65 13-15

What's the formula for calculating the net asset value (NAV) of a fund? A(Assets - Liabilities) ÷ Number of Shares Outstanding BThere is no formula, since the NAV is based on supply and demand for the fund's shares. C(Current Assets - Current Liabilities) ÷ Current Assets D(Fund Return - Risk-Free Rate) ÷ Standard Deviation of Returns

A(Assets - Liabilities) ÷ Number of Shares Outstanding

If an investor was looking for an investment that provided a risk-free return, to then compute the risk-adjusted returns for a different investment, he would use the return being offered by: A13-week T-bills BThe London Interbank Offered Rate (LIBOR) CAAA-rated corporate bonds DThe federal funds rate

A13-week T-bills

Which investment company's shares are transacted at the current bid or asking price on an SEC-registered securities market? AA closed-end management company BVariable contracts CUnit investment trusts DAn open-end management company

AA closed-end management company

The balance sheet equation is: AAssets - Liabilities = Net Worth BCurrent Assets - Current Liabilities = Net Worth CTotal Assets - Total Liabilities = Capital Gains DTotal Assets - Current Liabilities = Net Worth

AAssets - Liabilities = Net Worth

A company's stock experiences wild fluctuations due to unsubstantiated rumors about its products. After further analysis, the company's earnings and sales are better than average. The wild price swings may be described as: ABusiness risk BMarket risk CInterest-rate risk DLiquidity risk

ABusiness risk

A person who considers herself a contrarian investor would follow the: AShort interest theory BTactical allocation of funds CStrategic allocation of funds DRandom walk hypothesis

AShort interest theory

An investment has a 25% chance of earning an 8% return, a 50% chance of earning a 4% return, and a 25% chance of earning a 4% loss. What is this investment's expected return? A8% B3% C4% D1%

B3%

Eight years ago, a person invested $4,000. During the eighth year, the investment had increased to $8,800, but finished the year at $8,000. What is the compounded return on investment achieved for the eight-year period? A9.5% B9% C8% D8.25%

B9%

A fundamental analyst could use a corporation's balance sheet to determine all of the following measurements, EXCEPT: AWorking capital BCash flow CCurrent ratio DDebt-to-equity ratio

BCash flow

Interest rates had been very high. During the past three years, rates have decreased dramatically. The present yield curve would MOST likely be: I Ascending II Positive III Inverted IV Negative AIII and IV BI and II CI and III DII and III

BI and II

Which of the following approaches to portfolio management is most closely associated with market timing? AStrategic asset allocation BTactical asset allocation CPassive management DValue investing

BTactical asset allocation

A corporation has $7,000,000 in income after paying preferred dividends of $500,000. The company has 1,000,000 shares of common stock outstanding. The market price of the stock is $56. What is the price-earnings ratio? A6.5 times B7.5 times C8 times D8.6 times

C8 times Price of stock (56)/ EPS (7) = 8

When comparing value stocks to growth stocks, one difference is that value stocks have which of the following characteristics? AA higher P/E ratio than growth stocks BA low dividend payout ratio CA low price-to-book value DA low equity-to-debt ratio

CA low price-to-book value

When comparing value stocks to growth stocks, one difference is that value stocks have which of the following characteristics? AA low dividend payout ratio BA low equity-to-debt ratio CA low price-to-book value DA higher P/E ratio than growth stocks

CA low price-to-book value

All the following are characteristics of passive asset allocation strategies, EXCEPT: ARebalancing of a portfolio when risk levels exceed the investor's preferences BLow transaction costs CAltering a portfolio in anticipation of an economic event DMinimal annual tax liabilities

CAltering a portfolio in anticipation of an economic event

The NAV of an ETF is calculated: AQuarterly BThroughout the day CAt the close of each trading day DAt the open of each trading day

CAt the close of each trading day

Which of the following is a type of unsystematic risk? AInterest-rate risk BMarket risk CBusiness risk DInflation risk

CBusiness risk

If a money market fund pays 1% per year for four years, what's its total return? A0.01 B0.1 C0.14 D0.04

D0.04 n this question, investors will receive 1% of their investment each year for four years, which is approximately 4%. For example, a $10 investment will pay $0.10 per year and $0.40 over four years; therefore, the total return is 4% ($.40/$10).

