CIMA ?s

What is the terminal value of an investment in which you invest $400,000 up front and make additional payments of $60,000 at the beginning of each year for the next 5 years? Assume the annual interest rate is 11.5%. $780,500 $1,110,144 $1,314,547 $1,066,743

$1,110,144. CIMA Section I.B.1. Time Value of Money Calculate the terminal (future) value of an annuity due. Select "beg" on calculator (or applicable setting on your calculator to set the payments at the "beginning" of each period). PV = -$400,000 PMT = -$60,000 n = 5 i = 11.5% Solve for FV... = $1,110,144.

Sean and Susan are methodical savers and you've worked with them for exactly 10 years now. When you met them, they already had $400,000 saved for retirement. They turned that account over to you to manage. Additionally, they invested another $50,000 a year over the last decade and just made a large contribution of $150,000 in the account as well. Despite the highly volatile market and given your talents and your ability to manage yours and your client's emotions during bear markets, the account returned 9.7% net of fees and expenses. Inflation was a modest 2.2% over that same period. What is the value of the account today after adjusting for the impact of inflation? $1,531,767 $1,664,241 $1,681,767 $1,514,241

$1,664,241 Using a financial calculator.... PV = -$400,000 PMT = -$50,000 "i" or "r" = 7.34% ((1.097/1.022)-1)N = 10 (years) Solve for FV.... = $1,514,240 + $150,000 contribution at end of year 10.

What is the present value of an investment that is made for 12 years, has gross annual returns of 11% that are compounded quarterly in a period where inflation averages 2.2%, and eventually pays $400,000 at the end of the term? $170,159 $145,383 $148,464 $143,916

$143,916 Using a financial calculator... FV = -$400,000 "i" or "r" = (1.11%/1.022%)-1 = 8.61%/4 = 2.1525% N = 12 years x 4 quarters = 48 periods Solve for PV..... = $143,916.

The Great Big Bull mutual fund had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000 shares in the fund at year-end. What was this fund's net asset value? $11.11 $18.11 $19.51 $18.81

$18.11 (457,000,000 - 17,000,000)/24,300,000 = $18.11

Big Money mutual fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year-end. What was this mutual fund's NAV? $26.01 $21.56 $28.17 $25.24

$26.01 (862,000,000 - 12,000,000)/32,675,254 = $26.01

Investors' Choice Fund had NAV per share of $37.25 on January 1, 2009. On December 31 of the same year the fund's rate of return for the year was 17.3%. Income distributions were $1.14, and the fund had capital gain distributions of $1.35. Without considering taxes and transactions costs, what ending NAV would you calculate for Investors' Choice? $41.20 $43.69 $42.03 $33.88

$41.20 .173 = (P - $37.25 + 1.14 + 1.35)/$37.25; P = $41.20

What is the present value of an investment that is tied up for 17 years, pays 8.5% compounded semi-annually, and eventually pays $400,000 at the end of the term? $95,737 $97,157 $99,943 $94,780

$97,157 Using a financial calculator... FV = -$400,000 "i" or "r" = 4.25% N = 34 Solve for PV... = $97,157

Quantify the price elasticity of demand if the price of an insurance product rises by 4% and the subsequent change in demand decreases by 2%. 0.50 -2.00 2.00 -0.50

-0.50 The price elasticity of demand = % change in quantity demanded / the % change in price. -2% / +4% = -0.50

Calculate the variance of the following returns for Clean Energy fund in its only years: Year 1 = 8% Year 2 = -7% Year 3 = 11% Year 4 = 22% .0850 .0429 .0143 .0107

.0107 . Solve by calculating the mean first: .08 + -.07 + .11 + .22 = .34; .34/4 = .0850 Plug into the variance equation from the formula sheet: [(.08-.085) +(-.07 -.085) +(.11 -.085) +(.22 -.085) ] = .0429 .0429 divided by (n) 4 = .0107

Tech Fund has a standard deviation of 14.96 and Energy Fund has a standard deviation of 12.43. What is the correlation coefficient between the two investments below? Year Tech Fund Energy Fund 1 36.45, 14.10 2 -5.17, 15.17 3 12.46, -15.70 4 9.10, 2.20 .0694 .1290 .5159 .6199

.0694. First, calculate the average returns of both funds. Tech Fund = 13.21. Energy Fund = 3.94. Now take the differences between the tech fund's single and average returns and multiply by the differences between the energy fund's single and average returns. [(36.45 - 13.21) x (14.10 - 3.94)] + [(-5.17 - 13.21) x (15.17 - 3.94)] + [(12.46 - 13.21) x (-15.70 - 3.94)] + [(9.10 - 13.21) x (2.20 - 3.94)] = (236.12) + (-206.410) + (14.73) + (7.15) = 51.59/4 = 12.90. Second, calculate the correlation coefficient by plugging in the covariance you calculated into the formula: correlation coefficient = [(covarianceAB)/(standard deviationA x standard deviationB)] = 12.90/(14.96 x 12.43) = 12.90/185.95 = .0694.

What is the standard deviation of a portfolio that has a variance of .072? .0196 .2140 .2683 .0052

.2683 . Standard deviation is the square root of variance.

The frontier markets fund you're tracking has an expected return of 16.8% and a standard deviation of 21.7%. The S&P 500 index has an expected return of 9.7% and a standard deviation of 12.5%. The covariance between the two is .0123. What is the correlation between the two? 0.0092 1.3249 0.4535 0.5844

0.4535. The Coefficient of Correlation = Covariance divided by the product of the standard deviations of the two assets = 0.0123 / (0.217 * 0.125) = 0.4535.

Consider the following probability distribution for stocks A and B: The coefficient of correlation between A and B is: State Probability Return on Stock A Return on Stock B 1 0.10, 10%, 8% 2 0.20, 13%, 7% 3 0.20, 12%, 6% 4 0.30, 14%, 9% 5 0.20, 15%, 8% The coefficient of correlation between A and B is: 0.60. 1.20. 0.58. 0.46.

0.46. covA,B = 0.1(10% - 13.2%)(8% - 7.7%) + 0.2(13% - 13.2%)(7% - 7.7%) + 0.2(12% - 13.2%)(6% - 7.7%) + 0.3(14% - 13.2%)(9% - 7.7%) + 0.2(15% - 13.2%)(8% - 7.7%) = 0.76; rA,B = 0.76/[(1.1)(1.5)] = 0.46.

Ken wants to retire in 13 years, and he has saved $400,000 to date. He expects he'll need $1,000,000 in today's dollars to retire in a manner that suits him. Ken does not want to make any additional contributions to his retirement account. He expects inflation to stay at 3% a year for those 13 years. What nominal annual rate of return does Ken need to earn in order to accomplish this goal? 8.61% 7.30% 10.52% 11.84%

10.52% There are several ways to get to the answer. Using a financial calculator, you may first compute the FV of $1 million in 13 years using 3% inflation.... = $1,468,534. Now solve for "i"... using $400k as PV, 13 as N (years), and $1.468m as FV. Ken needs a nominal return of 10.52% annually to achieve his goal.

