O65 - 5 & 6

Asset allocation is an important element of the portfolio management process because: I. different asset classes have different risk and return characteristics II. research indicates that asset allocation is much more important than security selection III. Portfolios that are focused on different asset classes will have very different returns over time IV. Investors may prefer returnes in different forms.

All of the above

Investors wishing to employ a passive strategy for thier bond portfolios would most likely elect which strategy?

Buy and hold

Which of the following takes place on the New York Stock Exchange: - Buying and selling of Nasdaq stocks - Buying and selling stocks on the primary market - Buying and selling stocks on the secondary market - Buying and selling stocks on the over-the-counter (OTC) market

Buying and selling stocks on the secondary market

The Execution of a market order to sell occurs at the:

Highest BId

In a trust account, the person who makes the account management decisions is the:

Trustee

An order to sell securities where immediate execution is more important than price is called:

a market order

If an employer installs a Keogh plan, it must include all full-time employees:

age 21, with at least one year of service

The Capital Asset Pricing Model (CAPM) is most commonly used to determine an investor's

expected return

If an individual makes a withdrawal from her IRA at age 52, she pays no penalty tax if she:

is disabled

An investor purchases 500 shares of stock on January 10th at $50 per share and sells it on August 4th of the following year for $40 per share. As a result, the investor has realized a:

long-term capital loss.

A young customer who is a novice investor wishes to begin an investment program. He is eligible for his employer's 401(k) plan, to which the employer makes matching contributions, but he does not participate in the plan. Your advice to the customer should be to begin:

making payroll deductions to the employer's 401(k) plan at least to the employer's matching level

Stock prices in the over-the-counter market are determined by

negotiation

In order to compute the real rate of return for a security, it would be necessary to know all of the following EXCEPT - the annual dividend - the purchase price - the beta of the security - the CPI

the beta of the security

There are several popular investment styles and, in many cases, portfolio managers use a blended approach to security selection. If a portfolio manager adhered to a pure value style, he would put most of his focus on:

the company's financial statements.

In a qualified plan, if the employer makes all of the contributions, the employee's cost basis is:

zero

In order to be considered a block trade, an order for common stock must be for at least

10,000 shares

A limited Liability company is:

A company with tax consequences similar to the partnership

An individual works for an accounting firm that does not have a retirement fund. She is paid $18000 per year. During her spare time, she is a commercial artist and earned $16000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)?

$16000

A customer who is changing jobs has how many days to roll over a lump sum from a qualified pension plan into an IRA?

60 days

Which of the following phrases best describes a prudent investor? - A trustee who invests with reasonable care, skill, and caution - the custodian for a minor under the Uniform Transfers to Minors Act. - A person in a fiduciary capacity who invests in a prudent manner - An investment adviser representative handling a discretionary account

A trustee who invests with reasonable care, skill, and caution

In the field of portfolio management, there are a number of different management styles. One of those styles involves committing additional capital to the market. when others are reducing their exposure, or eliminating positions while others are increasing theirs. This style is generally referred to as:

Contrarian

On retirement, if your customer who is a corporate executive will receive retirement income equaling a percentage of the average of his last 5 years of compensation, this is which type of plan?

Defined Benefit

An investor Diversifying a corporate bond portfolio does NOT consider

Domicile of the investor

Assets that might be found on a family balance sheet include:

Gold Watch & Keogh Plan

As compared to value investors, growth investors tend to:

Look for companies whose sales, earnings, or market share are increasing at an above-average rate.

Your daughter is getting married and, to celebrate, you give her fiance a beautiful watch that you purchased for $5,575. What are the tax consequences of this gift?

No tax

the concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as

Portfolio optimization

What is the term used to describe a person on the floor of a stock exchange whop stands ready to buy or sell shares of specified stocks?

Specialist

Which of the following portfolio management styles would most likely incur the highest transaction costs?

Tactical Asset Allocation

One respect in which an LLC differs from an S corporation is that:

There is no statutory limit on the number of investors in an LLC

A popular funding technique that involves investing the same amount at regular intervals is known as dollar cost averaging. Participating in this funding approach tends to lessen which risk?

Timing

An investment adviser is doing some research on a company and notices that the current market price is $21 per share. the most recently reported EPS is $3 and the company is paying a 19 cent quarterly dividend. On the balance sheet, the company is carrying a significant amount of cash. This company would probably be attractive to this adviser if his investment style was:

Value

If you knew a given stock had a 40% chance of earning a 10% return, a 40% chance of earning 20%, and a 20% chance of earning -10%, the stock would have a:

expected rate of return of 10%

If an investor buys a utility stock with a stable 5% dividend, and after a year the investor's total return in the stock is 10%, the most likely reason for this is the:

the stock appreciated by 5%

When analyzing a specific common stock, the expected return is

the sum of a probability distribution of possible returns.

An investor purchases 100 shares of a stock at $100 per share on January 1st. On July 1st, the shares are sold for $120 per share. the tax consequences are:

$2,000 short-term gain

The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70K and this is their first attempt at financial planning. Which of the following should be the first steps taken by the financial planner?

Establish an emergency fund

Thomas, age 49, owns his own business and pays himself a salary of $80K per year. He employs his wife Grace, age 51 as receptionist and pays her $45,000 per year. What is the maximum deductible contribution that they could have made to thier 2013 traditional IRA programs?

$5500 to his $6500 to hers

A lump-sum distribution from a 401(k) before retirement may be: I. eligible to be rolled over into a traditional IRA II. subject to ordinary income tax and penalty III. eligible to be transferred to a Roth IRA IV. tax free if the recipient is disabled

- eligible to be rolled over into a traditional IRA - subject to ordinary income tax and penalty - eligible to be transferred to a Roth IRA

Which of the following statements about C corporations are TRUE? - A C Corporation pays income tax on its earnings at the corporate level - The income of C corporations is subject to double taxation - Dividends paid by a C corporation are not subject to income tax at the shareholder level

A C Corporation pays income tax on its earnings at the corporate level & The income of C corporations is subject to double taxation