QUESTION 16

1. An investor can buy a 9 year bond that yields 3% or invest in a stock fund with an expected return of 8% and an expected standard deviation of 15%. What is the probability that the equity fund outperforms?

   		84% (expected return 1 standard deviation above the bond return)
   		63% (expected return 1/3rd of a standard deviation above the bond return)
   		55% (expected return 1/9th of a standard deviation above the bond return)

2. A pension fund is invested in three index funds. 40% in an S&P 500 index fund with an expected return of 6% and an expected standard deviation of 16%, 10% in a rest of the world index fund with an expected return of 6% and an expected standard deviation of 17%, and 50% in a US Bond index fund with an expected return of 4% and an expected standard deviation of 8%.

   What is the expected portfolio standard deviation?

   		12%
   		Not enough information to calculate
   		10%
   		12.2%

3. Which type of asset allocation has the most rebalancing?

   		Strategic
   		Dynamic
   		Tactical

4. Which action is MOST likely to get a deep value manager fired?

   		Deciding to buy Amazon and Tesla because of their recent market performance.
   		Violating a position limit.
   		Accidentally selling more shares than the fund owns and reimbursing the client for the difference.
   		Under performing in a quarter by 30 basis points.

5. What is the strongest form of the efficient market hypothesis that the ability of insiders to outperform the market meets?

   		Semi strong form
   		Weak form
   		Strong fomr
   		Disproves all the forms of efficient market theory