Question 1

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 2

Once the portfolio is constructed, it must be continuously

Accepted Answer

A)  rebalanced. 
B)  recycled 
C)  reinvested 
D)  monitored. 
E)  manipulated. 
A)  rebalanced. 
B)  recycled 
C)  reinvested 
D)  monitored. 
E)  manipulated.

Question 3

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

Accepted Answer

A)  100 percent stocks. 
B)  100 percent cash. 
C)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
D)  10 percent cash, 30 percent bonds, and 60 percent stocks. 
E)  100 percent bonds. 
A)  100 percent stocks. 
B)  100 percent cash. 
C)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
D)  10 percent cash, 30 percent bonds, and 60 percent stocks. 
E)  100 percent bonds.

Question 4

Long-term, high-priority goals include some form of financial independence.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  riskier assets with higher standard deviations experienced lower returns. 
B)  riskier assets with lower standard deviations experienced higher returns. 
C)  standard deviation did a better job of explaining the returns than beta. 
D)  U.S. equities have zero correlation with world government bonds and with the commodities index. 
E)  most assets (including common stocks) have positive correlations with inflation. 
A)  riskier assets with higher standard deviations experienced lower returns. 
B)  riskier assets with lower standard deviations experienced higher returns. 
C)  standard deviation did a better job of explaining the returns than beta. 
D)  U.S. equities have zero correlation with world government bonds and with the commodities index. 
E)  most assets (including common stocks) have positive correlations with inflation.

Question 8

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 these are correct. 
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 these are correct.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 these are correct. 
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 these are correct.

Question 11

The ability to retire at a certain age is a typical example of a long-term, lower-priority goal.

Accepted Answer

A) True 
 B)False

Question 12

Individual real estate assets had much lower standard deviations and either low positive or negative correlations with other asset classes in a portfolio context.

Accepted Answer

A) True 
 B)False

Question 13

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 percent.

Accepted Answer

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

Question 14

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)  cash allocation. 
A)  market timing. 
B)  stock selection. 
C)  manager selection. 
D)  asset allocation. 
E)  cash allocation.

Question 15

Adding foreign stocks and bonds to a U.S. portfolio will almost certainly _____the risk of the portfolio and can possibly _____ its average return.

Accepted Answer

A)  reduce; increase 
B)  increase; reduce 
C)  increase; increase 
D)  decrease; decrease 
E)  not change; decrease 
A)  reduce; increase 
B)  increase; reduce 
C)  increase; increase 
D)  decrease; decrease 
E)  not change; decrease

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund. You currently have $10,000 in the mutual fund. The annual rate of interest that you expect to earn in this account is 4.35 percent. The amount in the account at the end of 15 years is

Accepted Answer

A)  $58,940.30. 
B)  $28,750.00. 
C)  $37,009.35. 
D)  $44,630.81. 
E)  $25,690.50. 
A)  $58,940.30. 
B)  $28,750.00. 
C)  $37,009.35. 
D)  $44,630.81. 
E)  $25,690.50.

Question 18

One of the reasons for constructing a policy statement is it

Accepted Answer

A)  creates a standard by which to judge the performance of the investor. 
B)  helps the investor decide on realistic investment goals. 
C)  is open-ended in order to provide guidance for specific investments and time frames. 
D)  guarantees success. 
E)  helps the portfolio manager to become familiar with financial markets and investing risks. 
A)  creates a standard by which to judge the performance of the investor. 
B)  helps the investor decide on realistic investment goals. 
C)  is open-ended in order to provide guidance for specific investments and time frames. 
D)  guarantees success. 
E)  helps the portfolio manager to become familiar with financial markets and investing risks.

Question 19

Which of the following is NOT a step in the portfolio management process?

Accepted Answer

A)  develop a policy statement 
B)  study current financial and economic conditions 
C)  construct the portfolio 
D)  monitor investor's needs and market conditions 
E)  sell all assets and reinvestment proceeds at least once a year 
A)  develop a policy statement 
B)  study current financial and economic conditions 
C)  construct the portfolio 
D)  monitor investor's needs and market conditions 
E)  sell all assets and reinvestment proceeds at least once a year

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 2: Asset Allocation and Security Selection

Which of the following is NOT a typical portfolio constraint?

Once the portfolio is constructed, it must be continuously

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

Long-term, high-priority goals include some form of financial independence.

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

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

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

Which of the following statements is TRUE?

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

Asset allocation is

The ability to retire at a certain age is a typical example of a long-term, lower-priority goal.

Individual real estate assets had much lower standard deviations and either low positive or negative correlations with other asset classes in a portfolio context.

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 percent.

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

Adding foreign stocks and bonds to a U.S. portfolio will almost certainly _____the risk of the portfolio and can possibly _____ its average return.

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

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund. You currently have $10,000 in the mutual fund. The annual rate of interest that you expect to earn in this account is 4.35 percent. The amount in the account at the end of 15 years is

One of the reasons for constructing a policy statement is it

Which of the following is NOT a step in the portfolio management process?

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

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Adding foreign stocks and bonds to a U.S. portfolio will almost certainly _the risk of the portfolio and can possibly _ its average return.