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investment analysis portfolio
Questions and Answers of
Investment Analysis Portfolio
Describe the main issues that arise when conducting historical analysis of real estate returns.
An analyst at a real estate investment management firm seeks to establish expectations for rate of return for properties in the industrial sector over the next year. She has obtained the following
A client has asked his adviser to explain the key considerations in forecasting exchange rates. The adviser’s firm uses two broad complementary approaches when setting expectations for exchange
Looking independently at each of the economic observations below, indicate the country where an analyst would expect to see a strengthening currency for each observation. Expected inflation over next
Fap is a small country whose currency is the Fip. Three years ago, the exchange rate was considered to be reflecting purchasing power parity (PPP). Since then, the country’s inflation has exceeded
Which of the real estate portfolio manager’s statements is correct?A. Only Statement 1 B. Only Statement 2 C. Both Statement 1 and Statement 2 Richard Martin is chief investment officer for the
Based only on Exhibit 1, the long-run expected return for commercial real estate:A. is approximately double the cap rate.B. incorporates a cap rate greater than the discount rate.C. needs to include
Based on the private real estate model developed to estimate return volatility, the true variance is most likely:A. lower than the variance of the observed data.B. approximately equal to the variance
Based on Exhibit 2 and the anticipated effects of the monetary policy change, the expected annual return over a three-year investment horizon will most likely be:A. lower than 2.00%.B. approximately
Based on the building block approach to fixed-income returns, the dominant source of the yield spread for Country XYZ is most likely the:A. term premium.B. credit premium.C. liquidity premium.Richard
Using the building block approach, the required rate of return for the ZMC bond will most likely:A. increase based on the change in the credit premium.B. decrease based on the change in the
Based only on Exhibit #3, the foundation would most likely consider buying bonds issued by:A. only Emerging Republic A.B. only Emerging Republic B.C. neither Emerging Republic A nor Emerging Republic
Based only on Exhibits 3 and 4 and the information provided by the portfolio managers, the action most likely to enhance returns is to:A. decrease existing investments in real estate by 2.00%.B.
Which of the following statements made by Bader’s research assistant is correct?A. Statement 1 B. Statement 2 C. Statement 3 Judith Bader is a senior analyst for a company that specializes in
Based on expectations for changes in integration with the global market, all else being equal, the Singer–Terhaar model implies that Bader should shift capital from Country A to:A. only Country
Using the Grinold–Kroner model, which of the following assumptions for forecasting Country A’s expected equity returns is plausible for the very long run?A. Rate of net share repurchases B.
Based only on the emerging markets discussion, developments in which of the following areas most likely signal increasing risk for Country B’s equity market?A. Politics B. Competitiveness C.
Based on Bader’s expectations for current account secular trends as shown in Exhibit 1, Bader should reallocate capital, all else being equal, from:A. Country A to Country C.B. Country B to Country
Based on Bader’s inflation expectations as shown in Exhibit 1, purchasing power parity implies that which of the following countries’ currencies should depreciate, all else being equal?A. Country
Based on Exhibit 1, which country’s central bank is most likely to buy domestic bonds near term to sterilize the impact of money flows on domestic liquidity?A. Country A B. Country B C. Country C
Based on the composition of each country’s currency portfolio, which country is most vulnerable to a potential crisis?A. Country A B. Country B C. Country C Judith Bader is a senior analyst for a
Using the economic balance sheet approach, the Laws’ economic net worth is closest to:A. \($925\),000.B. \($1\),425,000.C. \($1\),675,000.Meg and Cramer Law, a married couple aged 42 and 44,
Using an economic balance sheet, which of the Laws’ current financial assets is most concerning from an asset allocation perspective?A. Equities B. Real estate C. Fixed income Meg and Cramer Law, a
Raye believes the previous adviser’s specification for debt is incorrect given that, for purposes of asset allocation, asset classes should be:A. diversifying.B. mutually exclusive.C. relatively
Raye believes the previous adviser’s asset class specifications for equity and derivatives are inappropriate given that, for purposes of asset allocation, asset classes should be:A. diversifying.B.