Calculate the expected return of the following scenario. Probability Risk Return .20 .20 .10 .45 .30 .08 .25 .25 .18 .10 .15 .06 10.70% 4.22% 2.675% 25.25%

10.70% Expected Return = Sum [probability of state x the return if state occurs] Calculation: 20% x 10% = 2.0% 45% x 8% = 3.6% 25% x 18% = 4.5% 10% x 6% = 0.6% Then 2% + 3.6% + 4.5% = 0.6% = 10.70%

A bank proudly advertises that it only charges customers 12.5% interest. Interest is compounded monthly. What is the effective annual rate of this program? 13.24% 11.16% 12.50% 14.00%

13.24%. CIMA Section I.B.1. Time Value of Money From the CIMA Formula Sheet for Effective Annual Return, EAR = [1 + (R /n)] -1 = [1 + (0.125/12)] - 1 = [1.04167] - 1 = 1.1324 - 1 = 0.1324 = 13.24%

You are evaluating an Asian technology fund that has an average return of 15% and a standard deviation of 25%. If the portfolio has a beta of 1.4, what is the closest approximate probability that the fund will have a return of -10% or worse for the year? 12.50% 15.87% 25.00% 31.74%

15.87%. With a 15% mean return and 25% standard deviation, under anormal distribution we could expect 68.26% of the outcomes to fallwithin plus or minus one standard deviation of the mean orbetween -10% (the left boundary = 15% - 25%) and 40% (the rightboundary = 15% + 25%). As a result, the remaining 31.74% would fall either below -10% ORabove 40%. The observations falling in the left tail half (below-10%) would therefore represent 31.74%/2 = 15.87%. If IWI asks a question that requires a z-table, them the table will beprovided. But if you understand the basic cases we've illustratedin the CIMA Cert Exam Section I.A. Stat Prep Slides, you shouldbe able to calculate any similar question without a z-table (likeabove). Test Tip : as is true here, often the particular multiple-choiceoptions will help narrow down the choices and no lengthycalculation is even needed.

The CleanTech Energy Fund has a standard deviation of 11% and an annual expected return of 9%. What is the approximate probability of this fund's annual performance being above 20% in any given year going forward? 16% 68% 8% 32%

16%. Solution: See Yale CIMA Cert-Exam Section I.A. Statistics Prep Slide 32. Average return of 9% + one standard deviation of 11% = 20%. And on the downside, an average annual return of 9% - 11% = -2%. Thus, considering one standard deviation the portfolio return (68% of iterations) is likely to fall within a range of +20% to -2%. There is then a 32% chance of the fund's return being above 20% or below -2% in a given year. We're only concerned with the possibility of the return being greater than 20%, so we only need to consider half of the 32% which is 16%. More technically described: We know that in a normal distribution, 68.26 of the outcomes fall between: the mean less one standard deviation (i.e., μ - 1σ) on the left side and; the mean plus one standard deviation (i.e., μ + 1σ) on the left side and; that means that the remaining outcomes are split evenly between the left side or tail (i.e., those less than μ - 1σ and the right side or tail (i.e., those above μ + 1σ). Thus, each tail represents half of the outside outcomes or, in these problems, (100%-68.26)/2 = 15.87% ≈ 16% of the outcomes.

You are evaluating an emerging markets fund that has an average return of 16% and a standard deviation of 8%. If the portfolio has a beta of 1.25, what is the closest approximate probability that the fund will have a negative return for the year? 1.25% 2.50% 5.00% 3.75%

2.50%. Average return of 16% - 8% - 8% = 0% (low) or 16% + 8% + 8% = 32% (high) at 2 standard deviations from average. That leaves a 5% chance of the return falling outside of that range (i.e., greater than 16% or less than zero). 5% divided by 2 (to capture the lower range) = 2.5% chance.

Over the past year you earned a nominal rate of interest of 8 percent on your money. The inflation rate was 4 percent over the same period. The exact actual growth rate of your purchasing power was: 3.85% 4.85% 4.00% 4.20%

3.85% CIMA Section I.B.1. Time Value of Money r = (1+R)/(1+I) -1 1.08%/1.04% - 1 = 3.85%

"The Little Fund that Could" mutual fund had year-end assets of $279,000,000 and liabilities of $43,000,000. If this fund's NAV was $42.13, how many shares must have been held in the fund? 6,622,359 6,488,372 5,601,709 5,402,761

5,601,709 ($279,000,000 - 43,000,000)/$42.13 = 5,601,708.996

For an investment that provides a 1.25% return quarterly, its effective annual rate is: 5.09% 4.04% 5.23% 4.02%

5.09% CIMA Section I.B.1. Time Value of Money From the CIMA Formula Sheet for Effective Annual Return, EAR = [1 + (R /n)] -1 = [1 + (0.0125)] -1 = 1.0509 - 1 = 0.0509 = 5.09% Note that the periodic (i.e., quarterly) return represented by R /n has already been provided as 1.25%).

The monthly standard deviation of a portfolio has been calculated to be 1.89. Convert this monthly standard deviation to annualized standard deviation. 3.78 4.63 6.55 22.68

6.55. Multiply 1.89 by the square root of 12. (1.89) x (3.4641) = 6.5472

Given the following data points: 4.8, 5.6, 7.1, 8.4, and 11.9 ... which of the following choices below accurately reflects the mean (listed first) and median (listed second) of the set? 7.10, 7.56 7.10, 7.10 7.56, 7.56 7.56, 7.10

7.56, 7.10. The mean = (4.8+5.6+7.1+8.4+11.9)/5. = 7.56 The median is the central most data point. = 7.10

You made an investment of $213,000 and 16 years later you sold it for $787,000. What was your internal rate of return (IRR)? 12.0% 16.8% 4.6% 8.5%

8.5% CIMA Section I.B.1. Time Value of Money Using a financial calculator... PV = -$213,000 FV = $787,000 N = 16 years Solve for "i" or "r" ... = 8.5%.

Real estate investment trusts (REITs) must typically distribute what percentage of income received to their shareholders to maintain their special tax status? 70%+ 90%+ 60%+ 80%+

90%+ Real estate investment trusts (REITs) must typically distribute 90%+ of income received to their shareholders to maintain their special tax status.

