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Which of the following is true of open-end funds? 1) Shares of open-end funds can trade at a discount or premium to the net asset value per share. 2) They allow investors to redeem their investment in the fund at the prevailing net asset value per share. 3) They accept no new investment money into funds.

2

What amount of money do most new hedge funds typically require for an initial investment? $100,000. $250,000. $500,000.

250,000

A major difference between a hedge fund and a mutual fund is that the hedge fund has: a much larger required minimum investment. to meet more stringent reporting requirements. better liquidity because it is traded throughout the day.

A much larger required minimum investment

Which of the following characteristics is least likely to distinguish a foundation from other investor types? Long time horizon. Minimum annual distribution rates. A need for liquidity to meet withdrawals on demand.

A need for liquidity to meet withdrawals on demand

A unique objective of a defined benefit pension plan most likely is: Provide liquidity to distribute current benefits. A need for the objective to reflect the collective needs of participants. Grow investments to provide for future desired living standards of participants and beneficiaries.

A need for the objective to reflect the collective needs of participants

Which of the following statements are true? In a defined contribution plan, there is no risk. A pension plan in which the firm contributes fixed amounts to the employee's retirement account is called a defined contribution plan. In a defined benefit plan, the risk is borne by the employee.

A pension plan in which the firm contributes fixed amounts to the employee's retirement account is called a defined contribution plan.

Which of the following is least likely to be part of the portfolio management process? Preparing a client policy statement. Evaluating investment performance. Advertising the manager's performance record.

Advertising the manager's performance record

Which of the following is not a part of the execution stage in the portfolio management process? Determining asset class weightings. Analyzing securities to determine their attractiveness. Assessing the performance of the portfolio relative to the benchmark.

Assessing the performance of the portfolio relative to the benchmark

The fund in which an employer has an obligation to pay a certain annual amount to its employees when they retire is called a defined: contribution pension plan. benefit pension plan. endowment pension plan.

Benefit Pension Plan

An investment manager using the portfolio approach to investing would most likely construct a portfolio comprised of securities deemed to offer: low expected correlation. high expected return. low expected risk.

Low expected Correlation

A US-based investment manager is concerned that the volatility of an international equity fund he is managing is too high. Which of the following would be an appropriate course of action? -Sell the international holdings and hold only US stocks. -Consider investing in markets that have a low correlation with the existing assets in the portfolio. -Sell small-capitalization stocks and concentrate the portfolio in a small number of big-market capitalization stocks.

Consider investing in markets that have a low correlation with the existing assets in the portfolio.

The investment objective of an endowment fund is most likely to include: Outperforming an index of international equities. Maintaining the real value of the fund in the long term. Minimizing risk in order to achieve a stable nominal rate of return.

Maintaining the real value of the fund in the long term

Asset allocation is part of which step in the portfolio management process? The planning step. The feedback step. The execution step.

Execution Step

Which of the following is least accurate with respect to the portfolio management process? Activity Step I.An analyst is collecting details of all takeovers of Bryan Inc. /Investment policy statement II.An analyst is collecting the inflation rates of an economy/Top-down analysis III.An analyst is studying the risk profile of a client/Bottom-up analysis I only. I and III only. II and III only.

I and III Only

In using the portfolio approach to investing, the investor will least likely eliminate: the risk of loss. a concentration in one security. the opportunity to achieve a return in excess of the market's return.

The risk of loss

Zade started a company called Zade Environmental Controls (ZEC). ZEC specializes in environmentally friendly cleaning products. Soon after the initial public offering, Zade's wealth exceeded $100 million; $80 million in ZEC stock and $20 million in cash. Zade asked you to manage the $20 million. -You should completely ignore the $80 million stock since they are not in the portfolio you manage. -You should account for Zade's ownership of ZEC stock in the IPS and avoid investing in companies similar to ZEC. -You should ask Zade to sell $70 million of ZEC to minimize exposure to one stock position.

You should account for Zade's ownership of ZEC stock in the IPS and avoid investing in companies similar to ZEC.

Which of the following institutional investors has the shortest investment horizon? Banks Life insurance companies Pension funds

banks

Which of the following is false? 1) Mutual funds have short investment horizons and have risk tolerances and income needs that depend on the type of fund. 2) Individual investors have risk tolerances, investment horizons, and income needs that vary by individual. 3)Banks have low risk tolerances, short investment horizons and need income to pay interest and operational expenses.

1

A balanced fund typically invests in: 1) Debt securities only. 2) Short-term debt securities only. 3) Debt and equity securities.

3

In dealing with a client, the developing of the asset allocation for the client's portfolio is most likely completed in which step of the portfolio management process? 1) Planning. 2) Feedback. 3) Execution.

3

Kim Smith, an investment manager, has allocated funds for her clients in the following manner. Which of the following is the least appropriate allocation? Client Investment Avenue Blue Ocean Bank Treasury bills Finred University Endowment. Corporate bonds that mature in 20yr Sandgo Corp.'s Insurance Fund High-potential start-up firms 1) I only. 2) II and III only. 3) III only.

3

Which of the following would not be considered a type of institutional investor? Defined-benefit pension fund. 401(k) fund. Endowment foundations.

401k fund

The type of pooled investment product that will most likely trade at a price farthest away from its net asset value (NAV) is: an exchange traded fund. a closed-end mutual fund. an open-end mutual fund.

