Kaplan Series 65 Prep

Risk Free Rate

91 day (13 week) Treasury Bill is used as

internal rate of return

A bond's yield to maturity reflects its

devoting a portion of the portfolio to securities with a negative correlation

A portfolio manager with a growth style would probably diversify by

Inflation Adjusted Rate of Return

Actual Return (coupon/increase divided by investment amount) - CPI (inflation rate)

The only way to generate income with options is to sell them (take a short position). Selling the call brings in a premium that creates a partial hedge to the extent of the premium received. A full hedge would be accomplished by purchasing an XUZ put, but that would not generate income and the question is looking for a partial hedge

An investor is long 100 shares of XUZ common stock. If the investor wishes to generate some additional income while also creating a partial hedge

Inflation Protection

Including Tangible assets in a portfolio provides

1000 hours

Under Keogh plan provisions, a full-time employee is defined as one working at least how many hours per year

income in excess of $2,500 is taxed at trustee's marginal tax rate

Under current tax regulations (2023 and beyond), after deductions and exemptions, how will the income in the UTMAs be taxed

Lower

When markets are falling do you want to be in higher or lower beta stocks?

Price to earnings ratio

Which of the following is most commonly used to evaluate the marketplace's perceived value of a particular stock?

Tactical or Active Management

continuously adjusts the asset allocation and class mix in an attempt to take advantage of changing market conditions.

mean, mode, median

several measures of central tendency used by investment analysts

Odd lot

usually traded by small investors; some analysts believe small investors are generally wrong

A municipal bond fund A leveraged real estate limited partnership

which of the following investment vehicles would be considered generally inappropriate in a qualified retirement plan?

Gross Margin, Gross Profit

Net Sales (Revenue) - Cost of goods sold

Dividend Discount Model

PV of stock = dividend / (Required rate of return - growth rate in dividends)

457 Plan

Plans for employees of state and local governments

Positive Alpha

Portfolio A has a beta of 1.0 and has returned 8% over the past year. Portfolio B has a beta of 1.5 and, over that same period, has returned 16%. Based on this information, an analyst would conclude that portfolio B has

Fiduciary Responsibilities

Section 404(c) of ERISA deals with

Cost Per Share Example

She spent $1,500 and bought a total of 102 shares. Dividing her cost ($1,500) by the number of shares (102) results in a cost per share of $14.71, and that is her cost basis for tax purposes.

Russell 2000

Stock prices of 2000 relatively small but actively traded U.S. corporations - Small Cap benchmark

Purchasing Power Risk, Reinvestment Risk, Interest Rate Risk, Market Risk, Exchange Rate risk

Systematic Risks

True; it is always the same or lower due to it taking a root

T/F The geometric mean can never be higher than the arithmetic mean

Working Capital

The amount of money a corporation has available to work with if it liquidates its current assets and pays off all of its current liabilities. (Current Assets - Current Liabilities)

long-term interest rates are high and beginning to decline

The best time for an investor seeking returns to purchase long-term, fixed interest rate bonds is when

the internal rate of return

The discount rate that makes the NPV of all cash flows from a security equal to zero is

Alpha

The measurement of a portfolio's actual or realized return in excess of (or deficient to) the expected return calculated by the capital asset pricing model (CAPM) is known as

Sharpe ratio

The return from a security can be adjusted for the risk by dividing the security's return in excess of the risk-free rate by its standard deviation

Monte Carlo simulation

The statistical method used to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values based on the risk and return characteristics of the securities themselves is known as

Long Hedge

The use of futures to hedge against a price increase is best referred to as

-offer plan participants at least three different investment alternatives -allow plan participants to change their investment options no less frequently than quarterly

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must

Business risk, legislative risk, regulatory risk, Financial Risk,

Unsystematic Risks

Large capitalization, Small Capitalization

What are investment management styles?

Acid Test, Quick, Current Ratios

What are the three main liquidity ratios

The coupon rate and the length to maturity

What are the two things that effect the duration of a bond?

-1.0

What correlation coefficient would resemble a risk free portfolio

Earned Income

What is the number one requirement to open up an IRA

Municipal Bonds

What is thinly traded that makes it have a large liquidity risk?

91 day US T-Bill, free of market risk

What security has a beta of zero

Higher Market Value

When a bond is paying interest at a rate higher than the current market rate, the longer the investor will be receiving that higher rate, the higher the premium. This results in

Higher

When markets are rising do you want to be in higher or lower beta stocks?

Ladder Strategy

Which bond strategy is a relatively easy way to immunize a portfolio against interest rate risk?

IRA

Which of the following does not benefit both the employee and the employer

Employer required to contribute even if employee does not

Which of the following is a benefit to an employee of a business offering a safe harbor 401(k) using a nonelective formula

Standard Deviation (SD)

Which of the following measures the variability of an asset's returns over time

457 Plan

Which tax-qualified retirement plan permits withdrawals for any reason

A five-year laddered portfolio of U.S. Treasury notes

Your client's child is entering college next year. Which of the following would be the most appropriate recommendation?

Payroll deduction plan

a non-qualified retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans

supplemental executive retirement plan (SERP)

a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees.

Flexible Spending Account

allow deductions from an employee's paycheck. That money is held by the company and is used to pay allowable claims by the employee. It is not invested in stocks, bonds, etc.