A small business owner enters your office with multiple insurance policies issued by many different companies. She has over $600,000 of coverage that expires in five years. Which of the following statements BEST describes the policies? AThe policies are variable life BThe policies are variable universal life CThe policies are whole life DThe policies are term life

DThe policies are term life

Your client has an annual income exceeding $250,000. He tells you that he wishes to retire in 18 years with a lump sum of at least $5,000,000. You tell him he can invest in zero-coupon municipal bonds that have a yield of 4%. If the client buys 5,000 bonds now, how much will he pay for each bond to achieve a yield of 4%? A$500 B$250 C$600 D$125

A$500

Frank is in a high tax bracket. He is presently setting up an investment program to provide for his retirement in approximately 30 years. Frank has informed his investment adviser that his major concern is inflation and that, over this 30-year period, inflation will depress the purchasing power of his assets, preventing Frank from continuing the lifestyle he hopes to enjoy. The most appropriate investment recommendation would be: ACommon stock BHigh-yield preferred stock CMunicipal bonds DFixed annuities

ACommon stock

A fundamental analyst, evaluating the common stock of a corporation, would examine all of the following, EXCEPT the: ACurrent amount of short interest positions for the stock BCurrent amount of earnings paid as dividends to the shareholders CManagement of the corporation DSales of the corporation

ACurrent amount of short interest positions for the stock

If the U.S. economy was experiencing tough times with slow or negative growth, creating an extreme lack of demand for consumer goods, the result might be: ADeflation BInflation CStagflation DDisintermediation

ADeflation

Which TWO of the following are TRUE if the U.S. balance of trade deficit is decreasing?I The dollar will strengthen II The dollar will weaken III U.S. bond yields will rise IV U.S. bond yields will fall AI and IV BII and IV CI and III DII and III

AI and IV

Which TWO of the following choices are differences between exchange-traded funds (ETFs) and exchange-traded notes (ETNs)? I ETNs carry credit risk that is tied to the issuer that backs the note and ETFs do not have issuer credit risk II ETFs may be sold short and ETNs may not III ETF returns are based on the performance of an index and ETNs pay a fixed coupon rate IV ETNs have a maturity date and ETFs do not AI and IV BII and III CI and III DII and IV

AI and IV

In calculating the discount rate used to determine the discounted cash flow, which TWO choices are used? I The Rule of 72 II Time value of money III Beta IV Risk premium AII and IV BI and II CII and III DI and III

AII and IV

Which of the following items might be found in a footnote to a balance sheet? I The P/E ratio II Methods of depreciation III Methods of inventory valuation IV The market price of securities AII, III, and IV only BI, III, and IV only CI and III only DI and IV only

AII, III, and IV only

When investing in a variable annuity, investors would be MOST concerned with which of the following risks? QID:2330948 Mark For Review AInvestment risk BMortality risk CLegislative risk DInterest-rate risk

AInvestment risk

Several economic indicators show that the economy is headed into a recession. The manager of a mutual fund decides to reallocate the fund's portfolio, shifting money out of cyclical stocks and into consumer staples. This is an example of: ASector rotation BModern Portfolio Theory (MPT) CEfficient Markets Theory (EMT) DRisk-adjusted return

ASector rotation

If inflation and unemployment are low, but energy prices are expected to rise, what results would be expected of stock prices and actions of the FRB? AStock prices would peak and the money supply would tighten BStock prices would peak and the money supply would loosen CStock prices would correct themselves and the money supply would loosen DStock prices would correct themselves and the money supply would tighten

AStock prices would peak and the money supply would tighten

A client is considering purchasing a fund of hedge funds. Which of the following statements is TRUE concerning this investment? AThese securities have higher management fees than hedge funds. BFunds of hedge funds may be purchased only by investors who meet standards that are established by the SEC. CThese securities will outperform traditional mutual funds over time. DThese securities must be held for a minimum of six months.

AThese securities have higher management fees than hedge funds.

