Question 1

A rational investor will require the same after-tax return from a corporate security as from a government security.

Accepted Answer

A) True 
 B)False

Question 2

A rational investor will require the same return from a corporate security as from a government security.

Accepted Answer

A) True 
 B)False

Question 3

Ella owns a stock with a beta of 1.34 and a standard deviation of 16.4%.The stock 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 4

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 5

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 6

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 7

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is valued at $142,608 at the end of the year.All income and realized gains were reinvested.No funds were contributed or withdrawn during the year.What is the amount of income Juan must declare this year for income tax purposes?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 8

Investors who wish to minimize the effect of taxes on their investment returns should try to avoid

Accepted Answer

A)  dividend paying stocks. 
B)  short-term capital gains. 
C)  long-term capital gains. 
D)  municipal bonds.

Question 9

Which one of the following statements concerning formula plans is correct?

Accepted Answer

A)  The use of subjective judgment is important to the routine administration of most formula plans. 
B)  Formula plans are based on the adherence to a mechanical set of rules with regard to when to buy and/or sell. 
C)  The objective of most formula plans is to maximize profits. 
D)  Securities with very stable prices are best suited to nearly all formula plans.

Question 10

On February 19, 2004, Angela purchased 100 shares of ABC stock at a total cost of $1,712.50.She received a total of $125.00 in dividends and sold the stock today, February 22, 2005.Her net proceeds from the sale are $1,892.40.Angela has a combined state and federal marginal tax rate of 32%.Her combined state and federal tax rate on both her capital gains in excess of one year and her dividend income is 18%.What is Angela's after-tax holding period return on her investment in ABC stock?

Accepted Answer

A)  11.0% 
B)  12.1% 
C)  13.2% 
D)  14.6%

Question 11

An investor's portfolio should only contain securities that are suitable to the investor's goals and needs.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The Witney Growth Fund, a no-load mutual fund, had a net asset value per share of $54.28 one year ago.Its current net asset value is $56.93.During the year it paid out dividends and capital gains of $2.08 per share.It has a beta value of 1.75.Over the same period the market return was 6.4% and the risk-free rate of return was 3.5%.
(a)Calculate Treynor's measure for the Witney Growth Fund.(Show all work.)
(b)Based on Treynor's measure, how did the fund perform in relation to the overall market?

Accepted Answer

The answer of The Witney Growth Fund, a no-load mutual...

Question 16

An asset allocation plan should consider which of the following factors?
I.economic outlook
II.capital preservation
III.changing investment goals
IV.investor risk tolerance

Accepted Answer

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

Question 17

Jensen's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's beta.

Accepted Answer

A) True 
 B)False

Question 18

A constant-ratio plan requires an investor to continually rebalance the portfolio.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Allison's portfolio has an expected return of 14% and a standard deviation of of 20%.Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%.The risk-free rate is 3%.According to the Sharpe measure,

Accepted Answer

A)  Allison has the better portfolio. 
B)  Brianna has the better portfolio. 
C)  The portfolio's are equally desirable. 
D)  The answer depends on Allison and Brianna's risk tolerance.

Exam 13: Managing Your Own Portfolios

A rational investor will require the same after-tax return from a corporate security as from a government security.

A rational investor will require the same return from a corporate security as from a government security.

Ella owns a stock with a beta of 1.34 and a standard deviation of 16.4%.The stock 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?

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

The constant-ratio plan

Investors who wish to minimize the effect of taxes on their investment returns should try to avoid

Which one of the following statements concerning formula plans is correct?

An investor's portfolio should only contain securities that are suitable to the investor's goals and needs.

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.

Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.

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

An asset allocation plan should consider which of the following factors? I.economic outlook II.capital preservation III.changing investment goals IV.investor risk tolerance

Jensen's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's beta.

A constant-ratio plan requires an investor to continually rebalance the portfolio.

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

Allison's portfolio has an expected return of 14% and a standard deviation of of 20%.Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%.The risk-free rate is 3%.According to the Sharpe measure,