Unit 20 Series 65
What is the risk measure associated with the capital market line (CML)? A) Alpha B) Standard deviation C) Beta D) Systematic risk
B
Which of the following bond strategies is the least active? A) Barbell B) Bullet C) Ladder D) Yield curve
B
All of the following are examples of non-diversifiable risks EXCEPT A) interest rate risk B) purchasing power risk C) liquidity risk D) market risk
C
Janice is investing in stocks that are temporarily neglected by the market and often have high-dividend yields. Which of the following investment styles might she be following? A) Momentum B) Growth C) Value D) Contrarian
C
The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)? A) Semi-weak form B) Weak form C) Strong form D) Semi-strong form
C
Which of the following describes an investment management style? A) Current income B) Rebalancing C) Large capitalization D) Margin
C
Derivatives have a major role to play in the management of many large portfolios and can be used for all of the following except A) highly risk-averse investors. B) hedging. C) income. D) asset allocation.
A
One of the asset allocation classes is fixed income securities. When an IAR is determining which securities to fill that portion of the client's portfolio, which of the following would NOT be included? A) Preferred stock B) Mortgage-backed securities C) Treasury bonds D) Municipal bonds
A
Question ID: 1180201 Investment advisers who preach the benefits of strategic asset allocation do so because they believe A) the market is perfectly efficient because stock prices reflect all available information B) over the long run, strategic management will eventually outperform the market C) active management of a portfolio offers tactical benefits D) the market is basically inefficient and there is a strategy that can beat it
A
rthur M. Munger recently joined Piedmont Partners LLP as an analyst and is curious about modern portfolio theory (MPT). He approaches his senior, Sarah, to describe MPT. Sarah tells Arthur that MPT suggests that A) by combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks. B) the total risk of a portfolio cannot be reduced at all. C) we cannot outperform the overall market. D) by combining securities into a diversified portfolio, the overall portfolio risk will be more than the weighted average risk of the individual stocks.
A
An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following? A) Growth mutual funds B) Index funds C) Balanced mutual funds D) Sector mutual funds
B
According to the efficient market hypothesis, information found when reading the Wall Street Journal would be considered A) random walk B) weak-form market efficiency C) strong-form market efficiency D) semi-strong form market efficiency
B The closer to inside information, the stronger the information. Anything published in widely read media would be considered very weak.
A portfolio manager who routinely shifts portfolio assets to take advantage of the business cycle is said to be engaging in A) rebalancing B) correlation C) asset allocation D) sector rotation
D
A successful dollar cost averaging strategy requires stable market conditions volatile market conditions a fixed dollar amount invested monthly a fixed number of shares purchased monthly A) I and IV B) II and IV C) I and III D) II and III
D
The strong-form efficient market hypothesis (EMH) asserts that stock prices fully reflect which of the following types of information? A) Public and private B) Inside only C) Market D) Public, private, and future
A
Which of the following investment strategies is used to determine an appropriate allocation based on the long-term goals and risk tolerance of the client? A) Strategic asset allocation B) Top-down fundamental analysis C) Efficient market allocation D) Tactical asset allocation
A
The goal of modern portfolio theory (MPT) is to construct the most efficient portfolio. An efficient portfolio is one that offers A) the most return for the most risk B) the least risk for a given amount of return C) the lowest Sharpe ratio D) the highest correlation coefficient
B
Which of the following attributes best describes a tactical asset allocation portfolio style? A) Has an aggressive growth objective B) Employs an active management style C) Employs a strategic management style D) Employs a passive management style
B
Which of the following bond strategies would be considered passive? A) Bullet B) Buy and hold C) Barbell D) Laddering
B
Which of the following is a characteristic of the passive investment style? A) High portfolio turnover B) Rebalancing C) Income rather than growth objective D) Tactical management
B
Which of the following are asset classes? A) Options B) REITs C) Forward contracts D) Large cap stock funds
B
The current market interest rate for a bond rated AA with 20 years to maturity is 5%. In an efficient market, a similar bond with a coupon of 4% could be expected to have an internal rate of return of A) 4%. B) 5%. C) 6%. D) 8%.
B In an efficient market, bonds are priced so that their NPV is zero. That means the bond's yield to maturity is equal to the current market interest rates for similar bonds. When that rate is 5%, as is given in this question, all AA bonds with 20 years remaining to maturity should have a YTM of 5%
All of the following statements concerning capital market theory are correct EXCEPT A) the market risk premium is the difference between the expected return for the equities market and the risk-free rate of return. B) beta is a measure of volatility, or relative unsystematic risk, for stock or portfolio returns. C) the security market line (SML) depicts the tradeoff between risk and expected return for all assets, whether individual securities, inefficient portfolios, or efficient portfolios. D) the security market line (SML) is the graphical depiction of the capital asset pricing model (CAPM).
B' Beta is a measure of relative systematic risk for stock or portfolio returns. A stock or portfolio with a beta of 1.0 would have the same systematic risk as the overall market.