A high price-to-earnings ratio is usually consistent with: AVery small companies BCompanies with very stable earnings CVery large blue chip companies DCompanies with an above-average dividend payout

AVery small companies

When would a variable annuity be most suitable for a client? AWhen the client wants capital appreciation or growth over a long period BWhen the client wants an inflation-adjusted rate of return CWhen the client wants to receive a predictable amount of income at retirement DWhen the client wants a fixed rate of return

AWhen the client wants capital appreciation or growth over a long period

An analyst who wanted to determine a company's ability to pay those debts that would be maturing in one year would be most interested in which of the following? AWorking capital BThe P/E ratio CThe debt-to-equity ratio DInventory turnover

AWorking capital

An investment advisory firm is searching for prospective investors for a new hedge fund. Which of the following investors would probably be the most suitable for this type of fund? AAn older, retired investor with an annual income between $50,000 and $100,000 and a liquid net worth of more than $1 million BA husband and wife in their mid-fifties, both of whom are employed, with an annual income of more than $100,000 and a liquid net worth more than $1 million CA young, very aggressive investor with an income of more than $100,000 and a liquid net worth between $50,000 and $100,000, who has repeatedly stated that he wants to invest with the big boys DA municipal pension fund that is seeking an income-generating, liquid investment

BA husband and wife in their mid-fifties, both of whom are employed, with an annual income of more than $100,000 and a liquid net worth more than $1 million

An adviser is constructing a bond portfolio for a client whose goals are stable income and return of principal. The adviser determines that the appropriate benchmark to compare this portfolio's performance is the Wheyman Intermediate-term Government Bond Index. Which of the following statements is NOT TRUE regarding this decision? AChoosing this index implies that mortgage-backed securities are not a large part of the portfolio. BAny returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio. CThe client's goals of stable income and return of principal are not guaranteed by the choice of this benchmark. DThis portfolio should have low levels of risk to match the benchmark.

BAny returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio.

The original asset allocation of an investment portfolio was 10% cash, 40% bonds, and 50% stocks. A recent bear market, however, has altered this allocation to 10% cash, 50% bonds, and 40% stocks. The client's investment objectives and risk tolerance have not changed. The adviser recommends that the portfolio be systematically rebalanced by selling: AStocks and buying bonds with the proceeds BBonds and buying stocks with the proceeds CStocks and bonds and allocating 10% of the portfolio to alternative investments DStocks and bonds and placing the proceeds in cash until market conditions stabilize

BBonds and buying stocks with the proceeds

Melissa is listening to a group of individuals discussing trends in the current market. They are saying that they are fully invested and have no purchasing power and that they believe the market will continue to rise. Melissa, however, anticipates a market peak followed by a downturn. She is most likely a follower of which style of investing? AMomentum investing BContrarian investing CThe Random Walk Theory DThe Sharpe Ratio

BContrarian investing

An advisory client is discussing the purchase of AA-rated, 15-year municipal bonds with his adviser. The bonds offer a coupon rate of 3.2% and can be purchased at a small premium to par. The adviser is not certain if the bonds are trading at an advantageous price. Which calculation would provide the BEST method of determining whether the bonds should be Mark For Review ACurrent yield BDiscounted cash flow CYield to maturity DDuration

BDiscounted cash flow

What is the name of the process by which an investor calculates the sum of the present values of projected cash flows to determine the fair market value of an investment? ACAPM BDiscounted cash flows CNet present value DIRR

BDiscounted cash flows

Which of the following is NOT TRUE regarding exchange-traded notes (ETNs)? AAt maturity, ETN investors receive the value of the underlying asset BETNs are forms of secured debt instruments that have no credit risk CThe return on ETNs is linked to the performance of an index, commodity, or currency DETNs may be sold short

BETNs are forms of secured debt

Buy and hold and systematic rebalancing are examples of passive approaches to asset allocation, and based on the theory known as: ASector Rotation BEfficient Market Hypothesis CCAPM DModern Portfolio Theory

BEfficient Market Hypothesis

An investor wants to know how much money he will have in 10 years if he invests $100,000 in a variable annuity today, assuming an annual average return of 6%. This investor needs to calculate the: ADollar-weighted return BFuture value of money CPresent value of money DTime-weighted return

BFuture value of money

Paul and Mary Smith have discussed various portfolio allocations with their adviser Chuck. He has considered the Smiths' risk tolerance and expected return in order to recommend an efficient portfolio, that is, one in which the portfolio offers the: ALowest of expected returns based on its Beta for the least amount of investment BHighest expected return for the lowest level of risk CGreatest return based on the average Beta of each stock in relation to the total return DAverage of expected returns for the lowest level of risk