Capital Market Line

an expected return for a portfolio based on the expected return of the market, the risk-free rate of return, and the standard deviation of the portfolio in relation to the standard deviation of the market

-The market price per share fluctuates with each purchase. -A fixed dollar amount is invested at regular intervals.

dollar cost averaging strategy conditions

Dividend Discount Model

future expected dividends are discounted to compute the present value of the stock

P/E ratio

how much investors value the stock as a function of the company's market price to its earnings.

Laddered Portfolio

investing in bonds with maturities ranging from near- to long-term. In this fashion, there will always be some of the portfolio approaching maturity, thus reducing the interest rate risk on that portion

Dollar cost averaging

investor invests the same amount at regular intervals. the investor buys fewer shares when the fund's price rises and more shares when the share price drops, thereby lowering the average cost. There is no assurance against loss of principal

Efficient Frontier

it represents the maximum return for a given level of risk

equity, debt, cash, real estate, and commodities

major classes for purposes of an asset allocation program

Standard Deviation

measure of both systematic and unsystematic risk

Duration

measures the effect of an interest rate change on the price of a bond or bond portfolio, a bond's price volatility by weighting the length of time it takes for a bond to pay for itself, weighted-average term to maturity of a bond's cash flows

company's owners, top executives, and key employees

nondiscrimination rules are intended primarily to ensure that retirement plans do not discriminate in favor of

contribution limits are higher, there are no earnings limits

preference to use a Section 529 plan over a Coverdell ESA

Bond Price in Discounted Cash Flow

present value of the par value repaid at maturity plus the present value of the coupon payments

Median

the central value of observations arranged in order from lowest to highest is known as the

the internal rate of return

the earnings rate required to reach a specified future value from an amount that is currently available to invest

acid test ratio, Quick Asset Ratio

Current Assets - Inventory / Current Liabilities

-Receiving cash distributions may reduce Customer A's proportional interest in the fund -Customer B's reinvestments purchase additional shares at NAV rather than at the offering price.

Customer A and Customer B each have an open account in a mutual fund that charges a front-end load. Customer A has decided to receive all distributions in cash, while Customer B automatically reinvests all distributions. How do their decisions affect their investments?

quick ratio

(Current Assets - Inventory) / Current Liabilities

Coverdell Education Savings Accounts

- After-tax contributions of up to an indexed maximum per student per year are allowed. ($2000 per child) - Unless a special needs beneficiary, contributions may not be made for students past their 18th birthday.

Investment Policy Statement

- expected returns of the recommended strategy and the expected range of these returns - recommended allocations among differing asset classes - strategies used for selecting specific stocks in the equity portion of the portfolio

- There are no tax or transaction costs to consider. - All market participants borrow and lend at the same risk-free rate. - All market participants are well-diversified investors, and specific risk has been diversified away. - All investors want to achieve a maximum return for minimum risk.

4 CAPM Assumptions

Dow Jones Composite Average

65 stocks (30 industrial, 20 transportation, and 15 utility)

all payouts are fully taxable in a Keogh plan

A nonqualified, single premium variable annuity differs from a Keogh plan in that

at the higher end of their price range for the past 52 weeks

A portfolio manager who follows the growth style of investing would most likely purchase shares

Tactical

A securities analyst does not believe that markets are highly efficient. This analyst most likely follows which of the following investing strategies?

HSA

A tax-advantaged medical savings account available to employees enrolled in a high-deductible health plan is

Is not prohibitted under ERISA

A transfer of plan income or assets for the benefit of a plan beneficiary or plan participant which they are entitled according to the provisions within the plan

Discounted Cash Flow

An analyst wishes to assess the value of a fixed-income security by taking the income payments scheduled to be received over a given future period and adjusting that for the time value of money. This analytical tool is known as

Standard Deviations

An individual can expect a return within 1 standard deviation (+/-) 68% of the time, 2 standard deviations (+/-) 95% of the time, 3 standard deviations (+/-) 99% of the time

the coupons were reinvested at a rate exceeding the yield to maturity

An investor's holding period return would exceed the bond's yield to maturity if

6%

Any contribution in excess of the indexed maximum (and the earnings associated with the excess) is subject to a penalty of

unsystematic risk

As a technique in portfolio management, portfolio diversification reduces

S&P 500

Benchmark for large cap equities

Buy puts with a contract value equal to # of shares held

Best way to hedge a long position in a stock if you think it will decrease

Discounted Cash Flow

Bond investors use a formula called ____ to translate future cash flows to be received from interest and principal repayment into their present value

dividend payout ratio

Dividends per share / Earnings per share

Technical Analyst

Does not look at p/e ratio, would look at price and volume movements - moving averages

IRA

Gems, collectibles, and works of art are ineligible investments for an

Long Term Disability Insurance Premiums

HSA's are allowed for qualified medical expenses except for

issuer, quality (rating), domicile of the issuer, and maturity.

How can a corporate bond portfolio be diversified

Attractive

If a net present value of the expected return is greater than 0 it is considered

Unattractive

If a net present value of the expected return is less than 0 it is considered

Decrease

If the coupon rate on a bond increases, the duration of the bond will

present value would be higher

If the required rate of return is less than anticipated in a present value calculation, the effect would be that the

mode

In a data set of returns, the most common return is the

S&P 400

Index for mid-cap stocks.

No

Is preferred stock considered a fixed income security in relation to asset allocation?

Dow Jones Industrial Average

Is the only non market cap weighted index. Only price-weighted index.

Bullet

Least Active bond strategy. investing in bonds at various intervals with all of the bonds maturing at or about the same time

secured debt holders, unsecured debt holders (including general creditors), holders of subordinated debt, preferred stockholders, and common stockholders.

Liquidation Order