Question 1

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

Accepted Answer

A)  $104,407.60 
B)  $103,051.58 
C)  $123,510.52 
D)  $210,673.43 
E)  $105,117.46 
A)  $104,407.60 
B)  $103,051.58 
C)  $123,510.52 
D)  $210,673.43 
E)  $105,117.46 A

Question 2

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

Accepted Answer

A)  $10,680 
B)  $11,765 
C)  $13,895 
D)  $14,693 
E)  $15,528 
A)  $10,680 
B)  $11,765 
C)  $13,895 
D)  $14,693 
E)  $15,528 C

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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.

Accepted Answer

A)  90 and 100. 
B)  100 and 40. 
C)  90 and 40. 
D)  40 and 100. 
E)  40 and 90. 
A)  90 and 100. 
B)  100 and 40. 
C)  90 and 40. 
D)  40 and 100. 
E)  40 and 90.

Question 5

John is 55 years old has $55,000 outstanding on a mortgage and no other debt. John typically saves $5,000 in a RRSP 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 6

One of the first steps in developing a financial plan is to purchase adequate life insurance.

Accepted Answer

A) True 
 B)False

Question 7

____ 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 8

An appropriate investment objective for a typical 25-year-old investor is a low-risk strategy, such as capital preservation or current income.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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

Accepted Answer

A) True 
 B)False

Question 13

For an investor with a time horizon of 6 to 10 years and lower 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 14

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 the above 
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 the above

Question 15

____ 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 16

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

Question 17

Exhibit 2-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
As part of a retirement planning exercise, you are comparing a RRSP with a taxable investment fund. The RRSP contribution is tax deductible. In both cases the contribution amount is $3,000. Your time horizon is 30 years and you expect to earn 7% per year on both accounts. Your marginal provincial and federal tax rate is 25% but you expect your marginal tax rate at retirement to be 15%.
-Refer to Exhibit 2-2. Calculate the tax savings generated by the RRSP contribution at the time of investment.

Accepted Answer

A)  $300 
B)  $750 
C)  $700 
D)  $100 
E)  $200 
A)  $300 
B)  $750 
C)  $700 
D)  $100 
E)  $200

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

Exam 2: The Asset Allocation Decision

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

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

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

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.

John is 55 years old has $55,000 outstanding on a mortgage and no other debt. John typically saves $5,000 in a RRSP account and another $10,000 in a company pension. John is most likely in the:

One of the first steps in developing a financial plan is to purchase adequate life insurance.

____ 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 appropriate investment objective for a typical 25-year-old investor is a low-risk strategy, such as capital preservation or current income.

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

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

Which of the following statements is false?

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

For an investor with a time horizon of 6 to 10 years and lower risk tolerance, an appropriate asset allocation strategy would be

Which of the following statements is true?

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

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

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

Once the portfolio is constructed, it must be continuously

Asset allocation is

The Investment Setting

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

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.