65 - Unit 20
small-cap is those with a market cap in
$300 million to $2 billion
Which of the following is associated with passive investment management approaches?
Belief in efficient markets Use of index investing Belief in the random walk theory
Two contrasting styles of portfolio management are growth and value. Which of the following pairs best describes the contrast?
Earnings momentum/book value
Which of the following statements are generally TRUE of the buy-and-hold strategy?
Equities would grow relative to fixed income Lower taxes and transactional costs Easy to manage
EMH - Weak - Will Work
Fundamental Analysis and Insider information
An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following?
Index funds
The capital asset pricing model (CAPM) forumla
Risk Free Rate + (Market Return - Risk Free Rate) x Beta
EMH - Weak - Wont Work
Technical Analysis
Probable return is
an estimate of all of the possible returns an investment is expected to yield
Short stock is
bearish
buying a call is
bearish
buying a put is
bearish
A long stock position is
bullish
Emanuel owns 500 shares of IJKL common stock with a cost basis of $63 per share. IJKL is now priced at $82 and Emanuel is concerned that the stock may suffer a sharp decline in the near term. As his IAR, you would suggest his best move to protect his profit would be to
buy 5 IJKL 80 put options.
Among investing strategies, it is hard to find one more passive than
buy and hold
large-cap is those with a market cap in
excess of $10 billion
MPT preaches that investors will always seek
highest return commensurate with the lowest risk.
In a Monete Carlo simulation, Small changes in the projected rate of return will make
large differences in the outcome.
A successful dollar cost averaging strategy requires
volatile market conditions a fixed dollar amount invested monthly
Hedge a Short Stock By
Purchasing a call
EMH - Semi Strong - Wont Work
Technical Analysis and Fundamental Analysis
A stock's market capitalization is
determined by multiplying the price per share times the number of outstanding common shares.
Hedge a Long Stock By
Purchasing a put
EMH - Strong - Will Work
Random Walk
An investor is short stock at 60. The current market price of the stock is 35, and he anticipates it will continue to decline. If he thinks the price will rise temporarily and if he does not wish to close out his short position, his best strategy to prevent a loss would be to
buy an XYZ 35 call
One of the most significant risks taken by bond investors is interest rate risk. All of these steps could be used to mitigate the effects of this risk EXCEPT
buying bonds of highest quality
Arthur M. Munger recently joined Piedmont Partners LLP as an analyst and is curious about modern portfolio theory (MPT). He approaches his senior, Sarah, to describe MPT. Sarah tells Arthur that MPT suggests that
by combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks.
An increase in the earnings per share growth rate from one reporting period to the next is called
earnings momentum.
Which of the following is a characteristic of the active management approach to investing?
Attempt to predict market changes Higher expenses as compared to passive approaches Focus on beating the market
Which of the following is NOT associated with passive investment management approaches?
Goal of beating the market
Which of the following statements is correct in relation to the efficient frontier?
It represents the maximum return for a given level of risk.
Long Stock
Lose money when stock goes down
EMH - Strong - Wont Work
Technical Analysis and Fundamental Analysis and Insider information
An investment adviser representative may describe dollar cost averaging to a customer as
a funding technique that will cause the average cost per share to be less than the average price per share
Dollar cost averaging is beneficial to the client because
it achieves an average cost per share, which is less than the average price per share.
What investment style is employed by a portfolio manager whose list of eligible securities includes only those with a market capitalization in excess of $20 billion?
Large-cap
Short Stock
Lose money when stock goes up
Automatic reinvestment is always at
NAV.
Best way to reduce volatility of your clients portfolio is a correlation coefficient that is
Negative or lowest
definition of the strong form EMH
"Stock prices fully reflect all information from public and private sources,"
mid-cap is those with a market cap in
$2 billion to $10 billion range
micro-cap is those with a market cap in
$50 million to $300 million
Beta is a measure of
relative systematic risk for stock or portfolio returns
Hedging is best accomplished by
taking a long position with a market view opposite that of the position held.
Which of the following forms of the efficient market hypothesis claims that technical analysis works?
technical analysis
weak form claims
that fundamental analysis works
semi-strong form claims
that inside information works
The standard benchmark used to measure the "risk-free" rate of return is
the 91-day Treasury bill.
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
The optimal portfolio for an investor will always lie on
the efficient frontier
The goal of modern portfolio theory (MPT) is to construct the most efficient portfolio. An efficient portfolio is one that offers
the least risk for a given amount of return
The purpose of the efficient frontier is to plot the most efficient portfolios. An efficient portfolio is one that offers:
the most return for a given amount of risk or the least risk for a given amount of return.
If the customer elects to receive distributions in cash while other investors purchase shares through reinvestment
the proportional interest in the fund will decline.
An efficient market is one in which
very individual can quickly obtain and use information about new events in the marketplace.
The risk/return pyramid places commodities at the
very top, the point of the pyramid.
A new client's principal objective is income with a moderate degree of capital preservation. When reviewing his existing portfolio, you notice that the client's bond holdings are evenly split between those maturing in the next 1 to 2 years and those maturing in the next 10 to 11 years. This indicates that the client has been using which of the following strategies?
Barbell
Best way to increase volatility of your clients portfolio is a correlation coefficient that is
Highest
EMH - Semi Strong - Will Work
Insider information
Which of the following does refer to a style of investing
Passive Value Growth
Two portfolios have the same expected return of 10%. Portfolio A has a standard deviation of 5% and Portfolio B has a standard deviation of 18%. Under modern portfolio theory (MPT),
Portfolio A would be preferred by investors because the portfolio has the same return as Portfolio B but bears less risk
An investor wants to moderate overall portfolio risk and return profile with assets that have a low correlation to traditional asset classes. Which of the following is an appropriate asset class for the investor?
Private equity