11. What is the main danger in comparing mutual fund performance?

_____

A) The funds may have two different investment objectives

B) Historical returns provide no guarantee of future returns

C) A funds asset allocation may not be taken into consideration

D) Comparisons with stock market indexes may not account for dividend reinvestment

12. The combination of securities in a portfolio is determined using the following guideline:

_____

1. The investors primary objectives determine the asset allocation strategy; the investors secondary objectives determine specific securities that are selected
2. The investors primary objectives determine specific securities that are selected; the investors secondary objectives determine the asset allocation strategy

C) Neither (A) nor (B)

D) Both (A) and (B) depending on the investors level of risk tolerance

13. A $20 million investment is made in year 1 and the fund increases by 30%. Based on a 10% incentive fee, how much money will the manager earn?

____

1. $2 million
2. $2.6 million
3. $0.6 million
4. $1 million

14. Aggressive bond investors are more focused on the capital gains that arise from a change in interest rates. If rates are expected to fall, the short-term speculator can buy ____ and ____ issues to achieve maximum returns if the interest rate forecast is correct.

_____

1. Short-term; low-coupon
2. Long-term; high-coupon
3. Short-term; high-coupon
4. Long-term; low-coupon

15. Which of the following attempts to profit from price anomalies between related interest-rate instruments?

_____

A) Long/short equity funds

B) Convertible arbitrage

C) Fixed-income arbitrage

D) Equity market-neutral funds

16. A ____-coupon callable bond might not be a good choice for a ____ managed portfolio regarding the reinvestment rate risk.

_____

1. High; passively
2. High; actively
3. Low; passively
4. Low; actively

17. Which of the following is correct?

_____

A) A hedge fund is highly correlated to bond or equity markets

B) A hedge fund has a low correlation with bond or equity markets

C) A hedge fund is negatively correlated to bond or equity markets

D) All of the above can be true depending on the investment policies adopted by a particular hedge fund

18. Financial advisors are required o know the essential details about each client, which include

I. The clients current financial status

II. The clients current personal status

III. The clients risk tolerance

IV. The clients investment goals and preferences

_____

1. I, II, III and IV
2. I, II and IV
3. I, II and III
4. II, III and IV

19. What would a successful manager do in a rising market?

I. Go long securities that will rise more than the market

II. Go short securities that will rise less than the market

III. Sell securities that will decline more than the market

IV. Buy securities that will fall less than the market

_____

1. I and III
2. I and II
3. II and III
4. III and IV