Series 65 - Unit 20

Which of the following statements regarding a bond ladder strategy is CORRECT?

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

Which of the following best describes the steps of the asset allocation process?

Determine the objectives and constraints; create the IPS, determine the asset allocation, allocate capital, monitor, and evaluate.

Simply adding more securities to a portfolio does not necessarily reduce portfolio volatility. For example, if the beta of a portfolio was 1.1, adding which of the following stocks would most likely increase the overall portfolio volatility?

Stock A, beta 1.5

Which of the following statements is correct regarding a portfolio manager employing a tactical style?

The commission expense will likely be higher than one employing a passive style

Followers of the efficient market hypothesis believe that

an efficient market is one that produces random results

An investor in debt securities might elect to use any one of the following techniques to limit interest rate risk EXCEPT

increasing the duration

According to modern portfolio theory, the optimal portfolio is one that

lies on the efficient frontier

Risk aversion means that if two assets have identical expected returns, a risk averse individual will choose the asset with the

lower risk level

A conservative client's portfolio is designed to have a 60 / 40 ratio of debt to equity securities. The initial investment was $250,000. One year later, the value of the portfolio is $260,000 with $90,000 of that represented by the equity portion. If the portfolio is rebalanced annually, this would require

selling $14,000 of debt and buying $14,000 of equity