Closed end

Which of the following funds only allow investors to liquidate by selling their shares to other investors? Load funds Open-end mutual fund Closed-end mutual fund

Closed end mutual funds (sold on secondary market)

A portfolio manager has an account with a stated investment objective that the portfolio should maintain its real (inflation-adjusted) capital value while generating income needed to fund the institution's objectives. The portfolio manager is most likely dealing with a: college endowment. life insurance company. property and casualty insurance company.

College Endowment

A portfolio manager has an institutional client with a long time horizon and low liquidity needs. The institution is most likely a: open-end mutual fund. defined benefit pension plan. property and casualty insurance company.

Defined benefit pension plan

Monitoring the portfolio is a part of which step in the portfolio management process? Planning. Feedback. Execution.

Feedback

When an analyst is rebalancing a portfolio, the stage of the portfolio management process she is most likely engaged in is: planning. feedback. execution.

Feedback

Portfolio monitoring is part of which step in the portfolio management process? The planning step. The feedback step. The execution step.

Feedback step

Which of the following characteristics is least likely to apply to a passively managed fund? Investment in individual securities that are index components. Investment amounts that approximate the relative weight of index components. High portfolio turnover due to frequently rebalancing the portfolio toward the target index.

High Portfolio Turnover due to frequently rebalancing the portfolio toward the target index

Which of the following statements is most accurate regarding diversification of portfolios across global equity markets? Equity markets have become less correlated over time, creating greater benefits from diversification. In a financial crisis, diversification is not effective at reducing risk, as markets tend to move down together. Investing across a number of markets will always significantly reduce risk compared to investing in a single market.

In a financial crisis

Which of the following institutional investors is least likely to invest in Treasury bonds to park its excess funds? University endowments. Defined contribution pension plans. Investment companies.

Investment Companies

Which characteristic best describes a sovereign wealth fund? Portfolio holdings are designed to comply with local laws of sovereign nations. Pooled portfolios reserved for wealthy citizens of sovereign nations. Its size often depends on the wealth of the country.

Its size often depends on the wealth of the country.

Which of the following is a reasonable return objective for a pension plan? A target average rate of return of 10 percent per year. Outperforming MSCI World Index by 1.0 percent per year. Minimize the probability of failure to meet beneficiary payments.

Minimize the probability of failure to meet beneficiary payments

An investor adopting the portfolio approach to investing as a way to reduce risk will most likely have to accept: a lower return. more diversification. lower current income.

More diversification

Which of the following investment vehicles least likely have minimum investment requirements? Separately managed accounts Mutual funds Hedge funds

Mutual funds

Which of the following will usually have a short time horizon with respect to their investments? Pensions funds. Life insurance companies. Non-life insurance companies.

Non life insurance companies

An investor is most likely to purchase which of the following investments at net asset value? Exchange traded fund. Open-end mutual fund. Closed-end mutual fund.

Open End Mutual Fund

The number of shares outstanding for a pooled investment product is changing quite frequently. Often, the total shares outstanding change each day. The most likely investment product fitting this description is: a venture capital fund. an exchange traded fund. an open-end mutual fund.

Open end mutual fund

A written planning document, called the Investment Policy Statement, or IPS, is prepared during which step of the portfolio management process? Planning step Execution step Feedback step

Planning

The execution portion of the portfolio management process does not include: Determining the asset allocation. Constructing the portfolio. Rebalancing.

Rebalancing

Which of the following processes is the most likely to be included in the planning step of the portfolio management process? Establish the asset allocation. Select an appropriate investment strategy. Understand the economic and financial market conditions.

Select an appropriate investment strategy

A very wealthy investor is most likely to structure her portfolio with which of the following investment vehicles? Mutual fund. Exchange-traded fund. Separately managed account.

Separately Managed Account

A CFA charterholder is managing a portfolio for a bank. The portfolio manager will most likely need to structure the portfolio to meet the bank's need for a: short time horizon and high risk tolerance. long time horizon and low risk tolerance. short time horizon and high liquidity.

Short time horizon and high liquidity

Which of the following statements is true? Statement 1: In a defined contribution plan, the employer is required to contribute more if the plan has low returns. Statement 2: The liquidity needs of the defined benefit plan and endowments and foundations are typically quite low. Statement 1 is true. Statement 2 is true. Both statements are false.

Statement 2 is true

In a defined contribution plan: The employee accepts the investment risk in the portfolio. The employee is responsible for ensuring that there are enough funds in the plan to meet employers' needs upon retirement. The employer has an obligation to pay a certain annual amount to its employees when they retire.

The employee accepts the risk in the portfolio

Which of the following statements about a diversified portfolio is least likely true? The higher the correlation of the securities in a portfolio, the lower the diversification benefit. The higher the covariance of the returns of securities in a portfolio, the higher the risk of the portfolio. The higher the diversification benefit of a portfolio, the higher the diversification ratio.

The higher the diversification benefit of a portfolio, the higher the diversification ratio

Which of the following would most likely be minimized by adopting the portfolio approach to investing? Risk of loss. Variability of returns. Number of securities needed to diversify.

Variability of Returns

An investor has been told that the fund he is considering will most likely have a large number of its investments that lose money. The investor is most likely considering putting funds into a: hedge fund. buyout fund. venture capital fund.

Venture Capital Fund

The investment that is most likely to provide an investor with the lowest risk is a: money market fund that holds securities issued by corporations. tax-free bond fund that holds securities issued by U.S. state governments. global bond fund that holds securities issued by governments and corporations, both foreign and domestic.

money market fund that holds securities issued by corporations.