BHighest expected return for the lowest level of risk

Under the Investment Company Act, which TWO of the following statements are NOT TRUE regarding the redemption of mutual fund shares? I The investor will receive the net asset value as previous day's close. II The investor will receive the next computed net asset value after the order is entered. III The fund must pay the investor within seven days of receipt of the redemption. IV The fund must pay the investor within three days of redemption. QID:2330601 Mark For Review AII and III BI and IV CII and IV DI and III

BI and IV

A whole life insurance policy may be referred to as: I Permanent life II Term life III Ordinary life IV Straight life AI and III only BI, III, and IV only CI, II, and IV only DI and IV only

BI, III, and IV only

he results of discounted cash flow analysis would identify a potential purchasing opportunity when the value arrived at: AWould not be effective under any circumstances BIs higher than the current cost of the investment CIs lower than the current cost of the investment DIs equal to the current cost of the investment

BIs higher than the current cost of the investment

A widow has a mix of small-cap growth stocks, large-cap stocks from mature industries, investment-grade bonds, speculative bonds, preferred stock, and foreign securities. She is attempting to reduce: ACredit risk BMarket risk CLiquidity risk DMoney-rate risk

BMarket risk

You are the portfolio manager for Home Fund, Inc., a mortgage-backed securities mutual fund. Which type of risk concerns you in a falling-interest-rate environment? APolitical risk BPrepayment risk CHomeowner's risk DCredit risk

BPrepayment risk

Which FRB tools determines the amount of money that member banks must keep on deposit? ARegulation T BReserve requirements CDiscount rate DOpen market operations

BReserve requirements

What does the Sharpe Ratio measure? AThe expected return on an investment versus the actual return BReturn of an asset based on the amount of risk being assumed CThe expected market price of an asset versus the actual price DA portfolio's correlation with the market as a whole

BReturn of an asset based on the amount of risk being assumed

If a portfolio manager has a diversified portfolio of large-cap stocks, it would use index options to reduce which of the following risks? ATiming risk BSystematic risk CInterest-rate risk DNonsystematic risk

BSystematic risk

Drawbacks to the bottom-up approach to investing generally would NOT include the idea that: AThe price of a stock is based on other, external factors, such as the economy, not just facts about the company itself BThe management team of a company is usually not a reliable gauge as to how the company might perform in the global economy CInvestors are more concerned about possible losses than they are motivated by possible gains, thus preventing them from rallying around a stock and causing its price to rise DWhen negative news about a small company is disseminated, it can significantly affect investor perception about what the price of the undervalued company should be

BThe management team of a company is usually not a reliable gauge as to how the company might perform in the global economy

All of the following statements are TRUE regarding term life insurance, EXCEPT: AIt does not build equity against which owners may borrow. BThe policy matures and its cash value is paid out at the end of the term period. CIt may be converted to an individual whole life plan. DIt provides insurance coverage for a limited period.

BThe policy matures and its cash value is paid out at the end of the term period.

If an investment adviser recommends that its clients diversify their investments by purchasing gold coins, gold certificates, or gold futures, which of the following risks is the adviser trying to avoid? AThe risk of the stock market losing liquidity during a market downturn BThe risk of some investments losing value or performing poorly due to inflation CThe risk that a single stock will perform poorly and cause the portfolio to lose value DThe risk associated with projecting returns over multiple asset classes

BThe risk of some investments losing value or performing poorly due to inflation

When would a variable annuity be most suitable for a client? AWhen the client wants a fixed rate of return BWhen the client wants capital appreciation or growth over a long period CWhen the client wants to receive a predictable amount of income at retirement DWhen the client wants an inflation-adjusted rate of return

BWhen the client wants capital appreciation or growth over a long period

An investor who believes in the Efficient Market Hypothesis most likely: AWould use tactical asset allocation BWould move her investments from one index fund to another depending on market conditions CBelieves that the markets were too efficient to actively trade with superior results DWould try to time the market

CBelieves that the markets were too efficient to actively trade with superior results

Which of the following business types is the LEAST likely to be affected by an increase in interest rates? AManufacturing BAutomotive CCosmetics DBanks

