Series 66 missed questions from ch 21,22,23

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The capital asset pricing model (CAPM) is based on several limiting assumptions. Which of the following statements is correct regarding the CAPM? A) The CAPM assumes that investors' expectations regarding risk and return are not identical but normally distributed. B) The CAPM does not assume that investors have access to the same information. C) The CAPM assumes that the optimal portfolio should be the one with the highest Sharpe ratio of all possible portfolios. D) The CAPM does not assume that the expected excess returns for the market are known.

C) The CAPM assumes that the optimal portfolio should be the one with the highest Sharpe ratio of all possible portfolios. The CAPM assumes that investors should construct a portfolio with the highest Sharpe ratio because that offers the highest risk-adjusted return. It also assumes that the expected excess returns for the market are assumed to be known in that investors have access to the same information. As well, it assumes that returns are normally distributed and investors' expectations for risk and return are identical.

One of the assumptions underlying the capital asset pricing model is that A) each investor has a unique time horizon. B) only whole shares are available. C) there are no transaction costs or taxes. D) inflation must be taken into consideration.

C) there are no transaction costs or taxes. The CAPM assumes frictionless markets, i.e., no taxes or transaction costs. Among the other assumptions of the CAPM are that all investors have the same time horizon and that all investments are infinitely divisible into fractional shares. The CAPM assumes that there is no inflation

Dan is the owner of a mutual fund that returned him a before-tax return of 15% last year. Inflation is running at an annual rate of 3%, and Dan is in a 27% marginal income tax bracket. What has been Dan's approximate inflation-adjusted after-tax return on the fund over the course of the last year (rounded to the nearest 2 decimal points)? A) 10.95% B) 12.00% C) 7.95% D) 8.76%

C) 7.95% First, compute Dan's after-tax rate of return of 10.95% as follows: .15 × (1 − .27), or .73 = .1095. Then, compute Dan's inflation-adjusted, or real, rate of return by subtracting the 3% inflation rate from his 10.95% after-tax return.

A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash to purchase securities using marginable securities in the account as collateral. Which of the account documents authorizes the use of those securities as collateral for that loan? A) The loan consent agreement B) The credit agreement C) The hypothecation agreement D) The secured agreement

C) The hypothecation agreement

A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as A) matched orders. B) straddling. C) pegging. D) front running.

C) pegging.


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