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% C

Question 2

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred.What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding)?

Accepted Answer

A)  $10,680 
B)  $11,765 
C)  $13,895 
D)  $14,693 
E)  $15,528 
A)  $10,680 
B)  $11,765 
C)  $13,895 
D)  $14,693 
E)  $15,528 C

Question 3

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. E

Question 4

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 5

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

Question 6

For an investor with a time horizon of 4 years and higher 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, 40% bonds, and 50% 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, 40% bonds, and 50% stocks 
E)  100% bonds

Question 7

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

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S)
  
-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 11

Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 2.1.What is the tax liability for a single individual with taxable income of $85,000?

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 12

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 13

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 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

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

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S)
  
-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 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which of the following strategies seeks to increase the portfolio value by reinvesting current income in addition to capital gains?

Accepted Answer

A)  Capital appreciation 
B)  Capital preservation 
C)  Return preservation 
D)  Current income 
E)  Total return 
A)  Capital appreciation 
B)  Capital preservation 
C)  Return preservation 
D)  Current income 
E)  Total return

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

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%.

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred.What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding)?

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.

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

Which of the following is not a typical portfolio constraint?

For an investor with a time horizon of 4 years and higher risk tolerance,an appropriate asset allocation strategy would be

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?

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

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

Exhibit 2.1 USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 2.1.What is the marginal tax rate for a single individual with taxable income of $85,000?

Exhibit 2.1 USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 2.1.What is the tax liability for a single individual with taxable income of $85,000?

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

Which of the following statements is true?

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:

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

Exhibit 2.1 USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 2.1.What is the tax liability for a married couple filing jointly with taxable income of $125,000?

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

Which of the following strategies seeks to increase the portfolio value by reinvesting current income in addition to capital gains?

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

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

An Overview of the Investment Process

The Global Market Investment Decision

Securities Markets: Organization and Operation

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

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

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

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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.