To address his concern regarding the previous adviser’s asset allocation approach, Raye should assess the Laws’ portfolio using:A. a homogeneous and mutually exclusive asset class–based risk
Based on Exhibit 1, which portfolio best meets the Laws’ education goal for their children?A. Portfolio 1 B. Portfolio 2 C. Portfolio 3 Meg and Cramer Law, a married couple aged 42 and 44,
Based on Exhibit 1, which portfolio best meets the Laws’ goal to fund an endowment for their alma mater?A. Portfolio 1 B. Portfolio 2 C. Portfolio 3 Meg and Cramer Law, a married couple aged 42 and
Raye’s approach to rebalancing global equities is consistent with:A. the Laws being risk averse.B. global equities having higher transaction costs than other asset classes.C. global equities having
The asset allocation in Exhibit 1 most likely resulted from a mean–variance optimization using:A. historical data.B. reverse optimization.C. Black–Litterman inputs.Megan Beade and Hanna Müller
For clients concerned about rebalancing-related transactions costs, which of Beade’s suggested changes in the corridor width of the rebalancing policy is correct? The change with respect to:A.
Based on Beade’s interest rate expectations, the pension plan’s funding ratio will:A. decrease.B. remain unchanged.C. increase.Megan Beade and Hanna Müller are senior analysts for a large,
Based on Exhibit 2, which portfolio provides the greatest objective function expected value?A. Portfolio 1 B. Portfolio 2 C. Portfolio 3 Megan Beade and Hanna Müller are senior analysts for a large,
The asset allocation approach most appropriate for client Kealoha is best described as:A. a surplus optimization approach.B. an integrated asset–liability approach.C. a hedging/return-seeking
Based on Exhibit 3, which sub-portfolios best meet the two goals expressed by client Rodríguez?A. Sub-Portfolio A for Goal 1 and Sub-Portfolio C for Goal 2 B. Sub-Portfolio B for Goal 1 and
In the risk parity asset allocation approach that Müller uses, the weight that Müller places on domestic bonds should be:A. less than 25%.B. equal to 25%.C. greater than 25%.Megan Beade and Hanna
Which of Müller’s comments about the other approaches to asset allocation is correct?A. Comment 1 B. Comment 2 C. Comment 3 Megan Beade and Hanna Müller are senior analysts for a large,
Based on Exhibit 1 and the risk aversion coefficient, the preferred asset allocation for Perkins is:A. Asset Allocation A.B. Asset Allocation B.C. Asset Allocation C.Investment adviser Carl Monteo
In their discussion of the asset classes that Velky is interested in adding to the VP portfolio, Monteo should tell Velky that:A. these asset classes can be readily diversified to eliminate
Which of Velky’s statements about risk budgeting is correct?A. Statement 1 B. Statement 2 C. Statement 3 Investment adviser Carl Monteo determines client asset allocations using quantitative
Which of Chaterji’s criticisms of MVO is/are valid?A. Only Criticism 1 B. Only Criticism 2 C. Both Criticism 1 and Criticism 2 Investment adviser Carl Monteo determines client asset allocations
Which of the characteristics put forth by Chaterji to describe the factor-based approach is/are correct?A. Only Characteristic 1 B. Only Characteristic 2 C. Both Characteristic 1 and Characteristic 2
The change in the annual spending rate, in conjunction with the board’s expectations regarding future enrollment and the need for endowment support, could justify that KUE’s target weight for:A.
