Exam 13: Managing Your Own Portfolios

Maria purchased $5,000 of no-load mutual fund shares just over a year ago.She received $136 in dividend income and $201 in long-term capital gains distributions.Today she sold her shares for $5,062.Maria is in the 25% marginal tax bracket.Capital gains with holding periods in excess of one year and dividend income are taxed at 15%.What is Maria's after-tax holding period return?

An investment portfolio should be built around the needs of the individual investor.

Utility stocks are often suitable for low-risk, current-income-oriented portfolios.

Before analyzing needs and objectives, investors should first construct a portfolio.

The key areas to monitor when evaluating your portfolio holdings are the overall performance of both the economy and the financial markets, and the returns on your investments.

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

Allison's portfolio has an expected return of 14% and a beta of 1.37.Brianna's portfolio has an expected rate of return of 11% and a beta of 1.The risk-free rate is 3% and the expected rate of return on the market is 12%.According to the Jensen's measure,

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

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.

If the holding period return (HPR)of an investment is 20 percent before taxes for a nine month period, an investor in the 30 percent tax bracket would have an after-tax HPR of 14 percent.

The holding period return measures only the capital appreciation of an investment.

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

Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?

Over a period of time if an investment has not met its return objective, it should be sold.

The holding period return (HPR)of one's portfolio should be compared to investment goals I.to assess whether the proper rate of return is being earned for the risk involved. II.to be sure one's portfolio is outperforming the S&P 500 Index. III.to isolate any problem investments. IV.to determine when to change benchmarks from the S&P 500 to the NASDAQ Composite Index.

Asset allocation focuses on selecting specific securities within an asset class.

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.

For a stock investment, the dividend yield is calculated by

Returns for periods greater than one year should be measured using the internal rate of return.

Fred and Martha are in their seventies and retired.Which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk?