Question 1

A rational investor will require the same return from a corporate security as from a government security.

Accepted Answer

A) True 
 B)False  False

Question 2

Alex bought 100 shares of CBG corporation at $20 per share. It is now selling at $50 and Alex has placed a stop loss order at $47.50, good til canceled. Which of the following is true?

Accepted Answer

A)  If the price falls to $40, there is a high probability that Alex will sell at a price close to $47.50. 
B)  If the price falls, to $40, Alex can be sure that the stock will sell at $47.50 or higher. 
C)  If the price falls overnight to $40 and continues to fall from there, Alex will not be able to sell his stock. 
D)  If the price falls briefly below $47.50 but bounces back before the order can be executed, Alex will still own the stock. 
A)  If the price falls to $40, there is a high probability that Alex will sell at a price close to $47.50. 
B)  If the price falls, to $40, Alex can be sure that the stock will sell at $47.50 or higher. 
C)  If the price falls overnight to $40 and continues to fall from there, Alex will not be able to sell his stock. 
D)  If the price falls briefly below $47.50 but bounces back before the order can be executed, Alex will still own the stock. A

Question 3

The S & P 500 Index is an appropriate benchmark for

Accepted Answer

A)  diversified portfolios of large company stocks. 
B)  portfolios diversified among several asset classes such as stocks, bonds, and real estate. 
C)  diversified portfolios with a mix of large, small, and mid-cap stocks. 
D)  diversified portfolios of mid-cap and small company stocks. 
A)  diversified portfolios of large company stocks. 
B)  portfolios diversified among several asset classes such as stocks, bonds, and real estate. 
C)  diversified portfolios with a mix of large, small, and mid-cap stocks. 
D)  diversified portfolios of mid-cap and small company stocks. A

Question 4

Dollar cost averaging is likely to work best with a mutual fund

Accepted Answer

A)  whose NAV fluctuates widely, but trends upward. 
B)  whose NAV remains relatively constant, like a money market fund. 
C)  whose NAV fluctuates widely, but trends downward. 
D)  whose NAV fluctuates within a narrow range and is relatively trendless. 
A)  whose NAV fluctuates widely, but trends upward. 
B)  whose NAV remains relatively constant, like a money market fund. 
C)  whose NAV fluctuates widely, but trends downward. 
D)  whose NAV fluctuates within a narrow range and is relatively trendless.

Question 5

Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans.

Accepted Answer

Dollar-cost averaging involves investing

Question 6

Capital losses up to $5,000 on stock sales can be used to offset the taxes on ordinary income.

Accepted Answer

A) True 
 B)False

Question 7

Jessica's portfolio consists of 30% common stock, 40% bonds, 15% foreign securities and 15% short-term securities. This asset allocation would be considered

Accepted Answer

A)  aggressive. 
B)  moderate. 
C)  conservative. 
D)  passive. 
A)  aggressive. 
B)  moderate. 
C)  conservative. 
D)  passive.

Question 8

The Sharpe's measure for Jane Smith's investment portfolio is 0.40, while the Sharpe's measure for the market is 0.30. This information suggests that Smith's portfolio

Accepted Answer

A)  exhibits superior performance because its risk premium per unit of risk is above that of the market. 
B)  exhibits poor performance because its risk premium per unit of risk is below that of the market. 
C)  is inadequately diversified, and more securities should be added to the portfolio in order to bring it in line with the market. 
D)  is overly diversified, and some securities should be sold to bring the portfolio in line with the market. 
A)  exhibits superior performance because its risk premium per unit of risk is above that of the market. 
B)  exhibits poor performance because its risk premium per unit of risk is below that of the market. 
C)  is inadequately diversified, and more securities should be added to the portfolio in order to bring it in line with the market. 
D)  is overly diversified, and some securities should be sold to bring the portfolio in line with the market.