Which of Capara’s statements regarding tactical asset allocation is correct?A. Statement 1 B. Statement 2 C. Statement 3 Rebecca Mayer is an asset management consultant for institutions and
Based on Exhibits 1 and 2, to attempt to profit from the short-term excess return forecast, Capara should increase KUE’s portfolio allocation to:A. developed markets equity and decrease its
Given Koval’s current portfolio and the tax laws of the country in which he lives, Koval’s portfolio would be more tax efficient if he reallocated his taxable account to hold more:A. high-yield
Koval’s attitude toward emerging markets equity reflects which of the following behavioral biases?A. Hindsight bias B. Availability bias C. Illusion of control Rebecca Mayer is an asset management
In both of Mayer’s optimization scenarios, which of the following model inputs could be used without adjustment?A. Expected returns B. Correlation of returns C. Standard deviations of returns
Given the change in funding of Lara’s education, the Martins’ strategic asset allocation would most likely decrease exposure to:A. cash.B. bonds.C. equities.Elsbeth Quinn and Dean McCall are
The most appropriate asset allocation for the Martins’ new charitable gift sub-portfolio is:A. 40% equities/60% bonds.B. 70% equities/30% bonds.C. 100% equities/0% bonds.lsbeth Quinn and Dean
Which of Neal’s statements regarding the taxation of investments is correct?A. Statement 1 only B. Statement 2 only C. Both Statement 1 and Statement 2 lsbeth Quinn and Dean McCall are partners at
Given the Martins’ risk and tax preferences, the taxable portfolio should be rebalanced:A. less often than the tax-deferred portfolio.B. as often as the tax-deferred portfolio.C. more often than
During the rebalancing discussion, which behavioral bias does Neal exhibit?A. Framing bias B. Loss aversion C. Representativeness bias
Given McCall’s IPS recommendation, the most appropriate new strategic asset allocation for the KCPF is:A. 40% stocks/60% bonds.B. 65% stocks/35% bonds.C. 75% stocks/25% bonds.lsbeth Quinn and Dean
The proposal for short-term adjustments to the KCPF asset allocation strategy is known as:A. de-risking.B. systematic tactical asset allocation.C. discretionary tactical asset allocation.lsbeth Quinn
High ethical standards are distinguishing features of which of the following bodies?A. Craft guilds B. Trade bodies C. Professional bodies
Fiduciary duty is a standard most likely to be upheld by members of a(n):A. employer.B. profession.C. not-for-profit body.
To maintain trust, the investment management profession must be interdependent with:A. regulators.B. employers.C. investment firms.
When an ethical dilemma occurs, an investment professional should most likely first raise the issue with a:A. mentor outside the firm.B. professional body’s hotline.C. senior individual in the firm.
A correct description of fintech is that it:A. is driven by rapid growth in data and related technological advances.B. increases the need for intermediaries.C. is at its most advanced state using
In providing investment services, robo-advisers are most likely to:A. rely on their cost effectiveness to pursue active strategies.B. offer fairly conservative advice as easily accessible guidance.C.
Which of the following statements on fintech’s use of data as part of risk analysis is correct?A. Stress testing requires precise inputs and excludes qualitative data.B. Machine learning ensures
A factor associated with the widespread adoption of algorithmic trading is increased:A. market efficiency.B. average trade sizes.C. trading destinations.
A benefit of distributed ledger technology (DLT) favoring its use by the investment industry is its:A. scalability of underlying systems.B. ease of integration with existing systems.C. streamlining
What is a distributed ledger technology (DLT) application suited for physical assets?A. Tokenization B. Cryptocurrencies C. Permissioned networks
Wakuluk most likely seeks to mitigate which of the following biases in developing capital market forecasts?A. Availability B. Time period C. Survivorship
Wakuluk’s approach to economic forecasting:A. is flexible and limited in complexity.B. can give a false sense of precision and provide false signals.C. imposes no consistency of analysis across
Wakuluk is most likely to make significant adjustments to her estimate of the future growth trend for which of the following countries?A. Country Y only B. Country Z only C. Countries Y and Z
Based on Exhibit 1 and Wakuluk’s assumptions about short-term rates and expected inflation, short-term rates in Country X are most likely to be:A. low and bottoming.B. approaching a peak.C. above
Based on Exhibit 1, what capital market effect is Country Z most likely to experience in the short-term?A. Cyclical assets attract investors.B. Monetary policy becomes restrictive.C. The yield curve
Based on Observation 1, fiscal and monetary policies in Country Y will most likely lead to:A. low nominal rates.B. high nominal rates.C. either high or low nominal rates.
