Question 1

Based on empirical evidence, which of the following is the most important aspect in explaining portfolio performance?

Accepted Answer

A)  Security selection 
B)  Market timing 
C)  Transactions costs 
D)  Asset allocation 
A)  Security selection 
B)  Market timing 
C)  Transactions costs 
D)  Asset allocation

Question 2

An efficient set of portfolios offers maximum risk for any level of return.

Accepted Answer

A) True 
 B)False

Question 3

One aspect of the tax considerations in asset allocation is that:

Accepted Answer

A)  capital gains are often taxed at a higher rate than dividend and interest income. 
B)  Roth accounts offer a tax savings in the year they are opened. 
C)  investors are exempt from taxes on capital gains once they reach age 65. 
D)  taxes on capital gains are deferred until the gain is realized. 
A)  capital gains are often taxed at a higher rate than dividend and interest income. 
B)  Roth accounts offer a tax savings in the year they are opened. 
C)  investors are exempt from taxes on capital gains once they reach age 65. 
D)  taxes on capital gains are deferred until the gain is realized.

Question 4

Common stocks are not always an inflationary hedge but have a long history of strong performance over time.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not one of the phases of the life-cycle theory of asset allocation?

Accepted Answer

A)  Accumulation 
B)  Consolidation 
C)  Gifting 
D)  Retirement 
A)  Accumulation 
B)  Consolidation 
C)  Gifting 
D)  Retirement

Question 6

Historically, the annual return on the U.S. stock market has averaged approximately:

Accepted Answer

A)  3.0%. 
B)  7.0%. 
C)  10.0%. 
D)  15.0%. 
A)  3.0%. 
B)  7.0%. 
C)  10.0%. 
D)  15.0%.

Question 7

The constant mix strategy is viewed as a contrarian strategy.

Accepted Answer

A) True 
 B)False

Question 8

Portfolio performance evaluation is an important determinant of your success in financial planning.

Accepted Answer

A) True 
 B)False

Question 9

An investor with high liquidity needs and a short time horizon should have a relatively high allocation to:

Accepted Answer

A)  real estate. 
B)  bonds. 
C)  money market securities. 
D)  low beta stocks. 
A)  real estate. 
B)  bonds. 
C)  money market securities. 
D)  low beta stocks.

Question 10

Explain the life-cycle theory of portfolio policies.

Accepted Answer

There are 4 different phases of investin

Question 11

Pension funds are governed by the prudent man rule since specific pension fund legislation has never passed.

Accepted Answer

A) True 
 B)False

Question 12

In order to protect principal against possible loss caused by distressed selling, individuals are typically recommended to have a:

Accepted Answer

A)  1-month emergency fund. 
B)  2-month emergency fund. 
C)  6-month emergency fund. 
D)  12-month emergency fund 
A)  1-month emergency fund. 
B)  2-month emergency fund. 
C)  6-month emergency fund. 
D)  12-month emergency fund

Question 13

The spending phase of the life cycle is avoided by investors who follow the prudent man rule.

Accepted Answer

A) True 
 B)False

Question 14

Under the life cycle approach, the lowest risk and lowest return should come during the spending and gifting stages.

Accepted Answer

A) True 
 B)False

Question 15

Once a year, Rita resets the weights of her largest client's portfolio to 50% debt and 50% equity. Which of the following best describes Rita's actions with respect to the client's portfolio? Rita is following a:

Accepted Answer

A)  buy-and-hold approach with calendar rebalancing. 
B)  constant mix approach with calendar rebalancing. 
C)  constant proportion portfolio insurance approach with corridor rebalancing. 
D)  buy-and-hold approach with corridor rebalancing. 
A)  buy-and-hold approach with calendar rebalancing. 
B)  constant mix approach with calendar rebalancing. 
C)  constant proportion portfolio insurance approach with corridor rebalancing. 
D)  buy-and-hold approach with corridor rebalancing.

Question 16

Financial plans should be monitored and updated on an ongoing basis. Examples of changes that can necessitate financial plan updating include changes in wealth, time horizon, liquidity requirements, tax circumstances, and regulations.

Accepted Answer

A) True 
 B)False

Question 17

What is the difference between strategic asset allocation and tactical asset allocation?

Accepted Answer

Given an investor's objectives, constrai

Question 18

Which act governs employer-sponsored retirement plans?

Accepted Answer

A)  Investors Advisors Act 
B)  Investment Company Act 
C)  Security Investors Protection Act 
D)  Employment Retirement Income Security Act 
A)  Investors Advisors Act 
B)  Investment Company Act 
C)  Security Investors Protection Act 
D)  Employment Retirement Income Security Act

Question 19

An individual investor's marginal tax rate is:

Accepted Answer

A)  higher than the investor's effective tax rate. 
B)  lower than the investor's effective tax rate. 
C)  equal to the investor's effective tax rate. 
D)  higher than the investor's effective tax rate only when the investor is wealthy. 
A)  higher than the investor's effective tax rate. 
B)  lower than the investor's effective tax rate. 
C)  equal to the investor's effective tax rate. 
D)  higher than the investor's effective tax rate only when the investor is wealthy.

Question 20

Investors following a constant proportion portfolio insurance (CPPI) investment strategy:

Accepted Answer

A)  increase their allocation to stocks after stock prices rise. 
B)  increase their allocation to bonds after stock prices rise. 
C)  increase their allocation to cash after stock prices rise. 
D)  hedge their portfolio after stock prices rise. 
A)  increase their allocation to stocks after stock prices rise. 
B)  increase their allocation to bonds after stock prices rise. 
C)  increase their allocation to cash after stock prices rise. 
D)  hedge their portfolio after stock prices rise.

Exam 21: Managing Your Financial Assets

Based on empirical evidence, which of the following is the most important aspect in explaining portfolio performance?

An efficient set of portfolios offers maximum risk for any level of return.

One aspect of the tax considerations in asset allocation is that:

Common stocks are not always an inflationary hedge but have a long history of strong performance over time.

Which of the following is not one of the phases of the life-cycle theory of asset allocation?

Historically, the annual return on the U.S. stock market has averaged approximately:

The constant mix strategy is viewed as a contrarian strategy.

Portfolio performance evaluation is an important determinant of your success in financial planning.

An investor with high liquidity needs and a short time horizon should have a relatively high allocation to:

Explain the life-cycle theory of portfolio policies.

Pension funds are governed by the prudent man rule since specific pension fund legislation has never passed.

In order to protect principal against possible loss caused by distressed selling, individuals are typically recommended to have a:

The spending phase of the life cycle is avoided by investors who follow the prudent man rule.

Under the life cycle approach, the lowest risk and lowest return should come during the spending and gifting stages.

Once a year, Rita resets the weights of her largest client's portfolio to 50% debt and 50% equity. Which of the following best describes Rita's actions with respect to the client's portfolio? Rita is following a:

Financial plans should be monitored and updated on an ongoing basis. Examples of changes that can necessitate financial plan updating include changes in wealth, time horizon, liquidity requirements, tax circumstances, and regulations.

What is the difference between strategic asset allocation and tactical asset allocation?

Which act governs employer-sponsored retirement plans?

An individual investor's marginal tax rate is:

Investors following a constant proportion portfolio insurance (CPPI) investment strategy:

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