Question 1

A constant ratio plan allows for speculative gains while limiting potential losses.

Accepted Answer

A) True 
 B)False

Question 2

Ten years ago, Taylor purchased 444.44 shares in a mutual fund for $22.50 per share. He has never made an additional investment in this fund, but because of reinvested dividends and capital gains, he now owns 1,200 shares with a net asset value of $25.88 per share. Ignoring taxes, his compound average annual rate of return (IRR) is

Accepted Answer

A)  10.0%. 
B)  12%. 
C)  21%. 
D)  31%.

Question 3

The primary risk in using a GTC limit sell order rather than a market order is that

Accepted Answer

A)  the market price may exceed the limit price when the order is placed. 
B)  the limit order may not be executed. 
C)  the limit order may be executed at a price above the market price. 
D)  the limit order expires at the end of the day and may not be executed.

Question 4

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to

Accepted Answer

A)  a broad-based market index such as the S&P 500 index. 
B)  the portfolio's standard deviation of return. 
C)  the portfolio's beta. 
D)  the prevailing risk-free rate of return.

Question 5

Tactical asset allocation is most suitable for

Accepted Answer

A)  young, single individuals with good incomes. 
B)  retirees. 
C)  large institutional investors. 
D)  investors who have already accumulated a fair amount of wealth.

Question 6

Jordan invests 10% of his money in each of the 10 mutual funds available in his 401-K plan. This tendency is known as the 1/N heuristic.

Accepted Answer

A) True 
 B)False

Question 7

Maria purchased $5,000 of no-load mutual fund shares just over a year ago. She received $136 in dividend income and $201 in long-term capital gains distributions. Today she sold her shares for $5,062. Maria is in the 25% marginal tax bracket. Capital gains with holding periods in excess of one year and dividend income are taxed at 15%. What is Maria's after-tax holding period return?

Accepted Answer

A)  6.0% 
B)  6.6% 
C)  6.8% 
D)  8.0%

Question 8

Which of the following are characteristics of stop-loss orders?
I. the risk of whipsawing
II. the ability to limit downside losses
III. the guaranteed execution within the order period
IV. the conversion to a market order

Accepted Answer

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

Question 9

An investor in the 25% marginal tax bracket purchased a bond for $983, received $85 in interest, and then sold the bond for $955 after holding it for six months. The tax rate for capital gains with holding periods in excess of one year is 15%. What are the pre-tax and post-tax holding period returns?

Accepted Answer

A)  5.8%; 4.3% 
B)  6.0%; 4.5% 
C)  5.8%; 4.5% 
D)  6.0%; 4.3%

Question 10

Which of the following is a "higher the better" measure?

Accepted Answer

A)  only Sharpe's measure 
B)  only Treynor's measure 
C)  only Jensen's measure 
D)  All three are "higher the better" measures.

Question 11

The fixed-weightings approach to asset allocation

Accepted Answer

A)  is based on an allocation of an equal percentage of the portfolio to each separate asset category. 
B)  requires periodic rebalancing of the portfolio to maintain the desired weights. 
C)  is based on periodic adjustments to category weights in response to market changes. 
D)  uses stock-index futures and bond futures in a market timing strategy.

Question 12

The key areas to monitor when evaluating your portfolio holdings are the overall performance of both the economy and the financial markets, and the returns on your investments.

Accepted Answer

A) True 
 B)False

Question 13

Utility stocks are often suitable for low-risk, current-income-oriented portfolios.

Accepted Answer

A) True 
 B)False

Question 14

A portfolio has a total return of 14.5%, a beta of 1.54, and a standard deviation of 17.6%. If the risk free rate is 4.5% and the market return is 10.2%, then Treynor's measure of this portfolio's performance is

Accepted Answer

A)  2.8%. 
B)  3.7%. 
C)  6.5%. 
D)  9.4%.

Question 15

Which of the following is ideally suited to automatic investing through a payroll deduction plan?

Accepted Answer

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

Question 16

Asset allocation focuses on selecting specific securities within an asset class.

Accepted Answer

A) True 
 B)False

Question 17

Successful portfolio management with a variable ratio plan depends on the investor's skill in timing the market.

Accepted Answer

A) True 
 B)False

Question 18

The best index to assess the performance of a portfolio diversified among several asset classes such as stocks, bonds and real estate is

Accepted Answer

A)  the Lipper Index. 
B)  the NYSE Composite Index. 
C)  the Value Line Index. 
D)  No suitable index exists.

Question 19

Before analyzing needs and objectives, investors should first construct a portfolio.

Accepted Answer

A) True 
 B)False

Question 20

A Jensen measure of 2.5% means that a security earned 2.5% more than the overall market.

Accepted Answer

A) True 
 B)False

Exam 13: Managing Your Own Portfolio

A constant ratio plan allows for speculative gains while limiting potential losses.

The primary risk in using a GTC limit sell order rather than a market order is that

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to

Tactical asset allocation is most suitable for

Jordan invests 10% of his money in each of the 10 mutual funds available in his 401-K plan. This tendency is known as the 1/N heuristic.

Which of the following are characteristics of stop-loss orders? I. the risk of whipsawing II. the ability to limit downside losses III. the guaranteed execution within the order period IV. the conversion to a market order

Which of the following is a "higher the better" measure?

The fixed-weightings approach to asset allocation

The key areas to monitor when evaluating your portfolio holdings are the overall performance of both the economy and the financial markets, and the returns on your investments.

Utility stocks are often suitable for low-risk, current-income-oriented portfolios.

A portfolio has a total return of 14.5%, a beta of 1.54, and a standard deviation of 17.6%. If the risk free rate is 4.5% and the market return is 10.2%, then Treynor's measure of this portfolio's performance is

Which of the following is ideally suited to automatic investing through a payroll deduction plan?

Asset allocation focuses on selecting specific securities within an asset class.

Successful portfolio management with a variable ratio plan depends on the investor's skill in timing the market.

The best index to assess the performance of a portfolio diversified among several asset classes such as stocks, bonds and real estate is

Before analyzing needs and objectives, investors should first construct a portfolio.

A Jensen measure of 2.5% means that a security earned 2.5% more than the overall market.