Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund. The annual rate of interest that you expect to earn in this account is 5.25 percent. The amount in the account at the end of 20 years is

Accepted Answer

A)  $60,000.00. 
B)  $105,039.84. 
C)  $37,009.35. 
D)  $123,510.52. 
E)  $115,637.37. 
A)  $60,000.00. 
B)  $105,039.84. 
C)  $37,009.35. 
D)  $123,510.52. 
E)  $115,637.37.

Question 3

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 4

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 five 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

Question 5

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 6

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

Accepted Answer

A)  100 percent cash. 
B)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
C)  20 percent cash, 40 percent bonds, and 40 percent stocks. 
D)  10 percent cash, 30 percent bonds, and 60 percent stocks. 
E)  100 percent bonds. 
A)  100 percent cash. 
B)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
C)  20 percent cash, 40 percent bonds, and 40 percent stocks. 
D)  10 percent cash, 30 percent bonds, and 60 percent stocks. 
E)  100 percent bonds.

Question 7

An individual in the 15 percent tax bracket has $10,000 invested in a tax-exempt IRA account. If the individual earns 8 percent annually before taxes and inflation is 2.5 percent per year, what is the real value of the investment in 20 years?

Accepted Answer

A)  $23,211 
B)  $28,467 
C)  $29,178 
D)  $37,276 
E)  $46,610 
A)  $23,211 
B)  $28,467 
C)  $29,178 
D)  $37,276 
E)  $46,610

Question 8

John is 55 years old and 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 9

The majority of a pension fund's return is explained by asset allocation.

Accepted Answer

A) True 
 B)False

Question 10

____ must be stated in terms of expected returns and risk. An investor's tolerance for risk must be established before returns objectives can be stated.

Accepted Answer

A)  Investment requirements 
B)  Investment constraints 
C)  Investment rewards 
D)  Investment objectives 
E)  Investment policy 
A)  Investment requirements 
B)  Investment constraints 
C)  Investment rewards 
D)  Investment objectives 
E)  Investment policy

Question 11

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

Accepted Answer

A)  100 percent cash. 
B)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
C)  20 percent cash, 40 percent bonds, and 40 percent stocks. 
D)  10 percent cash, 40 percent bonds, and 50 percent stocks. 
E)  100 percent bonds. 
A)  100 percent cash. 
B)  30 percent cash, 50 percent bonds, and 20 percent stocks. 
C)  20 percent cash, 40 percent bonds, and 40 percent stocks. 
D)  10 percent cash, 40 percent bonds, and 50 percent stocks. 
E)  100 percent bonds.

Question 12

Adding Japanese, Australian, and Italian stocks to a U.S. stock portfolio _____ the portfolio risk because the global portfolio reflects only worldwide _____.

Accepted Answer

A)  reduces; systematic factors 
B)  increases; systematic factors 
C)  does not change; correlation 
D)  reduces; risk 
E)  increases; risk 
A)  reduces; systematic factors 
B)  increases; systematic factors 
C)  does not change; correlation 
D)  reduces; risk 
E)  increases; risk

Question 13

Investment planning is complicated by tax concerns.

Accepted Answer

A) True 
 B)False

Question 14

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 15

In an investment policy statement, the objectives of an investor are expressed in terms of

Accepted Answer

A)  risk and return. 
B)  risk. 
C)  return. 
D)  time horizon. 
E)  liquidity needs. 
A)  risk and return. 
B)  risk. 
C)  return. 
D)  time horizon. 
E)  liquidity needs.

Question 16

Asset allocation is the process of dividing funds into different classes of assets.

Accepted Answer

A) True 
 B)False

Question 17

The ____ phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs,e.g., children's education or down payment on a home.

Accepted Answer

A)  accumulation 
B)  spending 
C)  gifting 
D)  consolidation 
E)  divestiture 
A)  accumulation 
B)  spending 
C)  gifting 
D)  consolidation 
E)  divestiture

Question 18

Risk tolerance is exclusively a function of an individual's psychological makeup.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 2: Asset Allocation and Security Selection

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

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund. The annual rate of interest that you expect to earn in this account is 5.25 percent. The amount in the account at the end of 20 years is

Which of the following is NOT a life cycle phase?

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 five years (assuming annual compounding)?

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?

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

An individual in the 15 percent tax bracket has $10,000 invested in a tax-exempt IRA account. If the individual earns 8 percent annually before taxes and inflation is 2.5 percent per year, what is the real value of the investment in 20 years?

John is 55 years old and 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

The majority of a pension fund's return is explained by asset allocation.

____ must be stated in terms of expected returns and risk. An investor's tolerance for risk must be established before returns objectives can be stated.

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

Adding Japanese, Australian, and Italian stocks to a U.S. stock portfolio _____ the portfolio risk because the global portfolio reflects only worldwide _____.

Investment planning is complicated by tax concerns.

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

In an investment policy statement, the objectives of an investor are expressed in terms of

Asset allocation is the process of dividing funds into different classes of assets.

The ____ phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs,e.g., children's education or down payment on a home.

Risk tolerance is exclusively a function of an individual's psychological makeup.

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

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

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 Japanese, Australian, and Italian stocks to a U.S. stock portfolio _ the portfolio risk because the global portfolio reflects only worldwide _.