20% stocks 
C) 10% cash, 30% bonds, and 60% stocks 
D) 50% bonds and 50% stocks 
E) 100% bonds 
A) 100% stocks 
B) 30% cash, 50% bonds, and 20% stocks 
C) 10% cash, 30% bonds, and 60% stocks 
D) 50% bonds and 50% stocks 
E) 100% bonds

Question 4

For an investor with a time horizon of 6 to 10 years and lower risk tolerance, an appropriate asset allocation strategy would be

Accepted Answer

A) 100% stocks 
B) 100% cash 
C) 30% cash, 50% bonds, and 20% stocks 
D) 10% cash, 30% bonds, and 60% stocks 
E) 100% bonds 
A) 100% stocks 
B) 100% cash 
C) 30% cash, 50% bonds, and 20% stocks 
D) 10% cash, 30% bonds, and 60% stocks 
E) 100% bonds

Question 5

Once the portfolio is constructed, it must be continuously

Accepted Answer

A) Rebalanced. 
B) Recycled 
C) Reinvested 
D) Monitored. 
E) Manipulated. 
A) Rebalanced. 
B) Recycled 
C) Reinvested 
D) Monitored. 
E) Manipulated.

Question 6

Research from the 1970s to the 1990s found that over 90 percent of a fund's returns over time is explained by:

Accepted Answer

A) Market timing 
B) Stock selection 
C) Manager selection 
D) Asset allocation 
E) All of the above 
A) Market timing 
B) Stock selection 
C) Manager selection 
D) Asset allocation 
E) All of the above

Question 7

____ 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 8

Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S) \(\begin{array} { l  }
&\text { If Taxable Income }&\text { Then }&\text { The Tax is }\
\text { Single }&\begin{array}{|r|r|}
\hline {\text { Is Over }} & \text { But Not Over } \
\hline \$ 0 & \$ 7,150 \
\hline \$ 7,150 & \$ 29,050 \
\hline \$ 29,050 & \$ 70,350 \
\hline \$ 70,350 & \$ 146,750 \
\hline \$ 146,750 & \$ 319,100 \
\hline \$ 319,100 & - \
\hline
\end{array}&&\begin{array}{|r|r|r|}
\hline \text { This Amount } & \text { Plus This } \% & \text { Of The Excess Over } \
\hline 0 & 10 \% & 0 \
\hline 715 & 15 \% & \$ 7,150 \
\hline \$ 4,000 & 25 \% & \$ 29,050 \
\hline \$ 14,325 & 28 \% & \$ 70,350 \
\hline \$ 35,717 & 33 \% & \$ 146,750 \
\hline \$ 92,592.50 & 35 \% & \$ 319,100 \
\hline
\end{array}\\
\begin{array} { l  }
 \text {Married  }\ \text {Filing }\ \text {Jointly }\
\end{array}&\begin{array}{|r|r|}
\hline \$ 0 & \$ 14,300 \
\hline \$ 14,300 & \$ 58,100 \
\hline \$ 58,100 & \$ 117,250 \
\hline \$ 117,250 & \$ 178,650 \
\hline \$ 178,650 & \$ 319,100 \
\hline \$ 319,100 & - \
\hline
\end{array}&&\begin{array}{|r|r|r|}
\hline 0 & 10 \% & 0 \
\hline 1430 & 15 \% & \$ 14,300 \
\hline \$ 8,000 & 25 \% & \$ 58,100 \
\hline \$ 22,787.50 & 28 \% & \$ 117,250 \
\hline \$ 39,979,50 & 33 \% & \$ 178,650 \
\hline \$ 86,328 & 35 \% & \$ 319,100 \
\hline
\end{array}\
\end{array}\)

-Refer to Exhibit 2.1. What is the tax liability for a married couple filing jointly with taxable income of $125,000?

Accepted Answer

A) $23,800 
B) $18,427 
C) $24,958 
D) $16,867 
E) $19,650 
A) $23,800 
B) $18,427 
C) $24,958 
D) $16,867 
E) $19,650

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

The current outlay of money to guard against a potentially large future loss is commonly known as

Accepted Answer

A) Asset management. 
B) Portfolio management. 
C) Minimizing risk. 
D) Loss control. 
E) Insurance. 
A) Asset management. 
B) Portfolio management. 
C) Minimizing risk. 
D) Loss control. 
E) Insurance.

Question 12

Asset allocation is

Accepted Answer

A) The process of dividing funds into asset classes. 
B) Concerned with returns variability. 
C) Concerned with the risk associated with different assets. 
D) Concerned with the relationship among investments' returns. 
E) All of the above. 
A) The process of dividing funds into asset classes. 
B) Concerned with returns variability. 
C) Concerned with the risk associated with different assets. 
D) Concerned with the relationship among investments' returns. 
E) All of the above.

Question 13

Banks must compete for funds (savings deposits, CD's, etc.) in order to make loans and other types of investments.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

In constructing the portfolio, the manager should maximize the investor's risk level.

Accepted Answer

A) True 
 B)False

Question 17

Defined contribution pension plans promise to pay retirees a specific income stream after retirement.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The spending phase occurs when investors are relatively young.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not a typical portfolio constraint?

Accepted Answer

A) Liquidity needs 
B) Risk tolerance 
C) Time horizon 
D) Tax concerns 
E) Legal factors 
A) Liquidity needs 
B) Risk tolerance 
C) Time horizon 
D) Tax concerns 
E) Legal factors

Exam 2: The Asset Allocation Decision

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

Investing 30 to 40 percent of your retirement funds in the company you work for is reasonable when they match funds.

For an investor with a time horizon of 12 years and higher risk tolerance, an appropriate asset allocation strategy would be

For an investor with a time horizon of 6 to 10 years and lower risk tolerance, an appropriate asset allocation strategy would be

Once the portfolio is constructed, it must be continuously

Research from the 1970s to the 1990s found that over 90 percent of a fund's returns over time is explained by:

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

The asset allocation decision must involve a consideration of

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

The current outlay of money to guard against a potentially large future loss is commonly known as

Asset allocation is

Banks must compete for funds (savings deposits, CD's, etc.) in order to make loans and other types of investments.

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:

Endowment funds

In constructing the portfolio, the manager should maximize the investor's risk level.

Defined contribution pension plans promise to pay retirees a specific income stream after retirement.

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

The spending phase occurs when investors are relatively young.

Which of the following is not a typical portfolio constraint?

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