Series 65: Unit 21 Quiz 2

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Which of the following stocks would probably be most appealing to a value investor? A. A stock with a relatively high price-to-book-value ratio B. A stock that has relatively high volatility C. A stock with a relatively low P/E ratio D. A stock with a relatively low dividend yield

A stock w/ a relatively low P/E ratio

While reading the prospectus of a mutual fund, you notice that the management describes their style as contrarian. They further explain that they A. believe that indexing provides the most attractive returns. B. tend to invest in stocks with a high correlation coefficient. C. have higher-than-average income as their goal. D. generally buy when the majority of other investors are selling and sell when the majority of other investors are buying.

Generally buy when the majority of other investors are selling and sell when the majority of other investors are buying

When giving advice to a large pension plan invested heavily in large-cap stocks on how to reduce their systematic risk, you would probably recommend that they A. increase their portfolio diversification B. hedge by purchasing broad index puts C. increase the standard deviation of the portfolio D. raise the correlation coefficient of the securities in the portfolio

Hedge by purchasing broad index puts

Which of the following are disadvantages of index investing relative to active portfolio management? 1. Indexed portfolios have higher transaction costs. 2. Indexed portfolios have lower management fees. 3. Indexed portfolios restrict the universe of potential investments. 4. Indexed portfolios may not represent optimal performance for a specific investor.

Indexed portfolios restrict the universe of potential investments and indexed portfolios may not represent optimal performance for a specific investor

Which of the following is an example of dollar cost averaging? A. Rebalancing your portfolio each quarter on the 20th of the month B. Investing $100 into the XYZ Fund each month on the 20th of the month C. Buying 20 shares of the XYZ Fund each month on the 20th of the month D. Maintaining a constant ratio plan

Investing $100 into the XYZ Fund each month on the 20th of the month

When an analyst discusses grouping companies by market capitalization, the 3 most commonly used categories are A. small cap, mid-cap, jumbo-cap B. small-cap, mid-cap, large-cap C. micro-cap, mini-cap, large-cap D. small cap, larger-cap, largest-cap

Small-cap, mid-cap, large-cap

The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)? A. Strong form B. Semi-strong form C. Semi-weak form D. Weak form

Strong form

The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)? A. Passive form EMH B. Strong form EMH C. Weak form EMH D. Semi-strong form EMH

Strong form EMH

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's A. 200-day moving average B. previous high C. support level D. resistance level

Support level

Which of the following investment strategies reflects determining an appropriate portfolio allocation based on the short-term market movements and risk tolerance of the client? A. Efficient market allocation B. Strategic asset allocation C. Top-down fundamental analysis D. Tactical asset allocation

Tactical asset allocation

If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A. Fixed annuities issued by an insurance company with Best's highest rating B. Tangible assets C. AAA bonds D. Preferred stock

Tangible assets

Which of the following statements is correct? A. As the correlation coefficient moves from +1 to zero, the potential for diversification diminishes. B. When a risk-averse investor is confronted with two investment opportunities having the same expected return, the investor will take the opportunity with the lower risk. C. The efficient frontier represents portfolios that have the lowest expected return for each level of risk. D. The efficient frontier represents individual securities.

When a risk-adverse investor is confronted w/ 2 investment opportunities having the same expected return, the investor will take the opportunity w/ the lower risk

You have a client who has sold short 100 shares of RIF at $50 per share. If the client wished to use options to protect against unlimited loss, you would suggest the client A. buy 1 RIF 55 call B. buy 1 RIF 55 put C. sell 1 RIF 45 put D. sell 1 RIF 45 call

Buy 1 RIF 55 call

A firm declares a $3.00 cash dividend to its shareholders. The firm has issued dividends of only $.07 per share for each of the last 15 quarters, and market analysts had anticipated a similar dividend this quarter. In an efficient market, one would expect A. a price increase before the announcement. B. a price decrease after the announcement. C. no price change before or after the announcement. D. a price change upon the announcement.

A price change upon the announcement

A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of A. a change in polarity. B. a support level. C. a resistance level. D. a reversal.

A support level

The semi-strong form of efficient market hypothesis (EMH) asserts that A. only fundamental analysis and inside information can bring added value to a portfolio. B. all inside information is already reflected in current stock prices. C. all public information is already reflected in security prices making fundamental analysis valueless. D. both public and private information is already incorporated into security prices.

All public information is already reflected in security prices making fundamental analysis valueless

The risk/return pyramid where the bottom is lowest risk and the "point" is the highest, generally places commodities A. halfway between the middle and the top. B. in the middle. C. at the bottom. D. at the top.

