Exam 2: Asset Allocation and Security Selection

____ 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.

An individual in the 36 percent tax bracket has $20,000 invested in a tax-exempt account. If the individual earns 10 percent annually before taxes and inflation is 3.0 percent per year, what is the real value of the investment in 10 years?

Average tax rate is defined as total tax payment divided by total income.

A study examining the performance of numerous assets from the United States and around the world confirms that

It is not a good idea to get too specific when constructing your policy statement.

The third step of the portfolio management process is to construct the portfolio.

____ 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).

Return is the only important consideration when establishing investment objectives.

You currently have $150,000 in an IRA designated for retirement. If you save an additional $100 at the end of every month and expect to earn an annual return of 12 percent, how much do you expect to have in the IRA in 10 years?

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?

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

A study examining the performance of numerous assets from the United States and around the world confirms that

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 five years (assuming annual compounding)?

Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.

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

A study examining the performance of numerous assets from the United States and around the world confirms that

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.

Equity allocations of pension funds in Japan and Germany are similar to those in the United States.

Which of the following statements is FALSE?

The future value of $50,000 invested today, at the end of 10 years assuming an interest rate of 7.5 percent per year, with semiannual compounding, is