1.What happens to the portfolio risk and return respectively as an investor moves up the capital market line (CML)?

_____

A)Risk decreases, return decreases

B)Risk increases, return decreases

C)Risk increases, return increases

D)Insufficient information to answer the question

2.You have a Canadian stock in your portfolio.There are four foreign stocks available for investment.They all provide the same return and risk, except their correlation coefficients with your Canadian stock are different.Which one would you choose?

_____

A)Stock A with a correlation coefficient of -0.1

B)Stock B with a correlation coefficient of zero

C)Stock C with a correlation coefficient of 0.5

D)Stock D with a correlation coefficient of one

3.Given a data series that is normally distributed with a mean of 100 and a standard deviation of 10, about 95% of the numbers in the series will fall within

_____

A)90 to 110

B)80 to 120

C)70 to 130

D)60 to 140

4.Suppose the risk-free rate is 8%.The expected return on the market is 16%.If a particular stock has an expected return of 24%, what must its beta be?

___

A)0.5

B)1.0

C)1.5

D)2.0

5.Which of the following is not an implication of risk aversion for the investment process?

___

A)The security market line is upward sloping

B)The promised yield on AAA-rate bonds is higher than on A-rated bonds

C)Investors expect a positive relationship between risk and return

D)Investors prefer portfolios that lie on the efficient frontier to other portfolios with equal rates of return

6.In the context of capital market theory, unsystematic risk

___

A)Is described as unique risk

B)Refers to non-diversifiable risk

C)Remains in the market portfolio

D)Refers to the variability in all risky assets caused by macroeconomic factors and other aggregate market-related variables

7.Which of the following statement about the security market line (SML) is false?

____

A)Properly valued assets plot exactly on the SML

B)The SML leads all investors to invest in the same portfolio of risky assets

C)The SML provides a benchmark for evaluating expected investment performance

D)The SML is a graphic representation of the relationship between expected return and market risk given by beta

8.Determine the portfolio from the following set that is not on the efficient frontier.

____

A)Portfolio A: expected return of 10% and standard deviation of 8%

B)Portfolio B: expected return of 18% and standard deviation of 13%

C)Portfolio A: expected return of 38% and standard deviation of 32%

D)Portfolio A: expected return of 15% and standard deviation of 14%

9.Choose the statement below that is most closely associated with the work of Markowitz.

___

A)Risk-free borrowing and lending can change the efficient frontier

B)An investor's optimal portfolio can be found where his or her highest indifference curve is tangent to the efficient frontier

C)The efficient frontier can be changed from an arc to a straight line

D)Non-systematic risk can be identified and assessed

10.You have $100,000 that you want to invest in a risky asset portfolio M.You also want to borrow an extra $50,000 at a risk-free rate of 8%.Portfolio M has an expected return of 20% and a standard deviation of 30%.What is the standard deviation of this portfolio?

____

A)60%

B)40%

C)32%

D)Undetermined

11.A ____ asset allocation strategy results in buying stocks when they fall in price and selling them when they rise in price.

_____

A)Constant weighting

B)Strategic

C)Tactical

D)Dynamic

12.A fixed income manager who actively rebalances his or her portfolio weights in government versus corporate bonds in response to beliefs regarding changes in the relative yields on these securities would be referred to as

_____

A)A maturity switcher

B)An interest-rate anticipator

C)A spread trader

D)A credit quality manager

13.You purchase a stock for $18 and hold it for two years.The annual dividend for this stock is $1.50.If you sell the stock at the end of the two years for $21, what is the percentage return on this stock?

_____

A)33.3%

B)28.6%

C)25.0%

D)16.6%

14.An investment plan is devised with a primary investment objective for growth, with a secondary objective of tax minimization.The asset mix for this plan should include

_____

A)Mostly value stocks

B)Mostly growth stocks

C)Mostly speculative stocks

D)Cannot say without more information

(The following information relates to Questions 15 and 16)

A client has approached you with the following information.

Security

Expected Return

Market Value

ABC Co.

7%

$20,000

DEF Co.

12%

$25,000

GHI Co.

