Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

____ gains are taxable and occur when an asset is sold for more than its basis (the value of the asset when it was purchased by the original owner,or inherited by the heirs of the original owner).

Accepted Answer

A)  Realized capital 
B)  Income 
C)  Portfolio 
D)  Nominal 
E)  Real 
A)  Realized capital 
B)  Income 
C)  Portfolio 
D)  Nominal 
E)  Real

Question 3

For an investor with a time horizon of 8 years and higher 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 4

The policy statement may include a ____ against which a portfolio's or portfolio manager's performance can be measured.

Accepted Answer

A)  Milestone 
B)  Benchmark 
C)  Landmark 
D)  Reference point 
E)  Market pair 
A)  Milestone 
B)  Benchmark 
C)  Landmark 
D)  Reference point 
E)  Market pair

Question 5

What would the equivalent taxable yield be on an investment that offers a 6 percent tax exempt yield? Assume a marginal tax rate of 28%.

Accepted Answer

A)  0.125% 
B)  7.20% 
C)  6.48% 
D)  8.33% 
E)  32.14% 
A)  0.125% 
B)  7.20% 
C)  6.48% 
D)  8.33% 
E)  32.14%

Question 6

Which of the following statements is false?

Accepted Answer

A)  Unrealized capital gains are taxable. 
B)  Realized capital gains are taxable. 
C)  Tax-exempt investments are attractive to individuals with high tax liabilities. 
D)  Returns comparisons should be made on an equivalent tax basis. 
E)  Tax exempt investors prefer tax exempt investments. 
A)  Unrealized capital gains are taxable. 
B)  Realized capital gains are taxable. 
C)  Tax-exempt investments are attractive to individuals with high tax liabilities. 
D)  Returns comparisons should be made on an equivalent tax basis. 
E)  Tax exempt investors prefer tax exempt investments.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not considered to be an investment objective?

Accepted Answer

A)  Capital preservation 
B)  Capital appreciation 
C)  Current income 
D)  Total return 
E)  None of the above (that is, all are considered investment objectives) 
A)  Capital preservation 
B)  Capital appreciation 
C)  Current income 
D)  Total return 
E)  None of the above (that is, all are considered investment objectives)

Question 9

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 10

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 11

____ 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 12

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 13

The portfolio mixes of institutional investors around the world are approximately the same.

Accepted Answer

A) True 
 B)False

Question 14

An example of a unique need in an investment policy statement is related to the legal responsibilities of a fiduciary or trustee.

Accepted Answer

A) True 
 B)False

Question 15

____ 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 16

Which of the following is not a life cycle phase?

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 17

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

Accepted Answer

A)  13.57% 
B)  15.68% 
C)  21.68% 
D)  25.74% 
E)  29.55% 
A)  13.57% 
B)  15.68% 
C)  21.68% 
D)  25.74% 
E)  29.55%

Question 18

The typical investor's goals rarely change during his/her lifetime.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account.What will be the value of a $10,000 investment after 5 years (assuming annual compounding)?

Accepted Answer

A)  $ 6,805 
B)  $14,693 
C)  $15,528 
D)  $20,114 
E)  $50,000 
A)  $ 6,805 
B)  $14,693 
C)  $15,528 
D)  $20,114 
E)  $50,000

Exam 2: The Asset Allocation Decision

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

____ gains are taxable and occur when an asset is sold for more than its basis (the value of the asset when it was purchased by the original owner,or inherited by the heirs of the original owner).

For an investor with a time horizon of 8 years and higher risk tolerance,an appropriate asset allocation strategy would be

The policy statement may include a ____ against which a portfolio's or portfolio manager's performance can be measured.

What would the equivalent taxable yield be on an investment that offers a 6 percent tax exempt yield? Assume a marginal tax rate of 28%.

Which of the following statements is false?

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

Which of the following is not considered to be an investment objective?

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

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

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

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

The portfolio mixes of institutional investors around the world are approximately the same.

An example of a unique need in an investment policy statement is related to the legal responsibilities of a fiduciary or trustee.

____ 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.

Which of the following is not a life cycle phase?

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

The typical investor's goals rarely change during his/her lifetime.

Asset allocation is

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account.What will be the value of a $10,000 investment after 5 years (assuming annual compounding)?

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

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