Question 1

In a defined contribution pension plan,

Accepted Answer

A)  The plan does not promise to pay the retiree a specific income stream after retirement.
B)  The plan does promise to pay the retiree a specific income stream after retirement.
C)  The employee's retirement income is not an obligation of the firm.
D)  The company carries the risk of paying future pension benefits to retirees.
E)  Choices a and c E

Question 2

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%.

Accepted Answer

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

Question 3

____ are investment specialists that are responsible for managing the investments of others. There are often legal standards against which they must abide in the performance of their duties.

Accepted Answer

A)  Underwriters
B)  Investments bankers
C)  Fiduciaries
D)  Account executives
E)  Trust officers C

Question 4

The policy statement may include a ____ against which a portfolio's or portfolio manager's performance can be measured.

Accepted Answer

A)  Milestone
B)  Benchmark
C)  Landmark
D)  Reference point
E)  Market pair

Question 5

Investment planning is complicated by the tax code.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING PROBLEM(S) \(\begin{array} { l  }
&\text { If Taxable Income }&\text { Then }&\text { The Tax is }\
\text { Single }&\begin{array}{|r|r|}
\hline {\text { Is Over }} & \text { But Not Over } \
\hline \$ 0 & \$ 7,150 \
\hline \$ 7,150 & \$ 29,050 \
\hline \$ 29,050 & \$ 70,350 \
\hline \$ 70,350 & \$ 146,750 \
\hline \$ 146,750 & \$ 319,100 \
\hline \$ 319,100 & - \
\hline
\end{array}&&\begin{array}{|r|r|r|}
\hline \text { This Amount } & \text { Plus This } \% & \text { Of The Excess Over } \
\hline 0 & 10 \% & 0 \
\hline 715 & 15 \% & \$ 7,150 \
\hline \$ 4,000 & 25 \% & \$ 29,050 \
\hline \$ 14,325 & 28 \% & \$ 70,350 \
\hline \$ 35,717 & 33 \% & \$ 146,750 \
\hline \$ 92,592.50 & 35 \% & \$ 319,100 \
\hline
\end{array}\\
\begin{array} { l  }
 \text {Married  }\ \text {Filing }\ \text {Jointly }\
\end{array}&\begin{array}{|r|r|}
\hline \$ 0 & \$ 14,300 \
\hline \$ 14,300 & \$ 58,100 \
\hline \$ 58,100 & \$ 117,250 \
\hline \$ 117,250 & \$ 178,650 \
\hline \$ 178,650 & \$ 319,100 \
\hline \$ 319,100 & - \
\hline
\end{array}&&\begin{array}{|r|r|r|}
\hline 0 & 10 \% & 0 \
\hline 1430 & 15 \% & \$ 14,300 \
\hline \$ 8,000 & 25 \% & \$ 58,100 \
\hline \$ 22,787.50 & 28 \% & \$ 117,250 \
\hline \$ 39,979,50 & 33 \% & \$ 178,650 \
\hline \$ 86,328 & 35 \% & \$ 319,100 \
\hline
\end{array}\
\end{array}\)

-Refer to Exhibit 2.1. What is the average tax for a single individual with taxable income of $85,000?

Accepted Answer

A)  13.57%
B)  15.68%
C)  21.68%
D)  25.74%
E)  29.55%

Question 7

Many endowments are tax-exempt.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

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 5 years (assuming annual compounding)?

Accepted Answer

A)  $ 6,805
B)  $14,693
C)  $15,528
D)  $20,114
E)  $50,000

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.

Question 12

Banks typically

Accepted Answer

A)  Have low liquidity needs.
B)  Face very few federal and state regulatory constraints.
C)  Don't have to compete for funds.
D)  Have high liquidity needs and a short time horizons constraint.
E)  Low investment risk.

Question 13

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Banks have high liquidity needs and therefore, have a short time horizon.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

For an investor with a time horizon of 8 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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

____ 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

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 2: The Asset Allocation Decision

In a defined contribution pension plan,

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%.

____ are investment specialists that are responsible for managing the investments of others. There are often legal standards against which they must abide in the performance of their duties.

The policy statement may include a ____ against which a portfolio's or portfolio manager's performance can be measured.

Investment planning is complicated by the tax code.

Many endowments are tax-exempt.

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

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

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 5 years (assuming annual compounding) ?

Which of the following statements is false?

Banks typically

Which of the following is not a life cycle phase?

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

Banks have high liquidity needs and therefore, have a short time horizon.

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

For an investor with a time horizon of 8 years and higher risk tolerance, an appropriate asset allocation strategy would be

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

____ 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.

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