The use of futures to hedge against a price increase is best referred to as A) a trimmed hedge B) a neutral hedge C) a short hedge D) a long hedge
D
Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as A) the capital market line B) the correlation coefficient C) the efficient set D) the feasible set
D
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns? A) Strong B) Semi-weak C) Semi-strong D) Weak
D
Which of the following is an example of dollar cost averaging? A) Maintaining a constant dollar plan in the KAPCO Growth Fund B) Purchasing 25 shares of the KAPCO Growth Fund on the 15th of each month C) Buying shares of the KAPCO Growth Fund when the price is declining and selling shares when the price is rising D) Investing $200 into the KAPCO Growth Fund on the 15th of each month
D
Which of the following investors aligns most closely with the strong form of the efficient market hypothesis (EMH)? A) An investor using dollar cost averaging to purchase shares in growth mutual funds having the highest portfolio turnover. B) An investor using a buy-and-hold strategy dollar cost averaging into an S&P 500 Index fund. C) An investor who researches corporate annual reports and industry publications to uncover buy-and-sell opportunities within an industry or individual security. D) An investor who uses stock charts to predict price movements and capitalize on buy-and-sell opportunities.
B
Which of the following statements is correct? A) The efficient frontier represents portfolios that have the lowest expected return for each level of risk. B) When a risk-averse investor is confronted with two investment opportunities having the same expected return, the investor will take the opportunity with the lower risk. C) As the correlation coefficient moves from +1 to zero, the potential for diversification diminishes. D) The efficient frontier represents individual securities.
B
Published studies have shown that much of the performance of a portfolio can be attributed to which of the following factors? A) Other factors B) Security selection C) Market timing D) Asset allocation
D
In a financial market that is efficient, A) new information will be slowly reflected in securities prices. B) investors who do not believe in the efficient market hypothesis (EMH) will stop seeking undervalued securities. C) investors will take an active investment strategy if they are strong believers in the efficient market hypothesis (EMH). D) the prices of securities will not differ from their justified economic values for any length of time.
D
Each of the following terms is commonly found in modern portfolio theory EXCEPT A) the feasible set B) the capital asset pricing model C) the efficient set D) the internal rate of return
D
A securities analyst does not believe that markets are highly efficient. This analyst most likely follows which of the following investing strategies? A) Passive B) Strategic C) Tactical D) Indexing
C
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? A) Cyclical rotation B) Strategic portfolio management C) Segment rotation D) Tactical portfolio management
C
An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following? A) Index funds B) Balanced mutual funds C) Sector mutual funds D) Growth mutual funds
A
An optimal portfolio is one which A) lies on the efficient frontier B) offers the greatest reward for the highest risk C) is diversified in such manner as to nearly eliminate systematic risk D) works well in bull markets, but suffers when there is a market reversal
A
A portfolio manager who believes equity securities are overvalued in the short term reduces the weight of equities in her portfolio to 35% from its longer term target weight of 40%. This decision is best described as an example of A) tactical asset allocation. B) rebalancing. C) contrarian investing. D) strategic asset allocation.
A Tactical asset allocation refers to deviating from a portfolio's target asset allocation weights in the short term to take advantage of perceived opportunities in specific asset classes. Strategic asset allocation is determining the target asset allocation percentages for a portfolio and remaining there. Rebalancing is periodically adjusting a portfolio back to its target asset allocation. In this question, the portfolio manager changed the target allocation - no rebalancing is necessary. Contrarian investing is doing the opposite of what most others are doing.
Which investment style does NOT take into consideration whether a specific security is under or overvalued? A) Indexing B) Active C) Growth D) Contrarian
A The style known as indexing merely attempts to mimic the underlying index. Therefore, security selection is not based upon any fundamental (or technical) parameters, but only changes made to that index.
What investment style is employed by a portfolio manager whose list of eligible securities includes only those with a market capitalization in excess of $20 billion? A) Blue chip B) Large-cap C) Conservative D) Indexing
B
When building an investment portfolio, it is generally recommended that an asset allocation process be used to increase the portfolio diversification and reduce risk. Which of the following is least likely to be considered an asset class? A) Stock B) Mutual funds C) Cash and cash equivalents D) Bonds
B
What investment style is employed by a portfolio manager whose list of eligible securities includes only those with a market capitalization in excess of $20 billion? A) Blue chip B) Conservative C) Large-cap D) Indexing
C hen you see market cap, there are 4 levels tested on the exam: large-cap is those with a market cap in excess of $10 billion; mid-cap is the $2 billion to $10 billion range; small-cap is $300 million to $2 billion; and micro-cap is $50 million to $300 million. This manager may be focusing on "blue chip" stocks, but that is not an investment style. Are large-cap stocks conservative? In many cases, yes, but that is not a management style. It is critical on the exam that you choose the answer best fitting the question.
