Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

____ 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 4

The first step in the investment process is the development of a(n)

Accepted Answer

A) Objective statement. 
B) Policy statement. 
C) Financial statement. 
D) Statement of cash needs. 
E) Statement of cash flows. 
A) Objective statement. 
B) Policy statement. 
C) Financial statement. 
D) Statement of cash needs. 
E) Statement of cash flows.

Question 5

The retirement plan that promises to pay a specific benefit to its beneficiaries is

Accepted Answer

A) A defined contribution plan. 
B) A defined benefit pension plan. 
C) A non-contribution pension plan. 
D) An actuarial pension plan. 
E) Supplemental Retirement Account (SR
A) . 
A) A defined contribution plan. 
B) A defined benefit pension plan. 
C) A non-contribution pension plan. 
D) An actuarial pension plan. 
E) Supplemental Retirement Account (SR
A) .

Question 6

Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Banks face regulatory constraints at both the state and federal level.

Accepted Answer

A) True 
 B)False

Question 9

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 10

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account. If the individual earns 10% annually before taxes and inflation is 3.0% per year, what is the real value of the investment in 10 years?

Accepted Answer

A) $31,000 
B) $33,200 
C) $38,614 
D) $39,343 
E) $47,823 
A) $31,000 
B) $33,200 
C) $38,614 
D) $39,343 
E) $47,823

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 marginal tax rate for a single individual with taxable income of $85,000?

Accepted Answer

A) 15% 
B) 25% 
C) 28% 
D) 33% 
E) 35% 
A) 15% 
B) 25% 
C) 28% 
D) 33% 
E) 35%

Question 13

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 14

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 15

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 16

Research has shown that the asset allocation decision explains ____% of the variation in fund returns across all funds, and ____% of the variation in returns for a particular fund over time.

Accepted Answer

A) 90 and 100. 
B) 100 and 40. 
C) 90 and 40. 
D) 40 and 100. 
E) 40 and 90. 
A) 90 and 100. 
B) 100 and 40. 
C) 90 and 40. 
D) 40 and 100. 
E) 40 and 90.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

An individual in the 36% tax bracket invests $5,000 in a tax-exempt IRA. If the investment earns 10% annually, what will be the value of the IRA after five years?

Accepted Answer

A) $6,600 
B) $6,818 
C) $7,500 
D) $8,053 
E) $10,879 
A) $6,600 
B) $6,818 
C) $7,500 
D) $8,053 
E) $10,879

Exam 2: The Asset Allocation Decision

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

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

____ 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.

The first step in the investment process is the development of a(n)

The retirement plan that promises to pay a specific benefit to its beneficiaries is

Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.

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

Banks face regulatory constraints at both the state and federal level.

Which of the following statements is true?

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account. If the individual earns 10% annually before taxes and inflation is 3.0% per year, what is the real value of the investment in 10 years?

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

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

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

Important reasons for constructing a policy statement include:

Research has shown that the asset allocation decision explains ____% of the variation in fund returns across all funds, and ____% of the variation in returns for a particular fund over time.

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

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

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

An individual in the 36% tax bracket invests $5,000 in a tax-exempt IRA. If the investment earns 10% annually, what will be the value of the IRA after five years?

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

Research has shown that the asset allocation decision explains % of the variation in fund returns across all funds, and % of the variation in returns for a particular fund over time.