Question 9

Which of the following are reasons to consider selling an investment that is currently in a portfolio?
I. The investment has met the original objective.
II. Better investment opportunities currently exist.
III. The outlook for the investment has improved.
IV. The investment has not met expectations and no change is expected.

Accepted Answer

A)  I, II and IV only 
B)  I, III and IV only 
C)  I, II and III only 
D)  I, II, III and IV 
A)  I, II and IV only 
B)  I, III and IV only 
C)  I, II and III only 
D)  I, II, III and IV

Question 10

Dollar cost averaging is a formula plan to purchase the same number of shares of stock at regular intervals of time.

Accepted Answer

A) True 
 B)False

Question 11

Treynor's measure of portfolio performance focuses on

Accepted Answer

A)  nondiversifiable risk. 
B)  diversifiable risk. 
C)  total risk. 
D)  the standard deviation of the portfolio. 
A)  nondiversifiable risk. 
B)  diversifiable risk. 
C)  total risk. 
D)  the standard deviation of the portfolio.

Question 12

Net asset values at the end of each month for the no-load Currier & Ives fund are shown below. Holly Tannenbaum invests $500 in the fund each month through an automatic investment plan. Compute:
a. the number of shares purchased each month
b. the number of shares she owns at the end of December
c. the average price of the shares over the period
d. the average price per share paid by Holly
 $\begin{array}{|l|l|l|}
\hline \text { Month } & \begin{array}{l}
\text { NAV end of } \
\text { month }
\end{array} & \begin{array}{l}
\text { Shares } \
\text { purchased }
\end{array} \
\hline \text { July } & 12.85 & \
\hline \text { August } & 11.08 & \
\hline \text { September } & 9.99 & \
\hline \text { October } & 9.85 & \
\hline \text { November } & 13.55 & \
\hline \text { December } & 12.21 & \
\hline & & \
\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | l | } 
\hlin

Question 13

A stop-loss order guarantees that an investor's unrealized profit will be protected.

Accepted Answer

A) True 
 B)False

Question 14

Several indexes are available to monitor the performance of stocks, but nothing similar is available for bonds or mutual funds.

Accepted Answer

A) True 
 B)False

Question 15

One important tax rule concerning capital losses is that

Accepted Answer

A)  capital losses are always fully deductible. 
B)  a maximum of $3,000 of losses in excess of capital gains can be written off against ordinary income in any one year. 
C)  a maximum of $10,000 of losses in excess of capital gains can be written off against other income in any one year. 
D)  capital losses are never deductible. 
A)  capital losses are always fully deductible. 
B)  a maximum of $3,000 of losses in excess of capital gains can be written off against ordinary income in any one year. 
C)  a maximum of $10,000 of losses in excess of capital gains can be written off against other income in any one year. 
D)  capital losses are never deductible.

Question 16

Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.

Accepted Answer

A) True 
 B)False

Question 17

Allison's portfolio has an expected return of 14% and a standard deviation of 20%. Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%. The risk-free rate is 3%. According to the Sharpe measure,

Accepted Answer

A)  Allison has the better portfolio. 
B)  Brianna has the better portfolio. 
C)  the portfolio's are equally desirable. 
D)  the answer depends on Allison and Brianna's risk tolerance. 
A)  Allison has the better portfolio. 
B)  Brianna has the better portfolio. 
C)  the portfolio's are equally desirable. 
D)  the answer depends on Allison and Brianna's risk tolerance.

Question 18

Twelve months ago, Javier purchased a stock for $28 a share. The stock pays a quarterly dividend of $0.45 per share. Today, Javier sold the stock for $26.75 a share. What is his holding period return?

Accepted Answer

A)  -4.46% 
B)  1.96% 
C)  6.73% 
D)  19.6% 
A)  -4.46% 
B)  1.96% 
C)  6.73% 
D)  19.6%

Question 19

The holding period return for mutual funds should be based on

Accepted Answer

A)  net asset value exclusively. 
B)  dividend income exclusively. 
C)  capital gains distributions exclusively. 
D)  capital gains distributions, dividends and change in net asset value. 
A)  net asset value exclusively. 
B)  dividend income exclusively. 
C)  capital gains distributions exclusively. 
D)  capital gains distributions, dividends and change in net asset value.

