Series 65: Unit 21 Exam

Which of the following statements regarding a bond ladder strategy is correct? A. A bond ladder strategy involves the purchase of very long-term and very short-term bonds. B. A bond ladder strategy is generally more aggressive than a bond barbell strategy. C. A bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk. D. A laddered portfolio of bonds will provide lower yields than a portfolio consisting entirely of short-term bonds.

A bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk

An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following? A. Index funds B. Sector mutual funds C. Growth mutual funds D. Balanced mutual fund

Index funds

One of the asset allocation classes is fixed income securities. When an investment adviser representative is determining which securities should fill that portion of the client's portfolio, which of the following would not be included? A. Municipal bonds B. Mortgage-backed securities C. Treasury bonds D. Preferred stock

Preferred stock

Which of the following are asset classes? A. REITs B. Forward contracts C. Large-cap stock funds D. Options

REITs

Diversifying a portfolio could be expected to provide all of the following benefits except A. improving returns. B. reducing transaction costs. C. dampening volatility. D. reducing overall risk.

Reducing transaction costs

One of the offshoots of the capital asset pricing model (CAPM) is the capital market line (CML). The equation for the CML uses which of the following? A. Correlation coefficient B. Beta C. Standard deviation D. Alpha

Standard deviation

One popular method used to predict the expected return of a stock is the capital asset pricing model (CAPM). Analysts using CAPM rely on all of these except A. the risk-free rate available in the market. B. the standard deviation of the stock. C. the beta coefficient of the stock. D. the expected return on the market.

The standard deviation of the stock

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 earnings per share is $3, and the company is paying a $0.26 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 A. passive. B. value. C. contrarian. D. growth.

Value

All of the following are examples of a portfolio diversified through asset allocation except A. Daniel's portfolio, which consists of shares of common stock in 52 different corporations. B. Dawson's portfolio, which consists of shares of preferred stock, Treasury bonds, and Treasury bills. C. Daniella's portfolio, which consists of shares of common stock, municipal bonds, and money market funds. D. Dakota's portfolio, which consists of shares of common stock, corporate bonds, and jumbo CDs.

Daniel's portfolio, which consists of shares of common stock in 52 different corporations

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, the recommended strategy would be to A. go short an XUZ call. B. go long an XUZ call. C. go short an XUZ put. D. buy additional XUZ stock.

Go short an XUZ call

An investment adviser (IA) explaining modern portfolio theory (MPT) to a client might make all of the following statements except A. if two securities offer the same risk, choose the one with the higher return. B. if one security has a higher return than another and at the same time has a lower risk, choose it. C. if one security has a higher return than another and at the same time has a higher risk, choose it. D. if two securities offer the same rate of return, choose the one with the lower risk.

If one security has a higher return than another at the sane time has a higher risk, choose it.

Which of the following describes an investment management style? A. Margin B. Large capitalization C. Rebalancing D. Current income

Large capitalization

An optimal portfolio is one that A. offers the greatest reward for the highest risk. B. is diversified in such a manner as to nearly eliminate systematic risk. C. lies on the efficient frontier. D. works well in bull markets but suffers when there is a market reversal.

Lies on the efficient frontier

An adviser who does not believe he can time the market, or pick those securities that will outperform their benchmarks, would have which of the following as the most important portfolio consideration? A. Maximizing current income to provide a solid base for total return B. Selecting stocks that are expected to outperform their benchmarks C. Looking for asset classes that will outperform their benchmarks D. Minimizing investment expense and proper asset allocation

Minimizing investment expense and proper asset allocation

Proponents of which of the following technical theories assume that small investors are usually wrong? A. Short interest B. Breadth of market C. Odd lot D. Advance/decline

Odd lot

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? 1. Receiving cash distributions may reduce Customer A's proportional interest in the fund. 2. Customer A may use the cash distributions to purchase shares later at NAV. 3. Customer B's reinvestments purchase additional shares at NAV rather than at the offering price. 4. Due to compounding, Customer B's principal will be at greater risk.

