Question 1

A stop-loss order guarantees that an investor's unrealized profit will be protected.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Question 4

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 5

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?

Accepted Answer

A)  60% bonds, 15% money funds and 25% real estate 
B)  5% money funds, 10% bonds and 85% growth stocks 
C)  25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks 
D)  50% mortgage bonds, 5% money market, 45% municipal bonds

Question 6

If the holding period return (HPR) of an investment is 20 percent before taxes for a nine month period, an investor in the 30 percent tax bracket would have an after-tax HPR of 14 percent.

Accepted Answer

A) True 
 B)False

Question 7

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

Accepted Answer

A) True 
 B)False

Question 8

A stock has a total return of 16.4%, a standard deviation of 14.5% and a beta of 1.63. The market rate of return is 12.4%, while the market's Treynor measure is 6.3. What is the value of the Treynor measure of this portfolio?

Accepted Answer

A)  2.5% 
B)  6.3% 
C)  18.4% 
D)  27.6%

Question 9

On January 1, Stacy's portfolio was valued at $96,534. During the year Stacy received $3,285 in interest and $4,100 in dividends. She also sold one stock at a gain of $850. The value of the portfolio on December 31 of the same year was $113,201. At the end of June, Stacy withdrew $5,000 from the portfolio. What is the holding period return for the year?

Accepted Answer

A)  25.1% 
B)  25.8% 
C)  26.5% 
D)  27.2%

Question 10

The S&P 500 Stock Composite Index and the NASDAQ Composite Index can be used to represent the stock market as a whole.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans.

Accepted Answer

The answer of Dollar-cost averaging plans and constant-dollar plans are...

Question 13

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 14

The most important factor in allocation schemes is the investor's age.

Accepted Answer

A) True 
 B)False

Question 15

The holding period return (HPR) of one's portfolio should be compared to investment goals
I. to assess whether the proper rate of return is being earned for the risk involved.
II. to be sure one's portfolio is outperforming the S&P 500 Index.
III. to isolate any problem investments.
IV. to determine when to change benchmarks from the S&P 500 to the NASDAQ Composite Index.

Accepted Answer

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

Question 16

The general theory of dollar cost averaging is

Accepted Answer

A)  to time the market to take advantage of low stock prices. 
B)  to buy more stock when prices are low and less when prices are high. 
C)  to equal the performance of market averages at the lowest dollar cost. 
D)  to sell as markets decline and buy as they begin to rise.

Question 17

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 18

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 19

A stop loss order may not protect an investor's profits if

Accepted Answer

A)  the price drops even slightly below the stop price before the order can be executed. 
B)  the price enters a prolonged period of gradual decline. 
C)  an unexpected event cause the price to drop steeply when the markets are closed. 
D)  the stop loss price is never reached.

Question 20

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

Exam 13: Managing Your Own Portfolio

A stop-loss order guarantees that an investor's unrealized profit will be protected.

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?

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

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?

If the holding period return (HPR) of an investment is 20 percent before taxes for a nine month period, an investor in the 30 percent tax bracket would have an after-tax HPR of 14 percent.

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

A stock has a total return of 16.4%, a standard deviation of 14.5% and a beta of 1.63. The market rate of return is 12.4%, while the market's Treynor measure is 6.3. What is the value of the Treynor measure of this portfolio?

The S&P 500 Stock Composite Index and the NASDAQ Composite Index can be used to represent the stock market as a whole.

Investors who who accept the random walk theory should use

Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans.

The holding period return (HPR)

The most important factor in allocation schemes is the investor's age.

The general theory of dollar cost averaging is

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.

A stop loss order may not protect an investor's profits if

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