At the top

Based on the following information, which stock is most attractive to a value investor? A. Dividend yield of 1.3% B. P/E ratio of 32:1 C. Net worth per share of $13, current market price of $23 per share D. Book value of $22 per share, current market value of $17 per share

Book value of $22/share, current market value of $17/share

Which of the following is not a characteristic of a Monte Carlo simulation? A. The user gets a best-case scenario and a worst-case scenario. B. Large changes in the projected rate of return will make small differences in the outcome. C. It provides insight into the range of outcomes. D. It is a technique used to model uncertainty in retirement planning.

Large changes in the projected rate of return will make small differences in the outcome

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? A. Large-cap B. Indexing C. Blue chip D. Conservative

Large-cap

Growth companies tend to have all of the following characteristics except A. low dividend payout ratios B. low P/E ratios C. high earnings retention ratio D. potential investment return from capital gains rather than income

Low P/E ratios

When building an investment portfolio, it is generally recommended that an asset allocation process be used to increase the portfolio diversification and reduce risk. Which of the following is least likely to be considered an asset class? A. Stock B. Bonds C. Mutual funds D. Cash and cash equivalents

Mutual funds

Which of the following is a characteristic of the passive investment style? A. Rebalancing B. High portfolio turnover C. Tactical management D. Income rather than growth objective

Rebalancing

A 75 year-old client's $500,000 portfolio is 40/60 equity/debt. Six months later, the portfolio balance is $480,000 of which $180,000 is equity. If the investment adviser recommends semiannual rebalancing, the client will A. sell $12,000 of the debt and use the proceeds to purchase $12,000 of equity. B. purchase $12,000 of debt and $8,000 of equity to return to the original $500,000. C. sell $12,000 of the equity and use the proceeds to purchase $12,000 of debt. D. stay put because selling now would realize a loss.

Sell $12k of the debt and use the proceeds to purchase $12k of equity

If the efficient market hypothesis is true, portfolio managers should do all of the following except A. add some negatively correlated securities to the portfolio. B. work more with clients to better quantify their risk preferences. C. spend more time working on security selection. D. minimize transaction costs.

Spend more time working on a security selection

A securities market investment theory that attempts to derive the expected return on an asset based upon the asset's systematic risk is A. the Monte Carlo simulation. B. the random walk theory. C. the efficient market hypothesis (EMH). D. the capital asset pricing model (CAPM).

The capital asset pricing model (CAPM)

Which of the following statements regarding modern portfolio theory is not correct? A. The optimal portfolio has the lowest risk for a given level of return. B. The optimal portfolio for an investor depends upon the investor's ability to assume risk. C. The optimal portfolio offers the highest return for a given level of risk. D. The optimal portfolio will always lie above the efficient frontier.

The optimal portfolio will always lie above the efficient frontier

An investor diversifying a corporate bond portfolio does not consider A. issuer B. maturity C. domicile of the investor D. quality

Domicile of the investor

An increase in the earnings per share growth rate from one reporting period to the next is called A. price-to-earnings ratio. B. finding alpha. C. earnings momentum. D. profitability.

Earnings momentum

Which of the following is an example of a passive investment management style? A. Value investing B. Exclusive use of index funds C. Investment in small capitalization technology securities D. Use of index funds in conjunction with selecting specific securities in the index to overweight certain sectors

Exclusive use of index funds

Which of the following portfolio management styles would most likely incur the highest transaction costs? A. Indexing B. Buy and hold C. Strategic asset allocation D. Tactical asset allocation

Tactical asset allocation

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 A. we cannot outperform the overall market. B. by combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks. C. the total risk of a portfolio cannot be reduced at all. D. by combining securities into a diversified portfolio, the overall portfolio risk will be more than the weighted average risk of the individual stocks.

By combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks

Kellie is a senior equity analyst for a large brokerage firm. She primarily uses fundamental analysis techniques to assist her in picking stocks for her firm's clients. Today, she is reviewing the XYZ Corporation. The company is a manufacturer of computer keyboards and is currently going through an expansion phase. Which of the following techniques would Kellie be least likely to use to determine whether to buy, sell, or hold this company's stock? A. She may review the company's stock 200-day moving average. B. She may examine the overall state of the economy, the computer industry, and then XYZ Corporation. C. She may consider trends towards tablets and smart phones. D. She may calculate the intrinsic value of the stock using one or more of the stock valuation models.

She may review the company's stock 200-day moving average


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