15%

$45,000

15.If the client holds the given market values of the above securities in their portfolios, what is the return the investor can expect?

___

A)11.33%

B)12.39%

C)12.41%

D)11.83%

16.If the portfolio is strictly growth oriented with the only expectation being capital gains, what will the portfolio be worth in one year if the expected growth translates into capital appreciation?

_____

A)$99,000

B)$100,200

C)$101,151

D)None of the above

17.The following factors represent constraints that should be considered when designing an investment policy except

____

A)Emotion

B)Ethical considerations

C)Investment knowledge

D)Market timing

18.Which of the following description is true regarding to investment strategies?

_____

A)Conservative - low risk, high capitalization, predictable earnings, high yield, and low P/E ratios

B)Growth - high risk, low capitalization, limited earnings record, and no dividends

C)Venture - high risk, average capitalization, low dividend payout, and high P/E ratios

D)Speculative - maximum risk, longer term, average price volatility, and little earnings

19.You purchase 500 shares of BMW on the Frankfurt Stock Exchange paying 55 per share.One year later, BMW shares are trading at 58.5 per share.The spot exchange rate is $1.58 per euro.The forward exchange rate is $1.50 per euro.How much profit do you make?

_____

A)$425

B)$524

C)$245

D)-$425

20.Which of the following investment would not be considered as part of the fixed income component in an investor's portfolio?

_____

A)Two-year bonds

B)Preferred shares

C)Mortgages

D)Guaranteed investment certificates

21.A middle-aged factory worker, married with two teenaged children, is a homeowner with great concerns about future employment and funding college education, and possesses low interest knowledge.This individual should have the following type of asset mix

_____

A)5% of cash, 25% of fixed income, 70% of equities

B)10% of cash, 40% of fixed income, 50% of equities

C)8% of cash, 62% of fixed income, 30% of equities

D)20% of cash, 40% of fixed income, 40% of equities

22.You purchase 300 XYZ common shares at $10 with a sales commission of $0.167 per share.Later on, you buy another 200 shares at $20 with a sales commission of $0.375 per share.What is the adjusted cost base per share?

_____

A)$12.00

B)$14.25

C)$15.00

D)None of the above

23.The average annual return on the S&P/TSX Index from 1960 to 2018 was 9.3%.Assuming these returns follow the bell-shape of the normal distribution, what is the probability of earning 9.3% or more for any one year holding period?

_____

A)33%

B)67%

C)50%

D)Undetermined

24.Both Assets X and Y have the same return standard deviation of 20%.Their returns have zero correlation.What is the minimum attainable return variance for a portfolio of X and Y?

_____

A)0.02

B)0.20

C)0.10

D)0

25.The Markowitz efficient frontier is best described as the set of portfolios that has

_____

A)The minimum risk for every level of return

B)Proportionally equal units of risk and return

C)The maximum excess rate of return for every given level of risk

D)The highest return for each level of beta used on the capital asset pricing model

26.An individual investor's investment objectives should be expressed in terms of

_____

A)Risk and return

B)Capital market expectations

C)Liquidity needs and time horizon

D)Tax factors and legal and regulatory constraints

27.All other factors being equal, the ____ the volatility (as measured by the ____) of the price of the asset, the ____ an investor demands for its purchase.

_____

A)More; variance; less

B)Lower; beta; less

C)Lower; standard deviation; more

D)More; beta; more

28.The following transactions are examples of a capital loss except

_____

A)A stock originally purchased for $20 is sold for $15, but is repurchased 21 days later

B)A stock originally purchased for $20 is sold for $15, and is not repurchased

C)Common shares acquired through the purchase of a warrant for $40 and that of $20 are sold for $50

D)All of the above

29.Security J experiences returns of 0%, 25%, or 50%, each with a one-third probability.What is the approximately return standard deviation for this security?

_____

A)20%

B)25%

C)30%

D)10%

30.For implementation of the asset mix, tactical approach is better if

_____

A)You want to buy and hold

B)You are an emotional investor

C)You have a short- to medium-term time horizon

D)You have limited investing experience