Question 1

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

Question 2

The ability to retire at a certain age is a typical example of a long-term,lower-priority goal.

Accepted Answer

A) True 
 B)False

Question 3

The majority of a pension fund's return is explained by asset allocation.

Accepted Answer

A) True 
 B)False

Question 4

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund.The annual rate of interest that you expect to earn in this account is 5.25%.The amount in the account at the end of 20 years is

Accepted Answer

A)  $60,000.00 
B)  $105,039.84 
C)  $37,009.35 
D)  $123,510.52 
E)  $115,637.37

Question 5

An appropriate investment objective for a typical 25-year-old investor is a low-risk strategy,such as capital preservation or current income.

Accepted Answer

A) True 
 B)False

Question 6

Investment planning is complicated by the tax code.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

Long-term,high-priority goals include some form of financial independence.

Accepted Answer

A) True 
 B)False

Question 11

Risk tolerance is exclusively a function of an individual's psychological makeup.

Accepted Answer

A) True 
 B)False

Question 12

Return is the only important consideration when establishing investment objectives.

Accepted Answer

A) True 
 B)False

Question 13

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account.If the individual earns 10% annually before taxes and inflation is 3.0% per year,what is the real value of the investment in 10 years?

Accepted Answer

A)  $31,000 
B)  $33,200 
C)  $38,614 
D)  $39,343 
E)  $47,823

Question 14

For an investor with a time horizon of 6 to 10 years and lower 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 15

You currently have $150,000 in an IRA designated for retirement.If you save an additional $100 at the end of every month and expect to earn an annual return of 12%,how much do you expect to have in the IRA in 10 years?

Accepted Answer

A)  $467,632 
B)  $518,062 
C)  $732,546 
D)  $949,328 
E)  $1,215,234

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The future value of $50,000 invested today,at the end of 10 years assuming an interest rate of 7.5% per year,with semiannual compounding,is

Accepted Answer

A)  $104,407.60 
B)  $103,051.58 
C)  $123,510.52 
D)  $210,673.43 
E)  $105,117.46

Question 18

Once the portfolio is constructed,it must be continuously

Accepted Answer

A)  Rebalanced. 
B)  Recycled 
C)  Reinvested 
D)  Monitored. 
E)  Manipulated.

Question 19

The spending phase occurs when investors are relatively young.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 2: The Asset Allocation Decision

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

The ability to retire at a certain age is a typical example of a long-term,lower-priority goal.

The majority of a pension fund's return is explained by asset allocation.

Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund.The annual rate of interest that you expect to earn in this account is 5.25%.The amount in the account at the end of 20 years is

An appropriate investment objective for a typical 25-year-old investor is a low-risk strategy,such as capital preservation or current income.

Investment planning is complicated by the tax code.

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

Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.

The asset allocation decision must involve a consideration of

Long-term,high-priority goals include some form of financial independence.

Risk tolerance is exclusively a function of an individual's psychological makeup.

Return is the only important consideration when establishing investment objectives.

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account.If the individual earns 10% annually before taxes and inflation is 3.0% per year,what is the real value of the investment in 10 years?

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

You currently have $150,000 in an IRA designated for retirement.If you save an additional $100 at the end of every month and expect to earn an annual return of 12%,how much do you expect to have in the IRA in 10 years?

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

The future value of $50,000 invested today,at the end of 10 years assuming an interest rate of 7.5% per year,with semiannual compounding,is

Once the portfolio is constructed,it must be continuously

The spending phase occurs when investors are relatively young.

Important reasons for constructing a policy statement include: