Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The cash surrender value of the life insurance policy cannot be used for retirement purpose.

Accepted Answer

A) True 
 B)False

Question 3

An investment fund, when it is registered like RRSP, will give an investor less after tax dollars at the end of an assumed 20-year time horizon.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

____ 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 6

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 7

Someone in the 15% tax bracket can earn 8% annually on his investments in a tax-exempt RRSP account. What will be the value of a $10,000 investment after 5 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 8

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%. 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 9

Calculate the future value, at the end of 30 years, of the tax savings.

Accepted Answer

A)  $2,900.51 
B)  $3,867.35 
C)  $3,481.16 
D)  $1,248.35 
E)  $4,369.23 
A)  $2,900.51 
B)  $3,867.35 
C)  $3,481.16 
D)  $1,248.35 
E)  $4,369.23

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

The asset allocation decision must involve a consideration of

Accepted Answer

A)  Cultural differences. 
B)  The objectives stated in the investor's policy statement. 
C)  The types of assets that are appropriate for the investor. 
D)  The risk associated with different investments. 
E)  All of the above. 
A)  Cultural differences. 
B)  The objectives stated in the investor's policy statement. 
C)  The types of assets that are appropriate for the investor. 
D)  The risk associated with different investments. 
E)  All of the above.

Question 13

An individual in the 15% tax bracket has $10,000 invested in a RRSP account. If the individual earns 8% annually before taxes and inflation is 2.5% 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 14

Which of the following is not considered to be an investment objective?

Accepted Answer

A)  Capital preservation 
B)  Capital appreciation 
C)  Current income 
D)  Total return 
E)  None of the above (that is, all are considered investment objectives) 
A)  Capital preservation 
B)  Capital appreciation 
C)  Current income 
D)  Total return 
E)  None of the above (that is, all are considered investment objectives)

Question 15

For an investor with a time horizon of 6 to 10 years and higher 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 16

Important reasons for constructing a policy statement include:

Accepted Answer

A)  Helps investors decide on realistic investment goals 
B)  Create a standard by which to judge the performance of the portfolio manager 
C)  Develop an instrument to judge risk 
D)  Choices a and b 
E)  All of the above 
A)  Helps investors decide on realistic investment goals 
B)  Create a standard by which to judge the performance of the portfolio manager 
C)  Develop an instrument to judge risk 
D)  Choices a and b 
E)  All of the above

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

What would the equivalent taxable yield be on an investment that offers a 6% tax exempt yield? Assume a marginal tax rate of 28%.

Accepted Answer

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

Question 20

Return is the only important consideration when establishing investment objectives.

Accepted Answer

A) True 
 B)False

Exam 2: The Asset Allocation Decision

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

The cash surrender value of the life insurance policy cannot be used for retirement purpose.

An investment fund, when it is registered like RRSP, will give an investor less after tax dollars at the end of an assumed 20-year time horizon.

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

____ 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.

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

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

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%. The amount in the account at the end of 15 years is

Calculate the future value, at the end of 30 years, of the tax savings.

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

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

The asset allocation decision must involve a consideration of

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

Which of the following is not considered to be an investment objective?

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

Important reasons for constructing a policy statement include:

Which of the following is not a typical portfolio constraint?

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

What would the equivalent taxable yield be on an investment that offers a 6% tax exempt yield? Assume a marginal tax rate of 28%.

Return is the only important consideration when establishing investment objectives.

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

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