Question 1

A portfolio manager who is trying to generate alpha could use

Accepted Answer

A)  hedge funds. 
B)  mutual funds. 
C)  insured asset allocation. 
D)  ETFs. 
E)  indexing. 
A)  hedge funds. 
B)  mutual funds. 
C)  insured asset allocation. 
D)  ETFs. 
E)  indexing.

Question 2

The integrated asset allocation strategy separately examines capital market conditions and the investor's objectives and constraints.

Accepted Answer

A) True 
 B)False

Question 3

The value investor focuses on share price in anticipation of a market correction and, possibly, improving company fundamentals.

Accepted Answer

A) True 
 B)False

Question 4

A contrarian investment strategy is based on the belief that

Accepted Answer

A)  stock returns are mean reverting. 
B)  the best time to buy is when other investors are bullish. 
C)  rising stocks will continue to rise. 
D)  passive management is preferred to active management. 
E)  a long/short portfolio will outperform a long only portfolio. 
A)  stock returns are mean reverting. 
B)  the best time to buy is when other investors are bullish. 
C)  rising stocks will continue to rise. 
D)  passive management is preferred to active management. 
E)  a long/short portfolio will outperform a long only portfolio.

Question 5

Style investing involves constructing portfolios in such a way as to capture one or more of the characteristics of equity securities.

Accepted Answer

A) True 
 B)False

Question 6

An advantage of quadratic programming is that it relies on historical correlations.

Accepted Answer

A) True 
 B)False

Question 7

Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.

Accepted Answer

A) True 
 B)False

Question 8

The three basic techniques for constructing a passive index are: full replication, sampling, and linear programming.

Accepted Answer

A) True 
 B)False

Question 9

The strategy that frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions while assuming that the investor's risk tolerance and investment constraints to be constant over time is called

Accepted Answer

A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation. 
A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation.

Question 10

An investor focusing on a growth strategy does all of the following EXCEPT

Accepted Answer

A)  focus on the earnings per share (EPS) component on the P/E ratio. 
B)  seek out investments with higher expected growth in earnings. 
C)  implicitly assume that the P/E ratio will grow over the near term. 
D)  focus on the current and future economic "story" of a company. 
E)  All of these are correct. 
A)  focus on the earnings per share (EPS) component on the P/E ratio. 
B)  seek out investments with higher expected growth in earnings. 
C)  implicitly assume that the P/E ratio will grow over the near term. 
D)  focus on the current and future economic "story" of a company. 
E)  All of these are correct.

Question 11

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Accepted Answer

A)  integrated 
B)  strategic 
C)  tactical 
D)  insured 
E)  replication 
A)  integrated 
B)  strategic 
C)  tactical 
D)  insured 
E)  replication

Question 12

Which of the following statements about investment style is FALSE?

Accepted Answer

A)  Growth stocks generally have smaller capitalizations than value stocks. 
B)  Value stocks have P/E and P/B ratios significantly lower than those of growth stocks. 
C)  Value stocks dividend yields are much higher than those of growth stocks. 
D)  Growth and levels of earnings is higher in growth stocks. 
E)  Value stocks have a higher risk premium. 
A)  Growth stocks generally have smaller capitalizations than value stocks. 
B)  Value stocks have P/E and P/B ratios significantly lower than those of growth stocks. 
C)  Value stocks dividend yields are much higher than those of growth stocks. 
D)  Growth and levels of earnings is higher in growth stocks. 
E)  Value stocks have a higher risk premium.

Question 13

Growth stocks would have the following characteristics:

Accepted Answer

A)  low price/book and high price/earnings. 
B)  low price/book and low price/earnings. 
C)  high EPS growth and high profitability. 
D)  low EPS growth and high profitability. 
E)  None of these are correct. 
A)  low price/book and high price/earnings. 
B)  low price/book and low price/earnings. 
C)  high EPS growth and high profitability. 
D)  low EPS growth and high profitability. 
E)  None of these are correct.

Question 14

The table below provides returns on a portfolio along with returns for the corresponding benchmark index for the past eight quarters. The table also provides the difference between portfolio returns and the benchmark index, the average of these differences over the past eight quarters, and the standard deviation of these differences.   The annualized tracking error for this period is

Accepted Answer

A)  2.36 percent. 
B)  4.08 percent 
C)  2.89 percent. 
D)  3.33 percent. 
E)  1.18 percent. 
A)  2.36 percent. 
B)  4.08 percent 
C)  2.89 percent. 
D)  3.33 percent. 
E)  1.18 percent.

Question 15

The goal of a passive portfolio is to track the index as closely as possible.

Accepted Answer

A) True 
 B)False

Question 16

Value stocks would have the following characteristics:

Accepted Answer

A)  low price/book and high price/earnings. 
B)  low price/book and low price/earnings. 
C)  high EPS growth and high profitability. 
D)  low EPS growth and high profitability. 
E)  None of these are correct. 
A)  low price/book and high price/earnings. 
B)  low price/book and low price/earnings. 
C)  high EPS growth and high profitability. 
D)  low EPS growth and high profitability. 
E)  None of these are correct.

Question 17

Which of the following is NOT considered an active management strategy?

Accepted Answer

A)  sector rotation 
B)  use of factor models 
C)  quantitative screens 
D)  full replication 
E)  linear programming 
A)  sector rotation 
B)  use of factor models 
C)  quantitative screens 
D)  full replication 
E)  linear programming

Question 18

Following an earnings momentum strategy, an investor acquires stocks that have enjoyed above-market stock price increases.

Accepted Answer

A) True 
 B)False

Question 19

____ is a strategy used because the market seems to reward companies that have steady, above average earnings growth, or whose prices are rising because of market optimism.

Accepted Answer

A)  Relative strength 
B)  Asset momentum 
C)  Rotational attribution 
D)  Sector rotation 
E)  Earnings momentum 
A)  Relative strength 
B)  Asset momentum 
C)  Rotational attribution 
D)  Sector rotation 
E)  Earnings momentum

Question 20

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Accepted Answer

A)  sector rotation 
B)  price momentum 
C)  earnings momentum 
D)  return rotation 
E)  passive momentum 
A)  sector rotation 
B)  price momentum 
C)  earnings momentum 
D)  return rotation 
E)  passive momentum

Exam 11: Equity Portfolio Management Strategies

A portfolio manager who is trying to generate alpha could use

The integrated asset allocation strategy separately examines capital market conditions and the investor's objectives and constraints.

The value investor focuses on share price in anticipation of a market correction and, possibly, improving company fundamentals.

A contrarian investment strategy is based on the belief that

Style investing involves constructing portfolios in such a way as to capture one or more of the characteristics of equity securities.

An advantage of quadratic programming is that it relies on historical correlations.

Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.

The three basic techniques for constructing a passive index are: full replication, sampling, and linear programming.

The strategy that frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions while assuming that the investor's risk tolerance and investment constraints to be constant over time is called

An investor focusing on a growth strategy does all of the following EXCEPT

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Which of the following statements about investment style is FALSE?

Growth stocks would have the following characteristics:

The goal of a passive portfolio is to track the index as closely as possible.

Value stocks would have the following characteristics:

Which of the following is NOT considered an active management strategy?

Following an earnings momentum strategy, an investor acquires stocks that have enjoyed above-market stock price increases.

____ is a strategy used because the market seems to reward companies that have steady, above average earnings growth, or whose prices are rising because of market optimism.

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters