Question 1

Juan's investment portfolio was valued at $125,640 at the beginning of the year. During the year, Juan received $603 in interest income and $298 in dividend income. Juan also sold shares of stock and realized $1,459 in capital gains. Juan's portfolio is valued at $142,608 at the end of the year. All income and realized gains were reinvested. No funds were contributed or withdrawn during the year. What is the amount of income Juan must declare this year for income tax purposes?

Accepted Answer

A)  $0 
B)  $901 
C)  $2,360 
D)  $19,328

Question 2

Investors who use formula plans believe that they have above average ability to time the market and pick successful investments.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about Jensen's measure are correct?
I. Through its use of the capital asset pricing model, Jensen's measure automatically adjusts for market return.
II. In general, the higher the Jensen's measure, the better a portfolio has performed.
III. Jensen's measure is referred to as alpha.
IV. A positive Jensen's measure indicates an investment has underperformed the market on a risk-adjusted basis.

Accepted Answer

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

Question 4

Investors need to consider the effects of taxes and transaction fees when measuring portfolio returns.

Accepted Answer

A) True 
 B)False

Question 5

The allocation of investments between types of assets (stocks, bonds, short-term securities, etc.) has less effect on a portfolio's return than the choice of securities within asset classes.

Accepted Answer

A) True 
 B)False

Question 6

Six months ago, Suzanne purchased a stock for $28 a share. Today she sold the stock at a price of $32 a share. During the time she owned the stock, she received a total of $1.30 in dividends per share. What is her holding period return?

Accepted Answer

A)  16.6% 
B)  18.9% 
C)  33.2% 
D)  37.8%

Question 7

Holding period return (HPR) captures total return performance by considering current income and capital gains and is most appropriate for holding periods of one year or less.

Accepted Answer

A) True 
 B)False

Question 8

Over a period of time if an investment has not met its return objective, it should be sold.

Accepted Answer

A) True 
 B)False

Question 9

The investor's overall economic security should an important consideration when allocating assets within a portfolio.

Accepted Answer

A) True 
 B)False

Question 10

The Dow Jones Industrial Average (DJIA) includes 500 of the largest companies traded on
U. S. exchanges.

Accepted Answer

A) True 
 B)False

Question 11

Phil has a portfolio with a 13.2% total return. The beta of the portfolio is 1.48 and the standard deviation is 13%. Currently, the risk-free rate of return is 4% and the overall market has a total return of 11%. What is the value of Treynor's measure for Phil's portfolio?

Accepted Answer

A)  2.1% 
B)  6.2% 
C)  7.1% 
D)  8.9%

Question 12

Investors who who accept the random walk theory should use

Accepted Answer

A)  a dollar cost averaging plan. 
B)  a constant dollar plan. 
C)  a constant ratio plan. 
D)  a variable ratio plan.

Question 13

The maximum capital loss that can be applied to ordinary income for income tax purposes in any one year is $3000.

Accepted Answer

A) True 
 B)False

Question 14

A conservative asset allocation would rely heavily on bonds and short-term securities.

Accepted Answer

A) True 
 B)False

Question 15

Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?

Accepted Answer

A)  The portfolio has a total return of zero percent. 
B)  The portfolio earned exactly its expected return on a risk-adjusted basis. 
C)  The portfolio outperformed the market on a risk-adjusted basis. 
D)  The market provides a better return on a risk-adjusted basis.

Question 16

For a stock investment, the dividend yield is calculated by

Accepted Answer

A)  dividing a stock's annual cash dividend by its price. 
B)  dividing a stock's price by its annual cash dividend. 
C)  multiplying a stock's semi-annual dividend by two. 
D)  dividing the annual change in the stock's price plus its annual dividend amount by the beginning of the year price.

Question 17

One year ago, Matt bought 100 shares of ACE Corp. stock for $5,619 including commission. He is about to sell the ACE stock for $6,528 net of commissions. When he made the purchase the S&P 500 index was at 907; now it is 1070. The beta of ACE stock is 0.98, and the market's risk-free rate is 4.0%. No dividends were paid. Based on Jensen's measure, did Matt make a good purchase?

Accepted Answer

The answer of One year ago, Matt bought 100 shares...

Question 18

Suppose the shares of the Chickadee Corporation traded seven times in the following sequence one day last week: 46, 45.88, 45.75, 45.50, 45.63, 46, 46.13. In this case, a limit order to sell at 46 would have been executed

Accepted Answer

A)  between 46 and 46.13, whereas a market order to sell could have been executed anywhere between 45.50 and 46.13. 
B)  anywhere between 45.50 and 46.13, whereas a market order to sell would have been executed only at 46. 
C)  only at 46, whereas a market order to sell would have been executed at 46.13. 
D)  only at 46.13, and a market order to sell would have been executed between 46 and 46.13.

Question 19

An investor adopts a variable ratio policy of investing in both a high beta mutual fund and a money market fund. Money will be moved from the money market fund to the high beta fund

Accepted Answer

A)  when the high beta fund's value has declined. 
B)  when the high beta fund's value has increased. 
C)  on the same date each year. 
D)  whenever accumulated interest in the money market fund exceeds a specified dollar amount.

Question 20

Mathew's 401-K plan offers a choice between and S&P 500 Index Fund, a large-cap stock fund, a blue chip stock fund that seeks high dividend income and modest growth, a fund that invests only in investment grade corporate bonds and a fund that that invests only in government bonds. Mathew allocates 20% of his money to each fund. Which of the following statements offers the best critique of Mathew's "1/N" allocation?

Accepted Answer

A)  Mathew may not be as well diversified as he thinks because the three stock funds probably own many of the same stocks. 
B)  He should have allocated on 1/3 to stocks and 1/3 to each of the remaining funds. 
C)  His plan does not provide sufficient liquidity. 
D)  There is nothing wrong with Mathew's plan.

Exam 13: Managing Your Own Portfolio

Investors who use formula plans believe that they have above average ability to time the market and pick successful investments.

Investors need to consider the effects of taxes and transaction fees when measuring portfolio returns.

The allocation of investments between types of assets (stocks, bonds, short-term securities, etc.) has less effect on a portfolio's return than the choice of securities within asset classes.

Six months ago, Suzanne purchased a stock for $28 a share. Today she sold the stock at a price of $32 a share. During the time she owned the stock, she received a total of $1.30 in dividends per share. What is her holding period return?

Holding period return (HPR) captures total return performance by considering current income and capital gains and is most appropriate for holding periods of one year or less.

Over a period of time if an investment has not met its return objective, it should be sold.

The investor's overall economic security should an important consideration when allocating assets within a portfolio.

The Dow Jones Industrial Average (DJIA) includes 500 of the largest companies traded on U. S. exchanges.

Phil has a portfolio with a 13.2% total return. The beta of the portfolio is 1.48 and the standard deviation is 13%. Currently, the risk-free rate of return is 4% and the overall market has a total return of 11%. What is the value of Treynor's measure for Phil's portfolio?

Investors who who accept the random walk theory should use

The maximum capital loss that can be applied to ordinary income for income tax purposes in any one year is $3000.

A conservative asset allocation would rely heavily on bonds and short-term securities.

Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?

For a stock investment, the dividend yield is calculated by

Suppose the shares of the Chickadee Corporation traded seven times in the following sequence one day last week: 46, 45.88, 45.75, 45.50, 45.63, 46, 46.13. In this case, a limit order to sell at 46 would have been executed

An investor adopts a variable ratio policy of investing in both a high beta mutual fund and a money market fund. Money will be moved from the money market fund to the high beta fund