Question 1

Which of the following is not among the usual constraints and preferences considered when formulating an investment policy statement?

Accepted Answer

A)  Avoidance of so-called "sin" stocks (alcohol, tobacco, firearms, etc.) 
B)  Liquidity needs 
C)  Economic assessment 
D)  Time horizon 
A)  Avoidance of so-called "sin" stocks (alcohol, tobacco, firearms, etc.) 
B)  Liquidity needs 
C)  Economic assessment 
D)  Time horizon

Question 2

Which of the following is not a major consideration in the asset allocation process?

Accepted Answer

A)  Return requirements 
B)  Risk tolerance 
C)  Ease of monitoring progress 
D)  Time horizon 
A)  Return requirements 
B)  Risk tolerance 
C)  Ease of monitoring progress 
D)  Time horizon

Question 3

Relative to a conservative allocation, an aggressive asset allocation would contain larger proportions of:

Accepted Answer

A)  value stocks and bonds. 
B)  bonds and large-cap stocks. 
C)  small-cap and international stocks. 
D)  defensive stocks. 
A)  value stocks and bonds. 
B)  bonds and large-cap stocks. 
C)  small-cap and international stocks. 
D)  defensive stocks.

Question 4

The "lockup" problem involved in rebalancing refers to the problem that:

Accepted Answer

A)  retirement accounts cannot be liquidated prior to retirement. 
B)  trust accounts cannot be traded without incurring administrative costs. 
C)  taxable accounts are subject to capital gains taxes if appreciated assets are sold. 
D)  illiquid fixed income securities must be held until maturity. 
A)  retirement accounts cannot be liquidated prior to retirement. 
B)  trust accounts cannot be traded without incurring administrative costs. 
C)  taxable accounts are subject to capital gains taxes if appreciated assets are sold. 
D)  illiquid fixed income securities must be held until maturity.

Question 5

Retirement programs offer tax sheltering for individual U.S. investors.

Accepted Answer

A) True 
 B)False

Question 6

The first step of the portfolio management process is:

Accepted Answer

A)  to assess market conditions. 
B)  to determine investor objectives, constraints, and preferences. 
C)  to develop strategies and implement them. 
D)  portfolio construction. 
A)  to assess market conditions. 
B)  to determine investor objectives, constraints, and preferences. 
C)  to develop strategies and implement them. 
D)  portfolio construction.

Question 7

What are the differences between individual investors and institutional investors?

Accepted Answer

(1) Their definition of risk differs.
(2

Question 8

In the investment policy statement (IPS), investor objectives focus on:

Accepted Answer

A)  accumulation and consolidation. 
B)  return and taxes. 
C)  risk and return. 
D)  security selection and asset allocation. 
A)  accumulation and consolidation. 
B)  return and taxes. 
C)  risk and return. 
D)  security selection and asset allocation.

Question 9

According to the life-cycle approach, investors normally assume a moderate trade-off between risk and return in the:

Accepted Answer

A)  accumulation phase. 
B)  consolidation phase. 
C)  spending phase. 
D)  gifting phase. 
A)  accumulation phase. 
B)  consolidation phase. 
C)  spending phase. 
D)  gifting phase.

Question 10

One of the costs of portfolio rebalancing is taxes.

Accepted Answer

A) True 
 B)False

Question 11

During periods of uncertainty there is often a flight to safety, which tends to push the prices of Treasury securities to low levels.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not true regarding the life-cycle approach to investment?

Accepted Answer

A)  It is most appropriate for institutions. 
B)  It automatically becomes more conservative as the investor nears retirement age. 
C)  It is suited to 401(k) plans. 
D)  It can be implemented using life-cycle (also known as target-date) funds. 
A)  It is most appropriate for institutions. 
B)  It automatically becomes more conservative as the investor nears retirement age. 
C)  It is suited to 401(k) plans. 
D)  It can be implemented using life-cycle (also known as target-date) funds.

Question 13

In order to arrive at an investment policy, it is necessary to determine whether the market is headed for a bull or bear market.

Accepted Answer

A) True 
 B)False

Question 14

Relative to their holdings in their early careers, conservative retirees likely have greater holdings of:

Accepted Answer

A)  small-cap stocks. 
B)  international stocks. 
C)  cyclical stocks. 
D)  low-beta stocks. 
A)  small-cap stocks. 
B)  international stocks. 
C)  cyclical stocks. 
D)  low-beta stocks.

Question 15

Mr. Baker, a single person in early retirement, owns a house, a well-used car, and minimal life insurance. He has pension assets of about half a million dollars. He wants it all in tax-exempt municipal bonds so that "I won't lose any money, and I won't have to pay taxes." Considering the life-cycle theory of asset allocation, would you suggest any alternatives to this client?

Accepted Answer

Considering the client's need for income

Question 16

Which of the following statements about investment strategies is true? Constant proportion portfolio insurance is a:

Accepted Answer

A)  contrarian strategy, whereas constant mix is a momentum strategy. 
B)  momentum strategy, whereas constant mix is a contrarian strategy. 
C)  contrarian strategy as is constant mix. 
D)  momentum strategy as is constant mix. 
A)  contrarian strategy, whereas constant mix is a momentum strategy. 
B)  momentum strategy, whereas constant mix is a contrarian strategy. 
C)  contrarian strategy as is constant mix. 
D)  momentum strategy as is constant mix.

Question 17

The buy-and-hold strategy generally results in a portfolio's risk increasing over time.

Accepted Answer

A) True 
 B)False

Question 18

The consolidation phase of the life cycle begins when the investor reaches retirement.

Accepted Answer

A) True 
 B)False

Question 19

Actively managed funds tend to be more tax efficient than index funds.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following investors should allocate a relatively high portfolio weight to municipal bonds?

Accepted Answer

A)  A tax-exempt institution 
B)  An individual investor in the accumulation phase of the life cycle 
C)  An individual investor with high liquidity needs 
D)  An individual investor in a high tax bracket 
A)  A tax-exempt institution 
B)  An individual investor in the accumulation phase of the life cycle 
C)  An individual investor with high liquidity needs 
D)  An individual investor in a high tax bracket

Exam 21: Managing Your Financial Assets

Which of the following is not among the usual constraints and preferences considered when formulating an investment policy statement?

Which of the following is not a major consideration in the asset allocation process?

Relative to a conservative allocation, an aggressive asset allocation would contain larger proportions of:

The "lockup" problem involved in rebalancing refers to the problem that:

Retirement programs offer tax sheltering for individual U.S. investors.

The first step of the portfolio management process is:

What are the differences between individual investors and institutional investors?

In the investment policy statement (IPS), investor objectives focus on:

According to the life-cycle approach, investors normally assume a moderate trade-off between risk and return in the:

One of the costs of portfolio rebalancing is taxes.

During periods of uncertainty there is often a flight to safety, which tends to push the prices of Treasury securities to low levels.

Which of the following is not true regarding the life-cycle approach to investment?

In order to arrive at an investment policy, it is necessary to determine whether the market is headed for a bull or bear market.

Relative to their holdings in their early careers, conservative retirees likely have greater holdings of:

Which of the following statements about investment strategies is true? Constant proportion portfolio insurance is a:

The buy-and-hold strategy generally results in a portfolio's risk increasing over time.

The consolidation phase of the life cycle begins when the investor reaches retirement.

Actively managed funds tend to be more tax efficient than index funds.

Which of the following investors should allocate a relatively high portfolio weight to municipal bonds?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Evaluation of Investment Performance

Filters