Question 1

The general theory of dollar cost averaging is

Accepted Answer

A)  to time the market to take advantage of low stock prices. 
B)  to buy more stock when prices are low and less when prices are high. 
C)  to equal the performance of market averages at the lowest dollar cost. 
D)  to sell as markets decline and buy as they begin to rise. 
A)  to time the market to take advantage of low stock prices. 
B)  to buy more stock when prices are low and less when prices are high. 
C)  to equal the performance of market averages at the lowest dollar cost. 
D)  to sell as markets decline and buy as they begin to rise.

Question 2

Fixed weightings, flexible weightings, and tactical asset allocation are three approaches to asset allocation. Compare and contrast these three different approaches.

Accepted Answer

The fixed weightings approach assigns a

Question 3

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

Accepted Answer

A) True 
 B)False

Question 4

Warehousing liquidity protects a portion of the portfolio from market fluctuations.

Accepted Answer

A) True 
 B)False

Question 5

Changes in securities prices are not important when measuring portfolio performance unless gains or losses are realized.

Accepted Answer

A) True 
 B)False

Question 6

Under the variable-ratio plan, additional speculative investments are made when the ratio

Accepted Answer

A)  of conservative investments to speculative investments increases by 10%. 
B)  of the rate of return on the speculative investments exceeds the overall market return by 1% or more. 
C)  of the realized rate of return falls below the desired rate of return by 1% or more. 
D)  of the value of the speculative investments to the total portfolio value drops below a predetermined level. 
A)  of conservative investments to speculative investments increases by 10%. 
B)  of the rate of return on the speculative investments exceeds the overall market return by 1% or more. 
C)  of the realized rate of return falls below the desired rate of return by 1% or more. 
D)  of the value of the speculative investments to the total portfolio value drops below a predetermined level.

Question 7

Dollar cost averaging is a procedure by which an investor

Accepted Answer

A)  buys more stock as its price increases. 
B)  times investments in order to buy low and sell high. 
C)  invests a fixed dollar amount in a security at fixed intervals. 
D)  maintains a constant ratio of conservative and aggressive investments. 
A)  buys more stock as its price increases. 
B)  times investments in order to buy low and sell high. 
C)  invests a fixed dollar amount in a security at fixed intervals. 
D)  maintains a constant ratio of conservative and aggressive investments.

Question 8

The Witney Growth Fund, a no-load mutual fund, had a net asset value per share of $54.28 one year ago. Its current net asset value is $56.93. During the year it paid out dividends and capital gains of $2.08 per share. It has a beta value of 1.75. Over the same period the market return was 6.4% and the risk-free rate of return was 3.5%.
(a) Calculate Treynor's measure for the Witney Growth Fund. (Show all work.)
(b) Based on Treynor's measure, how did the fund perform in relation to the overall market?

Accepted Answer

(a) HPR (fund) =[$2.08 + ($56.93 - $54.2

Question 9

If an investor has a loss position in an investment and wants to sell it, the best time to sell for tax purposes is when a capital gain is available against which the loss can be applied.

Accepted Answer

A) True 
 B)False

Question 10

Treynor's measure and Jensen's measure use the standard deviation of portfolio return in the denominator.

Accepted Answer

A) True 
 B)False

Question 11

Zachary holds 15 stocks in his portfolio. The portfolio's return last year was 11%, but one stock, RJH, doubled in value. What should Zachary do if he wants to be as diversified as he was at the beginning of the year?

Accepted Answer

A)  Sell some of the RJH because it now constitutes a higher percentage of his holdings. 
B)  Sell the worst performing stock and use the proceeds to buy more RJH. 
C)  Wait for the price for RJH and the remaining stocks to rise so the proportions are reestablished. 
D)  Sell the RJH and buy a cheaper stock in the same industry. 
A)  Sell some of the RJH because it now constitutes a higher percentage of his holdings. 
B)  Sell the worst performing stock and use the proceeds to buy more RJH. 
C)  Wait for the price for RJH and the remaining stocks to rise so the proportions are reestablished. 
D)  Sell the RJH and buy a cheaper stock in the same industry.

Question 12

The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as

Accepted Answer

A)  portfolio revision. 
B)  market timing. 
C)  red herring baiting. 
D)  dollar cost averaging. 
A)  portfolio revision. 
B)  market timing. 
C)  red herring baiting. 
D)  dollar cost averaging.

Question 13

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio. What are the principal risks in using these orders?

Accepted Answer

Limit orders can be used to buy or sell

Question 14

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?

Accepted Answer

A)  60% bonds, 15% money funds and 25% real estate 
B)  5% money funds, 10% bonds and 85% growth stocks 
C)  25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks 
D)  50% mortgage bonds, 5% money market, 45% municipal bonds 
A)  60% bonds, 15% money funds and 25% real estate 
B)  5% money funds, 10% bonds and 85% growth stocks 
C)  25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks 
D)  50% mortgage bonds, 5% money market, 45% municipal bonds

Question 15

A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is

Accepted Answer

A)  0.5%. 
B)  4.3%. 
C)  7.9%. 
D)  9.3%. 
A)  0.5%. 
B)  4.3%. 
C)  7.9%. 
D)  9.3%.

Question 16

The theory behind the variable ratio plan is to

Accepted Answer

A)  passively buy and hold a wide variety of securities. 
B)  time the cyclical movements of the stock market and thereby "buy low and sell high." 
C)  avoid selling any security for a capital gain, and thus indefinitely avoiding the capital gains tax. 
D)  keep the unit cost of the portfolio at a constant level. 
A)  passively buy and hold a wide variety of securities. 
B)  time the cyclical movements of the stock market and thereby "buy low and sell high." 
C)  avoid selling any security for a capital gain, and thus indefinitely avoiding the capital gains tax. 
D)  keep the unit cost of the portfolio at a constant level.

Question 17

Marianne is in the 30% marginal tax bracket. For her, a 5% return on a tax-exempt portfolio is equivalent to a 6.5% return on a taxable portfolio.

Accepted Answer

A) True 
 B)False

Question 18

The calculation of returns on options and futures must consider income as well as capital gains.

Accepted Answer

A) True 
 B)False

Question 19

Allison's portfolio has a beta of 1.5 and earns a return of 15%. Brianna's portfolio has a beta of 1.0 and earns a return of 11%. The risk-free rate is 3%. According to the Treynor 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 20

When developing an asset allocation scheme, it is best to weight each type of asset equally.

Accepted Answer

A) True 
 B)False

The general theory of dollar cost averaging is

Fixed weightings, flexible weightings, and tactical asset allocation are three approaches to asset allocation. Compare and contrast these three different approaches.

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

Warehousing liquidity protects a portion of the portfolio from market fluctuations.

Changes in securities prices are not important when measuring portfolio performance unless gains or losses are realized.

Under the variable-ratio plan, additional speculative investments are made when the ratio

Dollar cost averaging is a procedure by which an investor

If an investor has a loss position in an investment and wants to sell it, the best time to sell for tax purposes is when a capital gain is available against which the loss can be applied.

Treynor's measure and Jensen's measure use the standard deviation of portfolio return in the denominator.

Zachary holds 15 stocks in his portfolio. The portfolio's return last year was 11%, but one stock, RJH, doubled in value. What should Zachary do if he wants to be as diversified as he was at the beginning of the year?

The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio. What are the principal risks in using these orders?

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?

A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is

The theory behind the variable ratio plan is to

Marianne is in the 30% marginal tax bracket. For her, a 5% return on a tax-exempt portfolio is equivalent to a 6.5% return on a taxable portfolio.

The calculation of returns on options and futures must consider income as well as capital gains.

Allison's portfolio has a beta of 1.5 and earns a return of 15%. Brianna's portfolio has a beta of 1.0 and earns a return of 11%. The risk-free rate is 3%. According to the Treynor measure,

When developing an asset allocation scheme, it is best to weight each type of asset equally.

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

The general theory of dollar cost averaging is

Fixed weightings, flexible weightings, and tactical asset allocation are three approaches to asset allocation. Compare and contrast these three different approaches.

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

Warehousing liquidity protects a portion of the portfolio from market fluctuations.

Changes in securities prices are not important when measuring portfolio performance unless gains or losses are realized.

Under the variable-ratio plan, additional speculative investments are made when the ratio

Dollar cost averaging is a procedure by which an investor

If an investor has a loss position in an investment and wants to sell it, the best time to sell for tax purposes is when a capital gain is available against which the loss can be applied.

Treynor's measure and Jensen's measure use the standard deviation of portfolio return in the denominator.

Zachary holds 15 stocks in his portfolio. The portfolio's return last year was 11%, but one stock, RJH, doubled in value. What should Zachary do if he wants to be as diversified as he was at the beginning of the year?

The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio. What are the principal risks in using these orders?

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?

A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is

The theory behind the variable ratio plan is to

Marianne is in the 30% marginal tax bracket. For her, a 5% return on a tax-exempt portfolio is equivalent to a 6.5% return on a taxable portfolio.

The calculation of returns on options and futures must consider income as well as capital gains.

Allison's portfolio has a beta of 1.5 and earns a return of 15%. Brianna's portfolio has a beta of 1.0 and earns a return of 11%. The risk-free rate is 3%. According to the Treynor measure,

When developing an asset allocation scheme, it is best to weight each type of asset equally.

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