Read 54

Mr. and Mrs. Kash are 45 and 42 years old, respectively. They have two children, 15 and 17 years old. They are successful and highly paid professionals. They have two primary investment objectives, retirement and providing for their two children's education. They plan to retire when they turn 65 years old. Their wealth manager advised to invest 20 percent of their funds in assets that are most appropriate for meeting future liquidity needs. Which of the following is the most suitable security? Large-cap blue chip stocks, since they are less risky than the overall stock market. 20- to 30-year maturity Treasury bonds. 1- to 3-year maturity Treasury notes.

1 to 3 year maturity Treasury notes

The objective of tactical asset allocation is to: Rebalance the portfolio so its asset weightings are in line with the strategic asset allocation Use arbitrage strategies to exploit mispricing of one asset class against another asset class Add value to the strategic asset allocation by taking advantage of short-term mispricing of asset classes

Add value to the strategic asset allocation by taking advantage of short-term mispricing of asset classes

The slope of an efficient frontier decreases steadily as an investor moves up the frontier because: The portfolios become increasingly efficient as you move up the frontier. As an investor continues to take on more risk, the incremental return diminishes. An investor has to be rewarded for taking on additional risk by being given rapidly increasingly higher returns.

As an investor continues to take on more risk, the incremental return diminishes.

Which of the following statements is true? Statement 1: Well-reviewed performance expectations for certain asset classes may not be suitable for an investor based on his IPS. Statement 2: Through the efficient frontier, the manager identifies the portfolio that best meets the return or risk requirement of the investor. Statement 1 Statement 2 Both statements are true

Both are true

Which of the following is least likely true of strategic asset allocation? It is the set of exposures to IPS-permissible asset classes that is expected to achieve the client's long-term objectives given the client's investment constraints. Each asset class should have a high correlation with other asset classes. Asset classes should be mutually exclusive.

Each asset class should have a high correlation with other asset classes.

From a strategic asset allocation perspective, which of the following should the investor focus on? Interest rate volatility. Technology sector developments. A lawsuit filed against a company.

Interest Rate Volatility

Which of the following items would not likely be considered in an investment policy statement (IPS)? Liquidity constraints. Time horizon. Manager allocations.

Manager Allocations

Jane is currently in the process of allocating assets according to her new client's investment policy statement. She is engaging in which type of asset allocation practice? Tactical allocation. Strategic allocation. Portfolio allocation.

Strategic Allocation

A portfolio manager has an informed view that corporate deposits are not the best investment currently because of recent corporate governance issues in many companies. The manager who had earlier decided to invest in corporate deposits now prefers to invest in Treasury bills until the companies address their corporate governance issues. This action of the portfolio manager can most likely be classified as: Portfolio rebalancing. Tactical asset allocation. Risk budgeting.

Tactical Asset Allocation

Taking advantage of perceived short-term opportunities by deviating from strategic asset allocation weights is: Security selection. Tactical asset allocation. This is not possible.

Tactical Asset Allocation

Which of the following is least likely a consideration when defining asset classes? Asset classes should cover all investment alternatives. The correlation among assets within a class should be relatively low. The correlation among different asset classes should be relatively low.

The correlation among assets within a class should be relatively low.

Which of the following statements is false? The strategic asset allocation is required to create the IPS. Investments considered for strategic asset allocation include both traditional and alternative investments. Allocations of the included assets classes are stated in the strategic asset allocation

The strategic asset allocation

A stock that lies above the security market line is: underpriced, as its return calculated based on CAPM is less than the forecasted return. overpriced, as its return calculated based on CAPM is greater than the forecasted return. correctly priced, as its return calculated based on CAPM is equal to the forecasted return.

Underpriced

An efficient portfolio is a portfolio that offers the: highest risk for a given level of return. highest return for a given level of risk. highest return against a preselected benchmark.

highest return for a given level of risk