Question 20

Most investment professionals consider the Dow Jones Industrial Average (DJIA) to be the most appropriate comparative gauge for evaluating the investment performance of a broadly based common stock portfolio.

Accepted Answer

A) True 
 B)False

A rational investor will require the same return from a corporate security as from a government security.

Alex bought 100 shares of CBG corporation at $20 per share. It is now selling at $50 and Alex has placed a stop loss order at $47.50, good til canceled. Which of the following is true?

The S & P 500 Index is an appropriate benchmark for

Dollar cost averaging is likely to work best with a mutual fund

Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans.

Capital losses up to $5,000 on stock sales can be used to offset the taxes on ordinary income.

Jessica's portfolio consists of 30% common stock, 40% bonds, 15% foreign securities and 15% short-term securities. This asset allocation would be considered

The Sharpe's measure for Jane Smith's investment portfolio is 0.40, while the Sharpe's measure for the market is 0.30. This information suggests that Smith's portfolio

Dollar cost averaging is a formula plan to purchase the same number of shares of stock at regular intervals of time.

Treynor's measure of portfolio performance focuses on

A stop-loss order guarantees that an investor's unrealized profit will be protected.

Several indexes are available to monitor the performance of stocks, but nothing similar is available for bonds or mutual funds.

One important tax rule concerning capital losses is that

Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.

Allison's portfolio has an expected return of 14% and a standard deviation of 20%. Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%. The risk-free rate is 3%. According to the Sharpe measure,

Twelve months ago, Javier purchased a stock for $28 a share. The stock pays a quarterly dividend of $0.45 per share. Today, Javier sold the stock for $26.75 a share. What is his holding period return?

The holding period return for mutual funds should be based on

Most investment professionals consider the Dow Jones Industrial Average (DJIA) to be the most appropriate comparative gauge for evaluating the investment performance of a broadly based common stock portfolio.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 13: Managing Your Own Portfolio

A rational investor will require the same return from a corporate security as from a government security.

Alex bought 100 shares of CBG corporation at $20 per share. It is now selling at $50 and Alex has placed a stop loss order at $47.50, good til canceled. Which of the following is true?

The S & P 500 Index is an appropriate benchmark for

Dollar cost averaging is likely to work best with a mutual fund

Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans.

Capital losses up to $5,000 on stock sales can be used to offset the taxes on ordinary income.

Jessica's portfolio consists of 30% common stock, 40% bonds, 15% foreign securities and 15% short-term securities. This asset allocation would be considered

The Sharpe's measure for Jane Smith's investment portfolio is 0.40, while the Sharpe's measure for the market is 0.30. This information suggests that Smith's portfolio

Dollar cost averaging is a formula plan to purchase the same number of shares of stock at regular intervals of time.

Treynor's measure of portfolio performance focuses on

A stop-loss order guarantees that an investor's unrealized profit will be protected.

Several indexes are available to monitor the performance of stocks, but nothing similar is available for bonds or mutual funds.

One important tax rule concerning capital losses is that

Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.

Allison's portfolio has an expected return of 14% and a standard deviation of 20%. Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%. The risk-free rate is 3%. According to the Sharpe measure,

Twelve months ago, Javier purchased a stock for $28 a share. The stock pays a quarterly dividend of $0.45 per share. Today, Javier sold the stock for $26.75 a share. What is his holding period return?

The holding period return for mutual funds should be based on

Most investment professionals consider the Dow Jones Industrial Average (DJIA) to be the most appropriate comparative gauge for evaluating the investment performance of a broadly based common stock portfolio.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Options: Puts and Calls

Futures Markets and Securities

Filters