CCosmetics

A project manager is evaluating a project and determines that she needs an internal rate of return of 10%. Currently, the project has a positive net present value (NPV). Based on this information, the project's estimated internal rate of return (IRR) must be: AImpossible to determine based on the information provided BLower than 10% CGreater than 10% DEqual to 10%

CGreater than 10%

When explaining the differences between a fixed annuity and a variable annuity, an IAR should disclose which of the following information to her client?The insurance company guarantees the return on a fixed annuity.The annuitant assumes the risk in a variable annuity.In a fixed annuity, monies are invested in the separate account.In a variable annuity, monies are invested in the general account. AIII and IV only BI and III only CI and II only DII and III only

CI and II only

A dollar-weighted return is also referred to as: ATotal or holding period return BInflation-adjusted or real rate of return CInternal rate of return DTime-weighted retur

CInternal rate of return

The results of discounted cash flow analysis would identify a potential purchasing opportunity when the value arrived at: AWould not be effective under any circumstances BIs lower than the current cost of the investment CIs higher than the current cost of the investment DIs equal to the current cost of the investment

CIs higher than the current cost of the investment

During periods of deflation, the FRB will likely: AIssue new securities BEncourage a rise in interest rates CPurchase securities in the open market DSell securities in the open market

CPurchase securities in the open market

All of the following are types of market efficiency under the Efficient Market Hypothesis, EXCEPT: AWeak BSemi-strong CSystematic DStrong

CSystematic

An adviser is managing the portfolios of several clients who are invested in bonds. He anticipates that the economy is beginning to expand too rapidly and advises his clients to reallocate some of their holdings into money market instruments. What strategy is the adviser utilizing? AStrategic asset allocation BSector rotation CTactical asset allocation DAsset class recharacterizations

CTactical asset allocation

What does a debt-to-equity ratio of 1-to-1 signify? AThe company's debt is larger than its equity BThe company's equity is larger than its debt CThe company is highly leveraged DThe company has not utilized any leverage

CThe company is highly leveraged

Currency risk is defined as: AThe result of an increasingly global marketplace for securities BThe possibility that a financial crisis in one region or country can spread to markets in other parts of the world CThe possibility that changes in exchange rates will undermine the value of foreign investments for U.S. investors DThe likelihood that another emerging market country will devalue its currency

CThe possibility that changes in exchange rates will undermine the value of foreign investments for U.S. investors

When determining the risk premium on an investment, an investor would analyze the difference between: AThe total return and annualized rate of return BThe coupon rate of a bond and current interest rates CThe total return and the risk-free rate of return DThe mean return and dollar-weighted return

CThe total return and the risk-free rate of return

You are interviewing prospective clients, Jack and Jill. They tell you they have approximately $10,000 to invest and would like to earn the type of returns that equity investments exhibit over the long term. However, they do not want their portfolio to be as volatile as the stock market. What would you tell them? AThey should purchase a long-term U.S. Treasury mutual fund instead of a stock fund BThey should invest in a variable annuity, since it is issued by an insurance company CThey cannot expect to earn the type of returns that equities produce over the long term without assuming a corresponding amount of risk DYour firm is a member of SIPC, which will insure their account

CThey cannot expect to earn the type of returns that equities produce over the long term without assuming a corresponding amount of risk

The phase of the business cycle that represents the bottom of the economy's decline is: APeak BExpansion CTrough DContraction

CTrough

Corrine purchases an equity-indexed annuity contract that guarantees a 4% return with a 10% interest-rate cap. The index to which the funds are tied rises 13% in value this year. What return does Corrine receive? A13% B14% C4% D10%

D10%

A portfolio contains fixed-income instruments and common stock. At the beginning, the value of the portfolio was $240,000. Over the next two years, the portfolio received a total of $20,000 in interest and dividends. At the end of the second year, the portfolio was valued at $280,000. What is the annualized yield on the portfolio? A25% B16.60% C8.30% D12.50%

D12.50% (Ending Value - Beginning Value) + Income. /Beginning Value

An investor buys a two-year U.S. Treasury note that has a 6% coupon. If the note is purchased at par and held to maturity, what is the real rate of return over the holding period, assuming the CPI is 3%? A6% B3.3% C6.3% D3%