You invested in the Sacred Poodle mutual fund 7 years ago. The fund did very well, returning an average annual return of 11.1% gross of fees and expenses. Which of the following share choices below would have returned the highest amount to you (the investor) if you held the fund shares the entire 7 years? Z-shares with no sales charges and annual operating expenses of 0.40, and you paid an investment advisor 0.75% annually to manage the account C-shares with no up-front sales charge, a back-end sales charge of 2% within the first 5 years, and annual operating expenses of 1.35% B-shares with no up-front sales charge, annual operating expenses of .75% and with a 12 b-1 charge of 0.50% annually A-shares with an up-front sales charge of 3.5% and annual operating expenses of 0.45%

A-shares with an up-front sales charge of 3.5% and annual operating expenses of 0.45% Assume a hypothetical lump-sum investment of $1,000. A-shares = ($1,000 x (1 - 3.5%) = $965. PV = 965, i = 10.65 (11.1 - 0.45), N = 7. FV = $1,960 B-shares = PV = $1,000, i = 9.85 (11.1 - 0.75 - 0.50), N = 7. FV = $1,930 C-shares = PV = $1,000, i = 9.75 (11.1 - 1.35), N = 7. FV = $1,918 Z-shares = PV = $1,000, i = 9.95 (11.1 - 1.15), N = 7. FV = $1,942

Which of the following is not accurate? The effective rate adjusted for inflation where 16.55% is the annual return and 3.1% is inflation is equal to 13.05%. An investment paying 0.90% monthly is equivalent to an annual effective return of 11.99%. The effective rate adjusted for inflation where 7.89% is the annual return and 2.47% is inflation is equal to 5.29%. An investment paying 2.50% quarterly is equivalent to an annual effective return of 10.38%.

An investment paying 0.90% monthly is equivalent to an annual effective return of 11.99%. The effective rate adjusted for inflation where 7.89% is the annual return and 2.47% is inflation is equal to 5.29%. ((1.0789)/(1.0247))-1 = 5.29%. An investment paying 2.50% quarterly is equivalent to an annual effective return of 10.38%. (1.0250) - 1 = 10.38%. The effective rate adjusted for inflation where 16.55% is the annual return and 3.1% is inflation is equal to 13.05%. ((1.1655)/(1.031))-1 = 13.05%. An investment paying 0.90% monthly is equivalent to an annual effective return of 11.35%. (1.009) - 1 = 11.35%.

There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below: Stock Strong Growth Moderate Growth Weak Growth A 39% 17% -5% B 30% 15% 0% C 6% 14% 22% If you invested in an equally weighted portfolio of stocks A, B, and C, your portfolio return would be ___________ if economic growth were weak. A. 15.33% B. 5.66% C. 8.99% D. 25.00%

B. E(Rp) = 0.333(-5%) + 0.333(0%) + 0.333(22%) = 5.66%

One, two and three standard deviations represent what percent of data events in a normal distribution? A. 67.51%, 94.26% and 98.15% B. 68.26%, 95.44% and 99.74% C. 99.26%, 94.17% and 67.36% D. 99.74%, 95.44% and 68.36%

B. Remembering these should help you analyze and answer at least one or two questions on your certification exam that ask you to determine probabilities of some event (e.g., portfolio gain or loss).

You are studying the returns of two mutual funds. Which of the following statements below is accurate? Fund Year 1 Year 2 Year 3 Year 4 Year 5 A 10.23% 14.26% 13.17% -2.69% 5.46% B 8.35% 2.05% 16.08% 13.33% -11.11% A. Fund A has the lower standard deviation and lower average return. B. Fund B has the lower standard deviation and higher average return. C. Fund A has the lower standard deviation and higher average return. D. Fund B has the lower standard deviation and lower average return.

C. You can calculate the standard deviations by averaging the returns; subtracting the average from each of the returns; squaring each; adding all of those squared differences; dividing that sum by 4 (N-1); and taking the square root - per the formula for standard deviation on the CIMA formula sheet. Mean of A = 8.086 with SD of A = 6.92062. Mean of B = 5.74 with SD of B = 10.82675. So, Fund A has the lower standard deviation. Or you may use your financial calculator which is much quicker.

Which of the following produced the most efficient risk-to-reward relationship as evidenced by its Sharpe ratio? long-term bonds during an increasingly inflationary period high-yield bonds during market corrections municipal bonds during financial crisis intermediate-term bonds during a disinflationary period

CIMA Section I.C. Global Capital Markets History and Valuation; see CIMA text page 293. It's important to understand the historical returns of major investment types, styles and asset classes in different economic conditions (e.g., inflation, deflation, growth, economic decline, etc.).

During the most recent financial crisis, which of the following statements accurately reflects the correlations of assets? All correlations rose to 1.00. Correlations on most asset classes rose significantly, offering less protection against price declines even for well diversified investors. Correlations between many asset classes decreased significantly, offering protection for most investors with well diversified portfolios. The correlations on most asset classes and investment strategies held to their long-term averages over the two-year route despite short deviations from those averages at the height of the crisis.

Correlations on most asset classes rose significantly, offering less protection against price declines even for well diversified investors. The correlations between most major asset classes rose significantly in the last financial crisis, offering less protection against price declines than had been expected by those investing in well diversified portfolios. That being said, not all correlations rose, and they certainly did not rise to 1.00.

The mid-cap blend fund you're tracking has an expected return of 9.7% and a standard deviation of 14.1%. The S&P 400 mid-cap index has an expected return of 8.9% and a standard deviation of 15.0%. The correlation between the two is .88. What is the covariance between the two? A. 0.0076 B. 0.0086 C. 0.0212 D. 0.0186

D. Covariance = correlation of .88 multiplied by the standard deviation of the fund (.141) multiplied by the standard deviation of the index (.15) = 0.0186.

Bobby Thompson is considering buying a real estate property that would generate the following cash flows: year 1 = +45,000, year 2 = +75,000, year 3 = +$110,000, year 4 = $130,000. Bobby believes he can sell it after 4 years for $2,500,000. Bobby's required rate of return for a project like this is 9% per year. After crunching the numbers you tell Bobby the following: Don't pay more than $2,502,905 for the investment. Don't pay more than $2,205,502 for the investment. Don't pay more than $2,052,509 for the investment. Don't pay more than $2,000,000 for the investment.

Don't pay more than $2,052,509 for the investment. Enter the initial investment in year 0 as $0; enter the following cash flows for years 1 through 4: $45,000, $75,000, $110,000, and $2,630,000. Enter 9% for "i". Solve for NPV which is $2.0525 million. Bobby should not pay more than this amount to achieve his required rate of return.

Your long-time client Sally Jaworski has just sold one of her businesses and is interested in investing in an opportunity recently presented to her. The potential investment is in a privately held corporation that would require an up-front investment but would also require annual investments of $200,000, $100,000 and $50,000 at the end of years 2 through 4, respectively. Cash flow from the operation is expected to be $50,000, $100,000, and $200,000 at the end of years two through four, respectively. The terminal value of the investment is expected to be $900,000 at the end of year four. Sally's required rate of return for a project comparable to this one is 11%. What would you advise Sally to do? Don't pay more than $569,924 for the investment. Don't pay more than $765,021 for the investment. Don't pay more than $1,050,000 for the investment. Don't pay more than $900,000 for the investment.

Don't pay more than $569,924 for the investment. Enter the initial investment in year 0 as $0; enter the following cash flows for years 1 through 4: $0, $-150,000, $0, +$1,050,000. Enter 11% for "i". Solve for NPV... = $569,924. Sally should not pay more than this amount to achieve her required rate of return based on the information and assumptions made.

Which of the following is not accurate or true regarding Exchange Traded Notes (ETNs)? ETNs pay interest and a cash payment at maturity linked to performance. ETNs are backed solely by the credit of the issuer. ETNs are not rated. ETNs do not offer voting rights.