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

A securities analyst does not believe that markets are highly efficient. This analyst most likely follows which of the following investing strategies? A. Tactical B. Indexing C. Strategic D. Passive

Tactical

Sector rotation would most likely be employed by an investment adviser using which of the following investment styles? A. Strategic B. Tactical C. Contrarian D. Buy and hold

Tactical

If the expected return on the market is 20% and the risk-free rate is 4%, a stock with a beta coefficient of 0.8 would have an expected rate of return under CAPM of A. 16.0%. B. 16.8%. C. 19.2%. D. 12.8%.

16.8%

Your client's child is entering college next year. Which of the following would be the most appropriate recommendation? A. A zero-coupon bond maturing in five years B. A large-cap growth fund C. A U.S. Treasury note mutual fund D. A five-year laddered portfolio of U.S. Treasury notes

A 5 yr laddered portfolio of U.S. Treasury notes

The use of futures to hedge against a price increase is best referred to as A. a long hedge. B. a trimmed hedge. C. a neutral hedge. D. a short hedge.

A long hedge

If an investor practices value investing, which of the following stock types is the investor least likely to purchase? A. A stock with an above-average price-to-earnings ratio B. A stock that has exhibited a high dividend yield in the past C. A stock with negative earnings in the most recent quarter D. A stock that is presently selling for ⅔ of net tangible assets

A stock w/ an above-average price-to-earnings ratio

The dividend discount model is A. based on the dividend payout ratio. B. the inverse of the price-to-earnings ratio. C. primarily used by technical analysts. D. an analytical tool used to value a common stock using the present value of future dividends.

An analytical tool used to value a common stock using the present value of future dividends

Published studies have shown that much of the performance of a portfolio can be attributed to which of the following factors? A. Asset allocation B. Other factors C. Market timing D. Security selection

Asset allocation

Which of the following bond strategies is the least active? A. Ladder B. Barbell C. Yield curve D. Bullet

Bullet

Your client owns 500 shares of RMBN purchased at $11.94 per share. The stock is now selling for $12.70 per share, and the client is concerned that the market may turn downward. You could suggest protecting the profit by A. buying five RMBN 12.50 calls. B. buying five RMBN 12.50 puts. C. selling five RMBN 12.50 puts. D. buy one RMBN 12.50 put.

Buying 5 RMBN 12.50 puts

In contrast to the strategic approach, tactical asset allocation A. continuously adjusts the asset allocation and class mix in an attempt to take advantage of changing market conditions. B. offers significant commission savings by generally qualifying for a lower commission schedule than a strategic manager. C. is used to determine an appropriate allocation based on the long-term financial goals of the client. D. consistently provides higher net returns whether the market is performing well or is in decline.

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

An investor does not wish to attempt to time the market, so she invests $300 each month into the GEMCO Growth Fund. Over the past five months, her purchase prices have been $10, $12, $15, $20, and $25. On the basis of this information, if she were to stop investing at this point and sell her shares two months from now when the net asset value (NAV) is $15 per share and the public offering price is $15.79, it would be correct to state that her A. proceeds were $15.79 per share. B. cost basis for tax purposes was $14.71. C. realized loss was $1.40 per share. D. average cost per share was $16.40.

Cost basis for tax purposes was $14.71

An analyst using the dividend growth model would take into account all of the following factors except A. the growth of the dividend. B. the current dividend. C. the investor's required rate of return. D. the current earnings per share.

The current earnings per share

A mutual fund investor is using a dollar cost averaging strategy. For the average price per share to exceed the investor's average cost, which of the following conditions must be present? 1. The market price per share fluctuates with each purchase. 2. A fixed dollar amount is invested at regular intervals. 3. A fixed number of shares is purchased monthly. 4. A constant dollar value is maintained in the account.

The market price per share fluctuates w/ each purchase and a fixed dollar amount is invested at regular intervals

As a technique in portfolio management, portfolio diversification reduces A. interest rate risk. B. unsystematic risk. C. systematic risk. D. market risk.

Unsystematic risk

According to the efficient market hypothesis, information found when reading The Wall Street Journal would be considered A. semistrong form market efficiency. B. random walk. C. weak form market efficiency. D. strong form market efficiency.

Weak form market efficiency