Based on Observation 2, what impact will the policy changes have on the trend rate of growth for Country Y?A. Negative B. Neutral C. Positive
Based on Observation 3, Wakuluk most likely expects Country Y’s yield curve in the near term to:A. invert.B. flatten.C. steepen.
Which of the following is least important as a reason for a written investment policy statement (IPS)?A. The IPS may be required by regulation.B. Having a written IPS is part of best practice for a
Which of the following best describes the underlying rationale for a written investment policy statement (IPS)?A. A written IPS communicates a plan for trying to achieve investment success.B. A
A written investment policy statement (IPS) is most likely to succeed if:A. Created by a software program to assure consistent quality.B. It is a collaborative effort of the client and the portfolio
The section of the investment policy statement (IPS) that provides information about how the policy may be executed, including investment constraints, is best described as the:A. Investment
Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)?A. Rebalancing Policy.B. Strategic Asset Allocation.C. Statement of Duties and
Which of the following typical topics in an investment policy statement (IPS) is most closely linked to the client’s “distinctive needs”?A. Procedures.B. Investment Guidelines.C. Statement of
An investment policy statement that includes a return objective of outperforming the FTSE 100 by 120 basis points is best characterized as having a(n):A. Relative return objective.B. Absolute return
Risk assessment questionnaires for investment management clients are most useful in measuring:A. Value at risk.B. Ability to take risk.C. Willingness to take risk.
Which of the following is best characterized as a relative risk objective?A. Value at risk for the fund will not exceed US$3 million.B. The fund will not underperform the DAX by more than 250 basis
After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following:The client is best described as having a:A. Low ability to take risk,
In preparing an investment policy statement, which of the following is most difficult to quantify?A. Time horizon.B. Ability to accept risk.C. Willingness to accept risk.
After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following:The client is best described as having a:A. Low ability to take risk,
Explain whether top-down or bottom-up forecasting is more appropriate for each of the different investors.1. The MegaCosmos Mutual Fund has a stated goal of investing in the stock market composites
Based on Exhibit C, which of the components of economic growth has contributed most to GDP growth during the 1970–1989 time period?A. Labor input.B. Capital stock.C. Total factor productivity.Use
Consider the pairwise correlations of monthly returns of the following asset classes:Based solely on the information in the preceding table, which equity asset class is most sharply distinguished
A client who is a director of a publicly listed corporation is required by law to refrain from trading that company’s stock at certain points of the year when disclosure of financial results are
In defining asset classes as part of the strategic asset allocation decision, pairwise correlations within asset classes should generally be:A. Equal to correlations among asset classes.B. Lower than
A client who is a 34-year-old widow with two healthy young children (aged 5 and 7) has asked you to help her form an investment policy statement. She has been employed as an administrative assistant
Returns on asset classes are best described as being a function of:A. The failure of arbitrage.B. Exposure to the idiosyncratic risks of those asset classes.C. Exposure to sets of systematic factors
The timing of payouts for property and casualty insurers is unpredictable (“lumpy”) in comparison with the timing of payouts for life insurance companies. Therefore, in general, property and
Tactical asset allocation is best described as:A. Attempts to exploit arbitrage possibilities among asset classes.B. The decision to deliberately deviate from the policy portfolio.C. Selecting asset
All of the following are characteristics of preference shares except:A. They are either callable or putable.B. They generally do not have voting rights.C. They do not share in the operating
Investing the majority of the portfolio on a passive or low active risk basis while a minority of the assets is managed aggressively in smaller portfolios is best described as:A. The core–satellite
Which of the following is not a characteristic of common equity?A. It represents an ownership interest in the company.B. Shareholders participate in the decision-making process.C. The company is
The type of equity voting right that grants one vote for each share of equity owned is referred to as:A. Proxy voting.B. Statutory voting.C. Cumulative voting.
Participating preference shares entitle shareholders to:A. Participate in the decision-making process of the company.B. Convert their shares into a specified number of common shares.C. Receive an
Which of the following statements about private equity securities is incorrect?A. They cannot be sold on secondary markets.B. They have market-determined quoted prices.C. They are primarily issued to
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