ETNs pay interest and a cash payment at maturity linked to performance. Most ETNs do not pay interest; rather they pay a cash payment at maturity that is linked to the performance of the underlying benchmark or index.

___________ is referred to as the sensitivity of a change in quantity for a given change in price. The formula for calculating this sensitivity is ___________________. Demand shock, change in input divided by change in output Monetary policy, change in price divided by change in policy Elasticity, change in quantity divided by change in price Supply-side economics, change in inflation divided by change in growth

Elasticity, change in quantity divided by change in price CIMA Section I.B.2. Economics; see test-prep slide on "elasticity" Elasticity is the sensitivity of the change in quantity for a given change in the price of a good. It is the ratio of the percentage change in the quantity to the percentage change in the price.

You are studying the returns of two mutual funds. Which of the following statements below is accurate? Fund Year-1 Year-2 Year-3 Year-4 Year-5 A 6.23% 17.56% -9.16% 5.45% 7.19% B 0.25% -7.21% 14.69% 22.78% 8.96% Fund A has the lower standard deviation. Both funds have the same standard deviation. Standard deviations cannot be calculated from this data. Fund B has the lower standard deviation.

Fund A has the lower standard deviation. You can calculate the standard deviations by averaging the returns; subtracting the average from each of the returns; squaring each; dividing by 4 (N-1); and taking the square root - per the formula for standard deviation on the CIMA formula sheet. Mean of A = 5.454 with SD of A = 9.5360. Mean of B = 7.894 with SD of B = 11.7843. So, Fund A has the lower standard deviation. Or you may use your financial calculator which is much quicker.

Which of the following is not accurate regarding Keynesian theory.... In the event of lower aggregate demand, lower wages result in lower spending, hence affecting demand further. Very low interest rates would not stimulate the economy because confidence would be too low. Government intervention may cause a boom-and-bust cycle. Government should intervene in a crisis, running a deficit.

Government intervention may cause a boom-and-bust cycle. Government should intervene in a crisis, running a deficit. Keynesian Theory of Business Cycles In the event of lower aggregate demand, lower wages result in lower spending, hence affecting demand further. Very low interest rates would not stimulate the economy because confidence would be too low. Government should intervene in a crisis, running a deficit. Criticisms of this theory: Government debt could get out of control. Expansionary policy may cause the economy to grow too fast, resulting in inflation and other ills. It takes time for fiscal policies to work, so they may be ill timed for a short-term crisis. The Austrian School of Economic thought believes that government intervention can cause boom and bust cycles.

Which of the statements below is a proposition that a strong proponent of supply-side economics would most likely stress? Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly. Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues. Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits. A tax reduction will increase the disposable income of households; thus, the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits. Solution : CIMA Section I.B.2. Economics; see test-prep slides formore information on demand-side and supply-side economictheory. Supply-side economists focus on incentives and marginal taxrates. Remember that supply-siders believe that incentives should befocused on the producers (suppliers) of goods and services. So,any fiscal or monetary policy that will encourage more productionshould (all else held equal) improve efficiencies and ultimatelybring prices down; and that will encourage more consumption. So,supply-siders typically prefer for barriers (e.g., taxes, restrictiveregulation, tariffs, etc.) to be lowered or removed to encouragemore output. So, a couple of different answer choices look viable. The answerchoice stating: "Higher marginal tax rates promote economicinefficiency and thereby retard aggregate output as theyencourage investors to undertake low productivity projects withsubstantial tax shelter benefits." very clearly supports a supply-sider's views in that higher taxes hurt productivity and growth. And the answer choice stating: "A tax reduction will increase thedisposable income of households, and thus, the primary impact ofa tax reduction on aggregate supply will stem from the influence ofthe tax change on the size of the budget deficit or surplus." lookspretty good too; but appears to focus as much on consumerdemand ("increase in disposable income") as it does theproducers.

Which of the following statements about international investing are accurate? I. Investing in ADRs is typically an attractive way to invest in international companies. II. Hedging broadly diversified international equity positions is not typically a necessary strategy to manage currency risk. III. Hedging broadly diversified international bond positions is not typically an essential strategy to manage currency risk. IV. Investing in multi-national companies offers strong international diversification benefits. III and IV only II and III only IV and I only I and II only

I and II only Investing in ADRs is typically an attractive way to invest in international companies (CIMA text, page 266). Hedging broadly diversified international equity positions is not typically a necessary strategy to manage currency risk (CIMA text, page 261). Hedging broadly diversified international bond positions is typically considered a necessary strategy to manage risk (CIMA text, page 303). Investing in most multi-national companies does not offer strong international diversification benefits (CIMA text, page 268).

The process of marking-to-market: I. posts gains or losses to each account daily. II. may result in margin calls. III. impacts only long positions and futures contracts. IV. increases liquidity but decreases transparency. II and III only III and IV only IV and I only I and II only

I and II only Marking-to-market typically involves posting prices on no less than a daily basis. Marking-to-market effectively puts futures contracts on a "pay as you go" basis.

regarding correlation coefficients are accurate? I. When two stocks have a correlation coefficient that is greater than zero but less than 1.00, it means that they have a positive correlation and there may be some benefit through diversification. II. Mutual fund A and mutual fund B have a correlation coefficient of -0.89. This indicates beneficial diversification given the low level of positive correlation or association between these funds. III. In a situation where two investments have a perfectly negative correlation coefficient of -1.00, the variance or standard deviation would be zero in a perfectly balanced portfolio allocation. IV. A portfolio of investments that exhibits a vast range of correlation coefficients from 0.20 to 0.60 would be considered highly diversified and ensure a very low risk level as measured by standard deviation. II and III only I and III only II and IV only I and II only

I and III only. I. TRUE: When two stocks have a correlation coefficient that is greater than zero but less than 1.00, it means that they have a positive correlation and there may be some benefit through diversification. II. FALSE: Mutual fund A and mutual fund B have a correlation coefficient of -0.89. This indicates beneficial diversification given the low level of positive correlation or association between these funds. THESE FUNDS DO NOT HAVE A POSITIVE CORRELATION TO EACH OTHER. III. TRUE: In a situation where two investments have a perfectly negative correlation coefficient of -1.00, the variance or standard deviation would be zero in a perfectly balanced portfolio allocation. The negative correlation relates to positive and negative movements from a mean, and thus can equal positive or negative returns. But the variance or standard deviation of those returns would be zero. IV. FALSE: A portfolio of investments that exhibits a vast range of correlation coefficients from 0.20 to 0.60 would be considered highly diversified and ensure a very low risk level as measured by standard deviation. THE RISK LEVELS OF THESE INVESTMENTS COULD ALL BE VERY HIGH INDIVIDUALLY; AND WHILE DIVERSIFICATION MAY BRING THE PORTFOLIO'S STANDARD DEVIATION DOWN, IT MAY STILL BE VERY HIGH AND CONSIDERED RISKY.

