Question 1

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.

Accepted Answer

A) True 
 B)False

Question 2

On January 1, Tim's portfolio was valued at $432,098. During the year Tim received $10,563 in interest and $15,060 in dividends. He also sold stock at a net loss of $12,870 and used the proceeds to purchase another stock. Tim did not contribute any more funds nor withdraw any funds during the year. On December 31 of the same year, Tim's portfolio was valued at $398,189. What is the holding period return for the year?

Accepted Answer

A)  -5.3% 
B)  -4.9% 
C)  -2.1% 
D)  -1.9%

Question 3

Sharpe's measure is a measure of the risk premium per unit of total risk.

Accepted Answer

A) True 
 B)False

Question 4

On February 19, 2020, Angela purchased 100 shares of BRD stock at a total cost of $3,425. She received a total of $250.00 in dividends and sold the stock today, February 22, 2021 for $3,692. Angela has a marginal tax rate of 28%. The tax rate on dividend income and long- term capital gains is 15%. What is Angela's after-tax holding period return on her investment in BRD stock?

Accepted Answer

A)  15.1% 
B)  12.8% 
C)  10.9% 
D)  7.8%

Question 5

Which of the following are reasons why a person may want to warehouse liquidity?
I. protect against total loss
II. ability to exploit future opportunities
III. capitalize on the high rates of return available on cash
IV. protect against the need to disturb the existing portfolio

Accepted Answer

A)  I and II only 
B)  I, II and IV only 
C)  II, III and IV only 
D)  I, II, III and IV

Question 6

The two primary media for warehousing liquidity are

Accepted Answer

A)  money market mutual funds and money market deposit accounts. 
B)  certificates of deposit and short-term bond funds. 
C)  certificates of deposit and long-term bond funds. 
D)  short-term bond funds and asset allocation funds.

Question 7

The holding period return (HPR)

Accepted Answer

A)  reflects only capital gains and losses for investment periods of one year or less. 
B)  calculates the annual dividend yield on stocks or current interest yield on bonds. 
C)  is the most appropriate measure of returns for an investment period exceeding one year. 
D)  can be used to determine the actual total return on stocks, bonds, and other investments for periods of one year or less.

Question 8

Late in the calendar year, Jessica must choose between selling stock that was purchased 2 years ago for $10,000 and has fallen to $7,000 or a different stock that was purchased 1 year ago for $5,000 and has risen to $7,000. If the investor has no other capital gains, which stock should she sell?

Accepted Answer

The answer of Late in the calendar year, Jessica must...

Question 9

Ella's portfolio has a beta of 1.34 and a standard deviation of 16.4%. The portfolio has a total return of 14.8%. The market risk premium is 8.5%, while the return on the market portfolio was 12.0%. What is the value of Sharpe's measure for Ella's portfolio?

Accepted Answer

A)  0.21 
B)  0.38 
C)  0.69 
D)  0.90

Question 10

The holding period return measures only the capital appreciation of an investment.

Accepted Answer

A) True 
 B)False

Question 11

Returns for periods greater than one year should be measured using the internal rate of return.

Accepted Answer

A) True 
 B)False

Question 12

If an investor's portfolio is comprised of a broad range of common stocks, the best measure to use as a basis of comparison of performance is the

Accepted Answer

A)  Dow Jones Industrial Average (DJI
A) . 
B)  S&P 500 index. 
C)  Dow Jones Corporate Bond Index. 
D)  American Stock Exchange utilities index.

Question 13

If a constant-dollar plan portfolio is profitable over the long run, the in value over time.

Accepted Answer

A)  conservative portion will increase 
B)  conservative portion will remain constant 
C)  aggressive portion will decrease 
D)  entire portfolio will remain constant

Question 14

The constant-ratio plan

Accepted Answer

A)  requires the establishment of trigger points for portfolio rebalancing. 
B)  utilizes a predetermined ratio between desired current yield and expected capital gains. 
C)  strictly adheres to a buy-and-hold strategy. 
D)  is an attempt to time the cyclical movements of the market.

Question 15

Explain the type of risk measured by each of the following measures. Also identify the factor in each formula that determines the type of risk that is being measured.
(a) Jensen's measure
(b) Sharpe's measure
(c) Treynor's measure

Accepted Answer

The answer of Explain the type of risk measured by...

Question 16

Formula plans are high-risk investment strategies that attempt to benefit from cyclical price movements.

Accepted Answer

A) True 
 B)False

Question 17

Tim purchased a stock ten months ago for $14 a share, received a $1 dividend per share last month, and sold the stock today for $16 per share. Tim has a marginal tax rate of 30%. Both capital gains for securities held more than one year and dividend income is taxed at 15%. What is Tim's after-tax holding period return?

Accepted Answer

A)  14.1% 
B)  15.9% 
C)  16.1% 
D)  18.2%

Question 18

Sharpe's measure of portfolio performance adjusts for risk by dividing total portfolio return by the portfolio beta.

Accepted Answer

A) True 
 B)False

Question 19

Dollar cost averaging is a formula plan which automatically causes investors to purchase more shares when the price is low and purchase fewer shares when the price is high.

Accepted Answer

A) True 
 B)False

Question 20

An asset allocation plan should consider which of the following investor characteristics?
I. income and employment security
II. marital status
III. age and proximity to retirement
IV. social relationships and peer groups

Accepted Answer

A)  II only 
B)  I, II and III only 
C)  I, III and IV only 
D)  I, II, III and IV

Exam 13: Managing Your Own Portfolio

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.

Sharpe's measure is a measure of the risk premium per unit of total risk.

Which of the following are reasons why a person may want to warehouse liquidity? I. protect against total loss II. ability to exploit future opportunities III. capitalize on the high rates of return available on cash IV. protect against the need to disturb the existing portfolio

The two primary media for warehousing liquidity are

The holding period return (HPR)

Late in the calendar year, Jessica must choose between selling stock that was purchased 2 years ago for $10,000 and has fallen to $7,000 or a different stock that was purchased 1 year ago for $5,000 and has risen to $7,000. If the investor has no other capital gains, which stock should she sell?

Ella's portfolio has a beta of 1.34 and a standard deviation of 16.4%. The portfolio has a total return of 14.8%. The market risk premium is 8.5%, while the return on the market portfolio was 12.0%. What is the value of Sharpe's measure for Ella's portfolio?

The holding period return measures only the capital appreciation of an investment.

Returns for periods greater than one year should be measured using the internal rate of return.

If an investor's portfolio is comprised of a broad range of common stocks, the best measure to use as a basis of comparison of performance is the

If a constant-dollar plan portfolio is profitable over the long run, the in value over time.

The constant-ratio plan

Explain the type of risk measured by each of the following measures. Also identify the factor in each formula that determines the type of risk that is being measured. (a) Jensen's measure (b) Sharpe's measure (c) Treynor's measure

Formula plans are high-risk investment strategies that attempt to benefit from cyclical price movements.

Sharpe's measure of portfolio performance adjusts for risk by dividing total portfolio return by the portfolio beta.

Dollar cost averaging is a formula plan which automatically causes investors to purchase more shares when the price is low and purchase fewer shares when the price is high.

An asset allocation plan should consider which of the following investor characteristics? I. income and employment security II. marital status III. age and proximity to retirement IV. social relationships and peer groups