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