D3%

If a client is interested in purchasing a stock that has a low P/E ratio, a high dividend payout ratio, and wants the issuer to have a large amount of cash reserves, what type of stock should an IAR recommend? AA large-cap stock BA small-cap stock CA growth stock DA value stock

DA value stock

Which of the following is a type of non-systematic risk? AInterest rate risk BInflation risk CMarket risk DBusiness risk

DBusiness risk

When managing a portfolio of bonds, which of the following would be considered a passive investment strategy? AA bond barbell strategy BAn interest-rate anticipation strategy CAn immunization strategy DBuy and hold

DBuy and hold

Which of the following terms BEST describes the process for calculating future value? AAmortizing BAnnualizing CDiscounting DCompounding

DCompounding

If an adviser wants to evaluate a publicly traded firm's ability to pay down its short-term debt, which ratio would be most appropriate? ASharpe Ratio BP/E Ratio CDebt Coverage Ratio DCurrent Ratio

DCurrent Ratio

A fundamental analyst, evaluating the common stock of a corporation, would examine all of the following, EXCEPT the: ASales of the corporation BCurrent amount of earnings paid as dividends to the shareholders CManagement of the corporation DCurrent amount of short interest positions for the stock

DCurrent amount of short interest positions for the stock

Which of the following statements is TRUE about ETNs? AETNs are suitable for investors who want to capture long-term growth. BSimilar to ETFs, ETNs are suitable for passive investors. CETNs are unsecured bonds and investors are secured creditors if the issuer declares bankruptcy. DETNs may lose value even if the underlying index remains stable.

DETNs may lose value even if the underlying index remains stable.

In which TWO of the following ways do exchange-traded funds (ETFs) differ from mutual funds? I ETF share prices may change throughout the trading day II ETF share prices are determined at the close of the market each day III ETF shares may be sold short IV When ETF shares are purchased, buyers pay a sales charge QID:2330800 Mark For Review AI and II BII and III CII and IV DI and III

DI and III

A sector rotation strategy would include investing in which of the following? APrecious metals at the peak of the economy BTechnology stocks in a contracting economy CConsumer goods stocks in an expanding economy DIndustrial stocks in an expanding economy

DIndustrial stocks in an expanding economy

A dollar-weighted return is also referred to as: ATime-weighted return BTotal or holding period return CInflation-adjusted or real rate of return DInternal rate of return

DInternal rate of return

Regarding inverse ETFs, which of the following statements is TRUE? AInverse ETFs move in tandem with the underlying index. BInverse ETFs will reset their portfolios quarterly. CInverse ETFs are designed for long-term investors. DInverse ETFs use derivatives in order to move in opposition to the underlying index.

DInverse ETFs use derivatives in order to move in opposition to the underlying index

Which of the following choices is an example of a variable cost? AThe machinery used in the production of a product BRent CThe utility cost to operate a factory DMaterial used in the production of a product

DMaterial used in the production of a product

An investment adviser representative that uses an active asset allocation strategy might do which of the following? ARebalance investor portfolios on a monthly basis BBuy and hold CBuy only stocks with low P/E ratios DMove a larger portion of the portfolio into bonds when anticipating falling interest rates

DMove a larger portion of the portfolio into bonds when anticipating falling interest rates

If Jane Brown annuitizes her nonqualified variable annuity, how will the series of payments be taxed? AFIFO BAll taxable earnings first, then all cost basis CLIFO DPart of each payment is taxable earnings and part is a tax-free cost basis

DPart of each payment is taxable earnings and part is a tax-free cost basis

Net present value is best described as: ACost above market price BCost above present value CMarket price above cost DPresent value above cost

DPresent value above cost

If a client's objective is long-term capital appreciation, all of the following insurance policies may be recommended by an adviser, EXCEPT: AWhole life BVariable life CUniversal life DTerm life

DTerm life

Which of the following would NOT be an important consideration when conducting a capital needs assessment for a client? AThe client's future anticipated earnings BThe rate of inflation CThe client's life expectancy and retirement needs DThe amount of anticipated volatility in the marketplace

DThe amount of anticipated volatility in the marketplace

An investment adviser is constructing a diversified portfolio for a client. If the client requires liquidity, which of the following asset class would he least likely recommend? ABBB rated debt securities BPrime real estate CEquity securities traded OTC DCommodity option contracts

Prime real estate