Question 1 Which of the following are benefits of establishing an investment policy statement? It provides a
Question:
Question 1
Which of the following are benefits of establishing an investment policy statement?
It provides a disciplined strategic investment map
It supports a paper trail
It provides guidance in the estate planning process
All of the above
For 1 points
Question 2
Which of the following combinations of assets exhibits the highest degree of diversification and therefore the lowest risk?
G and H: Correlation Coefficient = -0.45
C and D: Correlation Coefficient = 0.56
Y and Z: Correlation Coefficient = -0.25
E and F: Correlation Coefficient = 0.0
A and B: Correlation Coefficient = 0.92
For 1 points
Question 3
Based on past history, which of the following is true for investors as their time horizon increases?
A. Market risk decreases
B. Expected annualized return increases
C. Effects of compounding increase
D. Both A. and C.
E. All of the choices are correct
For 1 points
Question 4
Barry bought AGEW for $50 per share 5 years ago. The stock paid the following dividends:
- Year 1 $2/sh
- Year 2 $2/sh
- Year 3 $2.50/sh
- Year 4 $2.75/sh
- Year 5 $3/sh
At the end of year 5, Barry sold AGEW at $85/sh. What was Barry's internal rate of return for AGEW?
15.51%
15.11%
12.67%
18.90%
16.12%
For 1 points
Question 5
Which of the following statements about the Capital Asset Pricing Model (CAPM) is/are true?
- Standard deviation is used as the measure of risk
- Beta is used as the measure of risk
- It assumes that the market is not efficient
- It assumes an efficient market.
2 and 3
1 and 3
1, 3, and 4
2, 3, and 4
2 and 4
For 1 points
Question 6
If a portfolio contains two assets and the correlation coefficient between the two assets went from 0.95 to 0.65, everything else being equal, the risk in this portfolio has:
Increased
Cannot be determined
Remained Constant
Decreased
For 1 points
Question 7
The Federal Government issues long-term securities called ________________ to finance the spending of the government. These issues offer investors interest payments that are generally considered risk free.
Treasury bills
Agency bonds
Municipal bonds
Corporate bonds
U.S. Treasury bonds
For 1 points
Question 8
Which of the following returns best measures the portfolio manager's performance?
Time-Weighted Rate of Return
Internal Rate of Return
Arithmetic Mean
Yield to Maturity
Dollar-Weighted Rate of Return
For 1 points
Question 9
A GenlMotr June 30 put expires:
June 1, unless the market is not open, in which case it expires the next available day the market is open
The second Thursday of June
The Saturday following the third Friday of June
June 30, unless the market is not open, in which case it expires the next available day the market is open
June 30, unless the market will not be open on that day, in which case it expires the last day the market is open prior to June 30
For 1 points
Question 10
Which of the following forms of (EMH) Efficient Market Hypothesis believes that superior results cannot be produced using public information, but may be achieved through use of inside information?
Semi-Weak Form
Weak Form
Semi-Strong Form
None of the choices
Strong Form
For 1 points
Question 11
Great Stock Fund has averaged 14% return per year with a standard deviation of 10. What is the probability that Great Stock Fund will have a return of greater than 24% in a given year?
50%
16%
66%
32%
68%
For 1 points
Question 12
Which of the following statements is/are true?
- Lower coupon bonds are more sensitive to interest rate changes than higher coupon bonds.
- There is an inverse relationship between bond prices and changes in interest rates.
- There is a positive relationship between coupon rates and duration.
2 and 3
1 only
1 and 2
1, 2 and 3
1 and 3
For 1 points
Question 13
Which of the following statements is/are true regarding unimproved land as an investment?
- Interest costs are usually deductible.
- The return is usually reduced by the after-tax carrying costs like insurance and taxes.
- Unimproved land is generally considered less liquid than improved real estate.
- Unimproved land would generally be considered more marketable than an Equity REIT.
2 and 3 only
3 and 4 only
2 and 4 only
All of the choices
1 and 2 only
For 1 points
Question 14
Which of the following is NOT normally considered a method used to diversify a bond portfolio?
Interest rate diversification
Credit quality diversification
Sector diversification
Security diversification
Maturity diversification
For 1 points
Question 15
Sean is in the 35% marginal tax bracket and pays 6% state income tax. Sean wants to receive the highest after-tax yield available over the next few years and is evaluating the following securities for investment. Which would offer him the highest net yield?
6.5% Corporate Bond
6% U. S. Treasury Bond
3% Municipal Bond in Seans state
3.3% Municipal Bond outside Seans state
5% Preferred Stock
For 1 points
Question 16
A municipal bond has a yield of 5%. For an investor in the 31% tax bracket, what is its taxable equivalent yield?
8%
7.25%
5.31%
6.25%
4.69%
For 1 points
Question 17
A stock was purchased for $45/share. During the three year period, the following dividends were paid at the end of each year:
- Year 1 - $1.25
- Year 2 - $1.41
- Year 3 - $1.58
The fair market value of the stock at the end of year three is $58. What was the stock's internal rate of return (dollar-weighted return)?
11.2%
12.2%
38.3%
11.7%
28.9%
For 1 points
Question 18
Employing a bond ladder strategy may accomplish which of the following:
- Reduce interest rate risk
- Magnify gains
- Eliminate default risk
- Increase interest rate risk
4 only
1 and 3
2 only
1 only
For 1 points
Question 19
Robert Hart purchased 10 bonds at $101 with a coupon rate of 6% and a maturity of 11 years. The bonds are callable at par in 4 years. What is Yield to Maturity (YTM) and Yield to Call (YTC) for Robert's bond?
6.05% and 5.95%
5.71% and 5.87%
5.87% and 6.05%
5.88% and 5.72%
6.00% and 6.01%
For 1 points
Question 20
Which of the following statements is true about duration?
It is a less accurate measure of risk than maturity
It accounts for cash flow in a bond
It will be greater than the maturity of a given coupon bond
In a zero coupon bond it is less than the maturity
Both b. and d.
For 1 points
Question 21
The maximum profit on a long put is:
Strike price
Strike price plus the premium
Strike price minus the premium
Premium
Unlimited
For 1 points
Question 22
What is the current yield of a $1,000 bond that offers a coupon rate of 6% and is currently selling at $900?
6%
None of the choices
6.44%
5.67%
6.67%
For 1 points
Question 23
Which tool is useful in controlling risk and forcing the portfolio to move along a predetermined course by automatically taking gains from leading performers and reallocating them to lagging styles?
Due diligence
A specific investment strategy
Rebalancing
Screening
None of the above
For 1 points
Question 24
Which of the following are true:
- Stocks have a lower standard deviation than bonds
- Stocks have a higher standard deviation than bonds
- Stocks have a higher expected return than bonds
- Stocks have a lower expected return than bonds
2 and 3
2 and 4
1 and 3
1 and 4
For 1 points
Question 25
Which of the following is/are elements of an investment policy statement?
- Objectives
- Constraints and Guidance
- Investment Guidelines
1 only
1 and 2
3 only
All of the above
1 and 3 only