Question 1

Which of the following is an advantage of monitoring and rebalancing a portfolio over time?

Accepted Answer

A) Lower commissions 
B) Lower taxes 
C) A portfolio that is better aligned with objectives 
D) A portfolio with greater expected return 
A) Lower commissions 
B) Lower taxes 
C) A portfolio that is better aligned with objectives 
D) A portfolio with greater expected return C

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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 C

Question 4

The document that describes an investor's objectives and constraints is:

Accepted Answer

A) the prospectus. 
B) the indenture. 
C) the investment policy statement. 
D) the portfolio optimization contract. 
A) the prospectus. 
B) the indenture. 
C) the investment policy statement. 
D) the portfolio optimization contract.

Question 5

A market timing approach that increases the proportion of funds in stocks when the stock market is expected to rise,and increases cash when stocks are expected to fall is a:

Accepted Answer

A) strategic asset allocation. 
B) tactical asset allocation. 
C) portfolio optimization. 
D) liquidity timing allocation. 
A) strategic asset allocation. 
B) tactical asset allocation. 
C) portfolio optimization. 
D) liquidity timing allocation.

Question 6

Which of the following is not part of the portfolio management process?

Accepted Answer

A) Determining investor objectives,constraints,and preferences 
B) Selling weak performing securities from the portfolio 
C) Forming expectations for the economy and its sectors 
D) Developing and implementing a strategy 
A) Determining investor objectives,constraints,and preferences 
B) Selling weak performing securities from the portfolio 
C) Forming expectations for the economy and its sectors 
D) Developing and implementing a strategy

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The Markowitz model identifies the set of portfolios that offers the:

Accepted Answer

A) highest return for any given level of risk. 
B) least-risk for conservative investors. 
C) long-run approach to wealth accumulation for young investors. 
D) risk-free alternative for risk-averse investors. 
A) highest return for any given level of risk. 
B) least-risk for conservative investors. 
C) long-run approach to wealth accumulation for young investors. 
D) risk-free alternative for risk-averse investors.

Question 9

Investor expectations about expected returns from various asset classes should start with:

Accepted Answer

A) long-term rates of return of those asset classes. 
B) last month's rate of return of those asset classes. 
C) last year's rate of return of those asset classes. 
D) the correlation of returns from asset classes over the past two years. 
A) long-term rates of return of those asset classes. 
B) last month's rate of return of those asset classes. 
C) last year's rate of return of those asset classes. 
D) the correlation of returns from asset classes over the past two years.

Question 10

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 11

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 12

The long-term geometric mean return for the S&P 500 is between 15 and 20%.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

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 16

The Prudent Man Rule,which applies to fiduciaries,is a relatively new concept in investment management.

Accepted Answer

A) True 
 B)False

Question 17

How does the prudent investor rule affect asset allocation?

Accepted Answer

Whenever there is an investmen

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

Exam 21: Portfolio Management

Which of the following is an advantage of monitoring and rebalancing a portfolio over time?

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

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

The document that describes an investor's objectives and constraints is:

A market timing approach that increases the proportion of funds in stocks when the stock market is expected to rise,and increases cash when stocks are expected to fall is a:

Which of the following is not part of the portfolio management process?

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

The Markowitz model identifies the set of portfolios that offers the:

Investor expectations about expected returns from various asset classes should start with:

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

The long-term geometric mean return for the S&P 500 is between 15 and 20%.

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

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.

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

The Prudent Man Rule,which applies to fiduciaries,is a relatively new concept in investment management.

How does the prudent investor rule affect asset allocation?

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

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

The first step of the portfolio management process is:

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Evaluation of Investment Performance

Filters