Which of the following statements are not accurate? I. Monthly standard deviations of stock returns are higher than annual standard deviations. II. Standard deviations of individual securities are generally higher than the standard deviation of the market. III. Variance is the square root of standard deviation. IV. Semi-variance is the average of the squared deviations of all values less than the average or mean. I and IV only II and IV only II and III only I and III only

I and III only. Monthly standard deviations of stock returns are lower than annual standard deviations. Standard deviations of individual securities are generally higher than the standard deviation of the market. Standard deviation is the square root of variance. Semi-variance is the average of the squared deviations of all values less than the average or mean.

The following statements are correct or accurate regarding the disadvantages of Monte Carlo simulation ("MCS"). I. MCS generates a normal distribution which is not always realistic and can create overconfidence. II. MCS often leads to developing overly conservative portfolios. III. MCS models are not built to allow for a wide range of inputs (e.g., factors, expectations, etc.). IV. MCS models assumes efficient markets. I, II and III only II and III only I and IV only I, III and IV only

I, III and IV only. Monte Carlo Simulation Defined Statistical modeling method used to approximate the probability of future outcomes through multiple trials (simulations) using random variables Advantages Can help one visualize and understand variability of future growth (and returns); offers a way to analyze risk; powerful tool for illustrating a variety of possible outcomes that could be useful in planning Disadvantages Generates a normal distribution where the most likely scenario is found in the middle of the events - this is not always realistic and can create overconfidence which may lead to developing overly aggressive, risky portfolios; these models are not built to allow for a wide range of inputs: factors, expectations, etc.; model assumes efficient markets

Which of the following is accurate regarding variance? I. a high variance means that data points are not very spread out II. variance is always non-negative III. defined as the average squared difference between the mean and each item in the population or sample II and III only I only all of the above I and III only

II and III only. Variance Defined: Measures how far a set of numbers is spread out. Defined as the average squared difference between the mean and each item in the population or in the sample. Variance is always non-negative. Drawback: variance gives added weight to outliers since squaring the numbers can skew interpretations. Standard deviation is easier to use and understand. Application of Variance: A high variance means that data points are very spread out. Variance value of zero means that all values within the set are identical.

Which of the following statements are incorrect about American Depository Receipts (ADRs)? I. represent shares of ownership in a foreign stock traded on a U.S. exchange II. do not eliminate currency risk of underlying shares in another country III. denominated in foreign currency IV. negotiable certificate or note issued by local foreign bank\ I and III only IV and II only III and IV only II and I only

III and IV only ADRs are denominated in U.S. dollars. ADRs are negotiable certificates or notes issued by a U.S. bank. ADRs represent shares of ownership in a foreign stock traded on a US exchange. ADRs do not eliminate currency risk of underlying shares in another country.

Which of the following statements about mutual funds is/are incorrect? I. Mutual funds may be considered pass-through entities for tax purposes. II. Income plus capital gains distributions plus appreciation divided by the fund's initial net asset value (NAV) equals the rate of return on a mutual fund. III. Open-ended funds are priced at a premium or discount to NAV. IV. Closed-end funds issue new shares when investors buy in and redeem shares when investors cash out. IV only I and III only II, III, and IV only III and IV only

III and IV only Mutual funds may be considered pass-through entities for tax purposes. Income plus capital gains distributions plus appreciation divided by the fund's initial net asset value (NAV) equals the rate of return on a mutual fund. Closed-end funds are priced at a premium or discount to NAV. Open-ended funds issue new shares when investors buy in and redeem shares when investors cash out.

Which of the following statements are typically accurate? I. Reflation often occurs near a market top when rates are historically low. II. Disinflation occurs when the inflation rate decreases near market bottom. III. Deflation occurs when prices and values fall due to too much supply. IV. Stagflation occurs when prices rise during low growth periods. I and II only I, II, and IV only III and IV only II, III, and IV only

III and IV only Reflation often occurs near a market bottom when rates are historically low. Disinflation occurs when the inflation rate decreases near market top. Deflation occurs when prices and values fall due to too much supply. Stagflation occurs when prices rise during low growth periods.

Which of the following statements about interest rates, inflation and real returns are not historically accurate or justified over the last half century in the U.S. and in most developed countries? I. When inflation is rising, the real return on treasury bonds is expected to decline. II. When inflation is declining, the real return on treasury bonds is usually positive but expected to decline. III. Real returns on treasury bonds are expected to be negative during deflationary periods. IV. Real returns on treasury bonds are expected to be negative during disinflationary periods. I, II only I, III only II, IV only III, IV only

III, IV only

Which of the following statements regarding equity market valuations are accurate over the last 20 years? I. Valuations of developed markets are approximately the same now as they were 20 years ago. II. The spread between the valuations of emerging and developed markets got much wider during the financial crises. III. Valuations of developed markets were usually lower than those of emerging markets over the last 20 years. IV. Valuations of emerging markets overall have declined over the last 20 years. I and II only III and IV only II and III only IV and I only

IV and I only Valuations are approximately the same for developed markets as they were 20 years ago despite having risen in the late 1990's and subsequently fallen through the financial crises only to rebound since 2009. The spread between the valuations of emerging and developed markets was very narrow during the financial crises. The valuations of emerging markets have been considerably lower than that of developed markets for most of the last 20 years. Valuations of emerging markets have declined over the last 20 years by roughly 20%.

Which of the following combinations will result in a sharply increasing yield curve? Constant future expected short rates and increasing liquidity premiums Decreasing future expected short rates and increasing liquidity premiums Increasing future expected short rates and constant liquidity premiums Increasing future expected short rates and increasing liquidity premiums

Increasing future expected short rates and increasing liquidity premiums CIMA Section I.B.2. Economics Both of the forces will act to increase the slope of the yield curve.

Which of the following countries enjoys a significantly younger demographic relative to the other countries listed? India China United States Japan

India Aging demographics can hurt economies. Effective immigration policies, higher education and skill levels, and increased productivity can help offset the negative impact. Japan, the U.S. and China all have significantly aging populations that may hurt the economies of each over the next 25 years. India enjoys a younger demographic which should help its economy over the next 25 years.

Each of the following is generally considered a "leading economic indicator" with the exception of... Interest rate spread between 10-year Treasury yields and the federal funds rate Inventory-to-sales ratio S&P500 Index Vendor performance, slower deliveries diffusion index

Inventory-to-sales ratio Leading Economic Indicators Average weekly hours Average weekly initial claims for unemployment insurance Manufacturers' new orders for consumer goods and materials Vendor performance, slower deliveries diffusion index Manufacturers' new orders for nondefense capital goods Building permits for new private housing units S&P500 Index Money supply, real M2 Interest rate spread between 10-year Treasury yields and the federal funds rate Index of Consumer Expectations

________________________ suggests that in the short-run, economic productivity is highly impacted by aggregate demand (spending) and this demand is not equal to the capacity of an economy. Especially in times of recession, the economy is influenced by myriad factors that can cause economic and financial disruptions. Hence, government intervention is necessary to correct these short-run inefficiencies. Monetarism Milton Friedman Keynesian economics theory Friedrich Hayek

Keynesian economics theory Keynesian economics theory suggests that in the short-run, economic productivity is highly impacted by aggregate demand (spending) and this demand is not equal to the capacity of an economy. Especially in times of recession, the economy is influenced by myriad factors that can cause economic and financial disruptions. Hence, government intervention is necessary to correct these short-run inefficiencies.

You are considering investing in a small business that would generate the following cash flows: year 1 = 60,000 (loss), year 2 = 75,000 (loss), year 3 = +$100,000, year 4 = +$150,000. The ownership position would cost you $1,800,000 up front but you think you can sell it for $2,550,000 after 4 years. Your investment hurdle rate for this kind of investment is 10%. Which of the following is accurate and appropriate when looking at this opportunity from strictly a financial point of view? Don't make the investment as the projected IRR is 8.72%. Make the investment if the IRR is greater than the cap rate by at least the risk-free rate. Don't make the investment as the IRR cannot be calculated from the data above. Make the investment as the projected IRR is 10.04%.

Make the investment as the projected IRR is 10.04%. Enter the initial investment in year 0 as $1.8 million outflow; enter the following cash flows for years 1 through 4: ($60,000), ($75,000), $100,000, and $2.7 million. Solve for IRR... = 10.04%. You should accept the project (i.e., make the investment).

The following attributes and characteristics: publicly traded; entity where 90% of cash flow must come from real estate, commodities or natural resources; and taxation is passed through to unitholders upon distribution - all describe: Exchange Traded Funds Real Estate Investment Trusts Master Limited Partnerships Unit Investment Trusts

Master Limited Partnerships

Which one of the following statements regarding open-end mutual funds is false? Most mutual funds are actively managed and have annual expense maximums of 2.00%. The funds redeem shares at net asset value. Professional management is offered. The funds allow investors to invest relatively small amounts of money.

Most mutual funds are actively managed and have annual expense maximums of 2.00%. Most mutual funds are actively managed, despite a growing number of passively managed index funds coming to market. Most mutual funds have annual expense ratios of under 2% (typically ranging from 0.50% to 1.50%). Passively managed (e.g., index funds) mutual funds often have expense ratios under 50 basis points. Most mutual funds do not however have mandates limiting expense ratios to under 2.00%.

Given the historical correlations and returns of assets over time, portfolio diversification best benefits the investor under which of the following situations? Equity and fixed income investments are balanced. Individual investments are highly correlated. Portfolio holdings have negative correlations. Assets held have zero correlation.

Portfolio holdings have negative correlations. Investors typically benefit greatest when assets in a portfolio are highly negatively correlated. The less correlation the better. Assets with high positive correlations offer little in terms of benefits from diversification. Assets with low positive correlations offer benefits from diversification but negative correlations are even better.

Each of the following countries is considered an emerging market except for: Brazil Portugal India Russia

Portugal Portugal is considered a developed country.

Which of the following is not accurate or true about REIT taxation? Income distributions to shareholders are not taxed to the REIT (tax liability is passed through). REITs do not face corporate tax on retained earnings and income. Rental income is treated as business income to REITs. Exempt from tax at the trust level if they meet requirements including the 90% distribution rule.

REITs do not face corporate tax on retained earnings and income. REITs do in fact face corporate tax on retained earnings and income.

Which of the following statements about Real Estate Investment Trusts is true? REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages. REITs raise capital by borrowing from banks and issuing mortgages. REITs invest in real estate or loans secured by real estate. REITs are similar to open-end funds, with shares redeemable at NAV.

REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages. Real Estate Investment Trusts invest in real estate or real-estatesecured loans. They may raise capital from banks and by issuing mortgages. They are similar to closed-end funds and shares are typically exchange traded.

Which of the following statements about the taxation of Real Estate Investment Trusts (REITs) is not accurate? Rental income and expenses are treated as business income and expenses. REITs must generally follow the same rules as Unit Investment Trusts (UITs) but must follow the same method of self-assessment as partnerships. Income is essentially tax exempt to REITs at the trust level if they distribute at least 90% of income to unit-holder. REITs are taxed first at the trust level and then to beneficiaries.

REITs must generally follow the same rules as Unit Investment Trusts (UITs) but must follow the same method of self-assessment as partnerships. REITs must generally follow the same rules as Unit Investment Trusts (UITs) but must follow the same method of self-assessment as corporations.

A theory that describes stock prices as unpredictable; and therefore, most methods of valuing and/or predicting expected stock prices are futile. Efficient Markets Theory Arbitrage Pricing Theory Behavioral Economics Theory Random Walk Theory

Random Walk Theory A mathematical event in which a set of events or samples follows apattern of random (unpredictable) patterns. Application : Theory that hypothesizes stock prices cannot be accuratelypredicted based on historical data due to the random walk theory(made popular by Princeton's Burton Malkiel). Conclusion: most if not all methods of predicting stock prices willbe ineffective.

If excess returns are not normally distributed _______________________. We should consider skewness but not kurtosis. Standard deviation is no longer a complete measure of risk. We do not need to consider skewness and kurtosis. Sharpe Ratio is then likely a complete measure of portfolio performance.

Standard deviation is no longer a complete measure of risk. What if excess returns are not normally distributed? Standard deviation is no longer a complete measure of risk. Sharpe ratio is not a complete measure of portfolio performance. We need to consider skew and kurtosis.

Which of the following statements is accurate? Monthly standard deviations of stock returns are higher than annual standard deviations. Standard deviations of individual securities are generally higher than the standard deviation of the market. Variance is the square root of standard deviation. Semi-deviation is the average of the squared variance of all values less than the average or mean.

Standard deviations of individual securities are generally higher than the standard deviation of the market. Monthly standard deviations of stock returns are lower than annual standard deviations. Standard deviations of individual securities are generally higher than the standard deviation of the market. Standard deviation is the square root of variance. Semi-variance is the average of the squared deviations of all values less than the average or mean.

Which of the following statements is not accurate or true? Stock returns are usually positively skewed because there is a higher frequency of positive returns compared to negative returns. Kurtosis identifies the fatness of the distribution tails. Kurtosis measures the higher than normal probabilities for extreme returns. Skewness refers to the asymmetry of a return distribution.

Stock returns are usually positively skewed because there is a higher frequency of positive returns compared to negative returns. Stock returns are usually negatively skewed because there is a higher frequency of negative deviations from the mean. See CIMA textbook, pages 330-331.

Which of the following is accurate? The effective rate adjusted for inflation where 14.52% is the annual return and 1.9% is inflation is equal to 12.38%. An investment paying 4.22% quarterly is equivalent to an annual effective return of 17.18%. An investment paying 3.75% semi-annually is equivalent to an annual effective return of 7.50%. The effective rate adjusted for inflation where 11.81% is the annual return and 4.10% is inflation is equal to 7.71%.

The effective rate adjusted for inflation where 14.52% is the annual return and 1.9% is inflation is equal to 12.38%. The effective rate adjusted for inflation where 11.81% is the annual return and 4.10% is inflation is equal to 7.41 %. ((1.1181)/(1.041))-1 = 7.41%. An investment paying 3.75% semi-annually is equivalent to an annual effective return of 7.64%. (1.0375) - 1 = 7.64%. The effective rate adjusted for inflation where 14.52% is the annual return and 1.9% is inflation is equal to 12.38%. ((1.14525)/(1.019))-1 = 12.38%. An investment paying 4.22% quarterly is equivalent to an annual effective return of 17.98%. (1.0422) - 1 = 17.98%.

Which one of the following statements regarding closed-end mutual funds is false? The funds are sold at the prevailing market price. The funds offer investors professional management. The funds sometimes trade at a premium to or discount from NAV. The funds redeem shares at their NAV.

The funds redeem shares at their NAV. Closed-end funds are sold at the prevailing market price.

The following attributes: popular with retirees, susceptible to inflation as interest is fixed, allows for concentrated positions, and where fixed income is more popular than equity - describe which investment vehicle? Unit Investment Trusts Real Estate Investment Trusts Master Limited Partnerships Exchange Traded Products

Unit Investment Trusts

Which of the following is not true about coefficient of variation ("CV")? I. CV measures the relationship of skewness or kurtosis to the mean. II. CV is also known as relative standard deviation. III. The formula for CV = standard deviation/mean. IV. CV shows the extent of variability in relation to mean of the population. V. CV assumes non-normal distribution. I and II only III and IV only V and I only II and III only

V and I only. Coefficient of Variation Defined: The ratio of the standard deviation to the mean. aka: relative standard deviation. Formula: CV = standard deviation/mean. Result: it shows the extent of variability in relation to mean of the population. Assumptions: normal distribution. Application of Coefficient of Variation: For comparison of data sets with different units or widely different means, one should use the CV instead of standard deviation.

Supply-side economists wishing to stimulate the economy are most likely to recommend: an increase in the real interest rate. a decrease in the money supply. a decrease in production output. a decrease in the tax rate.

a decrease in the tax rate. CIMA Section I.B.2. Economics Supply-siders argue that lowering tax rates stimulates investment.

Kurtosis measures the peakedness of a probability distribution or normal distribution curve. If kurtosis is positive, the chart will show ____________________________ that is __________________________ and may have __________________________________________. flatter peak / more concentrated around the mean / slender distribution distribution less concentrated around the mean / concentrated around the mean / a flatter peak a more slender distribution (higher peak) / concentrated more around the mean / fatter tails less concentrated mean / more slender in distribution / fatter tails

a more slender distribution (higher peak) / concentrated more around the mean / fatter tails Kurtosis defined: measures the peakedness of a probability distribution or normal distribution curve; if kurtosis is positive (leptokurtic), the chart will show a more slender distribution, i.e., higher peak, that is concentrated more around the mean and may have fatter tails; if kurtosis is low (platykurtic), a chart will show thinner tails and distribution that is less concentrated around the mean, thus a flatter peak.

When calculating the average (and standard deviation) of a discrete probability distribution, you don't simply add the potential outcomes and divide by the number of data points. You have to apply the likelihood of each outcome. For calculating variance, you have to: determine the equal weights of each outcome, discount the sum of the result by the square root of the possible high and low result and then divide by n or n-1. multiple the weighted average by the least sums result squared and divide by n or n-1 as appropriate. apply the probabilities as well to the difference of each outcome to its mean (then squared) and, as a result, do not have to divide by the number of data points n (or n-1) because you've already weighted it by the probabilities. add up the possible outcomes and then apply equal weights to each before taking the square root of the result and multiplying by the sample or population size.

apply the probabilities as well to the difference of each outcome to its mean (then squared) and, as a result, do not have to divide by the number of data points n (or n-1) because you've already weighted it by the probabilities. Discrete Probability Distribution Occurs when there are different probabilities related to different specific outcomes. That fact impacts the calculation of the mean, variance, covariance and correlation coefficient. When calculating the average (and standard deviation) of a discrete probability distribution, you don't want to simply add the potential outcomes and divide by the number of data points. To do that means that you are effectively weighting the data points equally; five date points, as in this case, are given equal weight of 20%, effectively. Instead, you have to apply the likelihood of each outcome. So, in this case, you do that by multiplying the probability of an outcome to that outcome and then adding them altogether. For variance, you have to apply the probabilities as well to the difference of each outcome to its mean (then squared) and, as a result, do not have to divide by the number of data points n (or n-1) because you've already weighted it by the probabilities.

Which of the following is likely the most significant difference between holding shares of an open-ended mutual fund compared to that of a separately managed account (SMA)? fees and expenses liquidity risk customization

customization Separately managed accounts offer some level of customization or individualization to investors. The funds may be as liquid as mutual fund shares. Fees and expenses are typically higher than those of mutual funds, but this is not always the case. The risk inherent in the two structures can be nearly the same; it is the underlying investments that dictate the overall risk.

Requiring gold reserves to back up or guarantee paper currency should, in theory, help manage inflation. Assuming that the amount of gold available is fixed, this can actually have a(n) _____________ effect. inflationary expansionary deflationary hyper-inflationary

deflationary

The primary goal(s) of the International Monetary Fund (IMF) is/are to: stabilize prices and maximize employment provide legal and institutional foundation for the multinational trading system ensure stability of exchange rate system and ensure stability of international payments system fight poverty of developing countries and encourage environmentally sound economic growth

ensure stability of exchange rate system and ensure stability of international payments system International Monetary Fund (IMF): ensure stability of exchangerate system and ensure stability of international payments system The World Bank: fight poverty of developing countries andencourage environmentally sound economic growth The World Trade Organization (WTO): provide legal andinstitutional foundation for the multinational trading system U.S. Federal Reserve Board: stabilize prices and maximizeemployment

A firm in an industry that is very sensitive to the business cycle will likely have a stock beta _________________________________. less than 1.0 but greater than 0.0 There is no relationship between beta and sensitivity to the business cycle. about equal to 1.0 greater than 1.0

greater than 1.0 CIMA Section I.B.2. Economics Cyclical stocks are more volatile than the market in general, and thus have betas greater than 1.0.

Which of the following investments has the highest historical correlation with the S&P 500 index over the long-term? long-term treasuries mortgage-backed bonds high-yield bonds aggregate bond index

high-yield bonds This should be intuitive for you. High-yield bonds have higher correlation to stocks vs. an aggregate bond index. An aggregate bond index has higher correlation to stocks compared to short and medium term U.S. Treasuries.

Increases in the money supply will cause demand for investment and consumption goods to _______ in the short run and cause prices to _______ in the long run. decrease / increase decrease / hold steady increase / decrease increase / increase

increase / increase CIMA Section I.B.2. Economics An increase in the money supply results in increased demand for goods and services, which ultimately is reflected in higher prices for these goods and services.

According to the expectations hypothesis, an upward sloping yield curve implies that: interest rates are expected to increase first, then decrease. interest rates are expected to increase in the future. interest rates are expected to remain stable in the future. interest rates are expected to decline in the future.

interest rates are expected to increase in the future. CIMA Section I.B.2. Economics An upward sloping yield curve is based on the expectation that short-term interest rates will increase.

Which of the following fixed income investments has the lowest historical correlation to the S&P 500 index over the long-term? corporate bonds intermediate-term treasuries mortgage-backed bonds Barclays Aggregate Bond Index

intermediate-term treasuries This should be intuitive for you. High-yield bonds have higher correlation to stocks vs. an aggregate bond index. An aggregate bond index has higher correlation to stocks compared to short and medium term U.S. Treasuries.

The value of gold and the U.S. dollar typically have a(n) _________ relationship (e.g., if the U.S. dollar ______ then the price of gold _______ in dollar terms). inverse, rises, falls inverse, rises, rises positive, rises, rises positive, rises, falls

inverse, rises, falls The Gold Standard Correlation - the value of gold and the U.S. dollar typically have an inverse relationship (e.g., if the U.S. dollar rises then the price of gold falls in dollar terms).

Assume that the Federal Reserve decreases the money supply. This action will cause ___________________ to decrease. the unemployment rate investment in the economy trade balance interest rates

investment in the economy CIMA Section I.B.2. Economics Decreasing the money supply is an economic contraction strategy, resulting in a decreased output of the economy.

The average duration of unemployment and changes in the consumer price index for services are ___________________________. leading economic indicators coincidental economic indicators lagging economic indicators composite economic indicators

lagging economic indicators CIMA Section I.B.2. Economics These indicators lag the general economy and are indicators that the economy has already changed directions.

Correlations of stocks between developed countries have mostly risen since the 1990's. Which of the following is least likely to have caused such a phenomenon? increase in speed and accessibility of technology the rise of China lower fees and trading costs correlations typically rise during periods of high volatility

lower fees and trading costs There is debate over the reason for the increase in correlations over the last 25 years. The rise of China and other emerging markets and the rapid increase in technology are commonly mentioned. Markets exhibiting higher volatility usually see rising correlations during these periods. All of these could influence correlations.

The Central Bank is buying government bonds in the marketplace. At the same time the government is increasing spending in an effort to raise consumption in the short-term. What is the most likely effect on interest rates and the stock market, respectively, in the short-run under this scenario? lower, higher higher, lower lower, lower higher, higher

lower, higher CIMA Section I.B.2. Economics Interest rates will most likely decrease as the price of bonds goes up due to the additional demand by the government. The stock market will likely move higher in the short-run assuming everything else is held constant. The central bank is easing by putting more money into the market which should lower rates on bonds given increased demand. This is an expansionary move. Additionally, the government is spending more which leads to more consumption and investments which could lead the market higher, at least in the short-run.

Net Asset Value (NAV) is calculated using which of these formulas? share price plus cash flow multiplied by volume price to earnings ratio divided by capitalization assets minus liabilities plus shareholder equity market value of assets minus liabilities divided by shares outstanding

market value of assets minus liabilities divided by shares outstanding Net Asset Value (NAV) is calculated using the formula: market value of assets minus liabilities divided by shares outstanding.

Which of the following investments is typically not traded by marking to market throughout a typical trading day? mutual funds options stocks exchange trade funds

mutual funds Open-ended mutual fund shares are typically settled (marked to market) at the end of each trading day.

With a ____________, we have fewer, but more extreme outcomes to the ______ of the mean. Those outcomes pull the distribution and mean to the left. Thus, the standard deviation may be ___________ the risk because the possibility of that extreme left tail event is not captured by the statistic. positive skew, left, underestimating negative skew, left, underestimating positive skew, right, overestimating negative skew, right, overestimating

negative skew, left, underestimating. Skewness applied: For distributions that are non-normal (e.g., exhibit skewness, which is a measure of the distribution's asymmetry around the mean), the standard mean-variance analysis is limited, which means standard deviation is simply less meaningful. With a negative skew, we have fewer, but more extreme outcomes to the left of the mean. Those outcomes pull the distribution and mean to the left. For a negative skew, the standard deviation may be underestimating the risk because the possibility of that extreme left tail event is not captured by the statistic. With a positive skew, we have fewer, but more extreme outcomes to the right of the mean. Those outcomes pull the distribution and mean to the right. For a positive skew, the standard deviation may be overestimating the risk.

An investment vehicle in which taxes are paid only by the investor, investors do not control the timing of sales of securities in the portfolio, and shares are traded at NAV is: SMA open-end mutual fund closed-end mutual fund REIT

open-end mutual fund By description.

Since 1955, Treasury bond yields and earnings yields on stocks were _______________. positively correlated uncorrelated nearly perfectly correlated negatively correlated

positively correlated The earnings yield on stocks equals the expected real rate of return on the stock market, which should be equal to the yield to maturity on Treasury bonds plus a risk premium, which may change slowly over time.

Standard deviation is a good measure of risk when ____________________. returns are asymmetric skewness is significantly negative returns are symmetric skewness is significantly positive

returns are symmetric The Normal Distribution Investment management is easier when returns are normal. Standard deviation is a good measure of risk when returns are symmetric. If security returns are symmetric, portfolio returns will be, too. Future scenarios can be estimated using only the mean and the standard deviation.

Investors in closed-end funds who wish to liquidate their positions must: sell their shares through a broker. sell their shares to the issuer for Net Asset Value. hold their shares to maturity. sell their shares to the issuer at a discount or premium to Net Asset Value.

sell their shares through a broker. Closed-end fund shares are sold on organized exchanges through a broker.

Which of the following investment structures offers the potential forinclusion of equities or fixed-income, tax-efficiency, and the flexibility and semi-customization through individually managed accounts? separately managed accounts mutual funds exchange traded funds hedge funds

separately managed accounts Separately managed accounts ("SMAs") offer the potential for inclusion of equities or fixed-income, tax-efficiency, and the flexibility and semi-customization through individually managed accounts.

If the economy is shrinking, firms with low operating leverage will experience ______________________________________________________. higher decreases in profits than firms with high operating leverage no change in profits similar decreases in profits as firms with high operating leverage smaller decreases in profits than firms with high operating leverage

smaller decreases in profits than firms with high operating leverage CIMA Section I.B.2. Economics As sales decrease, firms, with high operating leverage, spread these fixed costs over fewer units and thus decrease profits. In other words, revenue is going down while fixed expenses do not decrease, and as a result profit decrease. So, the reverse is true, in that companies who have lower operating leverage (more variable costs) will see less impact on their bottom line as their variable expenses should decrease as revenue decreases.

If the currency of your country is depreciating, the result should be to ______________ exports and to _______________ imports. stimulate / discourage stimulate / stimulate discourage / stimulate discourage / discourage

stimulate / discourage Depreciating currency means that country's goods and services are cheaper and thus that country's exports are stimulated. Likewise, goods and services of other countries are now more expensive; and thus, importing is discouraged.

Standard deviation measures: market risk unsystematic risk downside risk total risk

total risk. Standard deviation measures total risk. Statistically speaking, standard deviation measures total volatility around some average.

Pools of money invested in a portfolio that is fixed for the life of the fund are called: open-end funds. closed-end funds. unit investment trusts. REITS.

unit investment trusts. Unit investment trusts are funds that invest in a portfolio, often fixed-income securities, and hold it to maturity.