Question 1

Which of the following typically strives to earn a return on their investments that exceeds the actuarially determined rate of return?

Accepted Answer

A)  banks 
B)  thrifts 
C)  mutual funds 
D)  pension funds 
A)  banks 
B)  thrifts 
C)  mutual funds 
D)  pension funds

Question 2

A portfolio consists of three index funds: an equity index accounting for 40% of the total portfolio, a bond index accounting for 30% of the total portfolio, and an international index accounting for 30% of the total portfolio. After each quarter the portfolio manager buys and sells some of each sector to preserve the original weights for each sector. This is an example of ________.

Accepted Answer

A)  a passively managed core with an actively managed component 
B)  a totally passively managed fund 
C)  passive asset allocation with active security selection 
D)  active asset allocation with passive security selection 
A)  a passively managed core with an actively managed component 
B)  a totally passively managed fund 
C)  passive asset allocation with active security selection 
D)  active asset allocation with passive security selection

Question 3

Which one of the following institutions typically has the longest investment horizon?

Accepted Answer

A)  mutual funds 
B)  pension funds 
C)  property and casualty insurers 
D)  banks 
A)  mutual funds 
B)  pension funds 
C)  property and casualty insurers 
D)  banks

Question 4

The term hedge refers to an investment that is used ________.

Accepted Answer

A)  primarily for tax-loss selling purposes 
B)  to mitigate specific financial risks 
C)  to conceal one's true investment strategy from other market participants 
D)  primarily to defer capital losses 
A)  primarily for tax-loss selling purposes 
B)  to mitigate specific financial risks 
C)  to conceal one's true investment strategy from other market participants 
D)  primarily to defer capital losses

Question 5

The risk that a downturn in the market may substantially reduce your investment principal is called ________.

Accepted Answer

A)  purchasing power risk 
B)  interest rate risk 
C)  market risk 
D)  liquidity risk 
A)  purchasing power risk 
B)  interest rate risk 
C)  market risk 
D)  liquidity risk

Question 6

SoHo International Investment Management has an asset allocation strategy of 57% U.S. investments and 43% global investments. Within the United States, Go Global has allocated 55% of its portfolio to equities and 45% to bonds. SoHo International now holds 4.4% of its U.S. equity portfolio in the stock of Bright Force. Internationally, SoHo International has allocated 72% to equities and 28% to bonds. About what percentage of SoHo International's total portfolio is invested in Bright Force?

Accepted Answer

A)  1% 
B)  1.26% 
C)  1.5% 
D)  1.81% 
A)  1% 
B)  1.26% 
C)  1.5% 
D)  1.81%

Question 7

A life insurance firm wants to minimize its interest rate risk, and it is planning on paying out $250,000 in 5 years. Which one of the following investments best matches its goal?

Accepted Answer

A)  high-yield utility stocks 
B)  5-year zero-coupon bonds 
C)  10-year coupon bonds 
D)  money market investments rolled over as needed 
A)  high-yield utility stocks 
B)  5-year zero-coupon bonds 
C)  10-year coupon bonds 
D)  money market investments rolled over as needed

Question 8

My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service. I must have ________.

Accepted Answer

A)  a defined benefit plan 
B)  a defined contribution plan 
C)  an endowment fund 
D)  a variable annuity 
A)  a defined benefit plan 
B)  a defined contribution plan 
C)  an endowment fund 
D)  a variable annuity

Question 9

Which one of the following would be considered a "cash equivalent" investment?

Accepted Answer

A)  Treasury bills 
B)  common stock 
C)  corporate bonds 
D)  real estate 
A)  Treasury bills 
B)  common stock 
C)  corporate bonds 
D)  real estate

Question 10

Which type of insurance product gives policyholders a fixed death benefit and a selection of investment alternatives?

Accepted Answer

A)  term 
B)  variable life 
C)  universal life 
D)  whole life 
A)  term 
B)  variable life 
C)  universal life 
D)  whole life

Question 11

One way that life insurance firms can hedge the risk created by offering whole-life insurance policies is by ________.

Accepted Answer

A)  holding long-term bonds 
B)  holding equities 
C)  holding short-term bonds 
D)  exercising its right to terminate the policy 
A)  holding long-term bonds 
B)  holding equities 
C)  holding short-term bonds 
D)  exercising its right to terminate the policy

Question 12

_______ is a life insurance policy that will provide a death benefit only and has no savings plan.

Accepted Answer

A)  Term life 
B)  Whole life 
C)  Variable life 
D)  Universal life 
A)  Term life 
B)  Whole life 
C)  Variable life 
D)  Universal life

Question 13

Price volatility is greatest on which one of the following investments?

Accepted Answer

A)  commercial paper 
B)  20-year zero-coupon bonds 
C)  Treasury notes 
D)  Treasury bills 
A)  commercial paper 
B)  20-year zero-coupon bonds 
C)  Treasury notes 
D)  Treasury bills

Question 14

Major functions of the investment committee include all but which one of the following?

Accepted Answer

A)  Engage in security selection for each portfolio managed. 
B)  Broadly determine the overall asset allocation of the investment company. 
C)  Determine the asset-class weights for each portfolio. 
D)  Determine the asset universe. 
A)  Engage in security selection for each portfolio managed. 
B)  Broadly determine the overall asset allocation of the investment company. 
C)  Determine the asset-class weights for each portfolio. 
D)  Determine the asset universe.

Question 15

The price of your investment increases 20% one month after you buy it. You do not believe that the stock's prospects have changed. Which one of the following actions would indicate the lowest amount of risk aversion?

Accepted Answer

A)  You hang on to the stock, anticipating that it will go higher. 
B)  You buy more stock, anticipating that it will go higher. 
C)  You sell all of your stock holdings immediately. 
D)  You sell half of your stock holdings and invest the proceeds in other areas of your portfolio. 
A)  You hang on to the stock, anticipating that it will go higher. 
B)  You buy more stock, anticipating that it will go higher. 
C)  You sell all of your stock holdings immediately. 
D)  You sell half of your stock holdings and invest the proceeds in other areas of your portfolio.

Question 16

The choice of an active portfolio management strategy rather than a passive strategy assumes ________.

Accepted Answer

A)  the ability to continuously adjust the portfolio to provide superior returns 
B)  asset allocation involving only domestic securities 
C)  stable economic conditions over the short term 
D)  the ability to minimize trading costs 
A)  the ability to continuously adjust the portfolio to provide superior returns 
B)  asset allocation involving only domestic securities 
C)  stable economic conditions over the short term 
D)  the ability to minimize trading costs

Question 17

Empirical evidence confirms that investors become ________ as they approach retirement.

Accepted Answer

A)  greedier 
B)  less interested in investments 
C)  more risk averse 
D)  more risk tolerant 
A)  greedier 
B)  less interested in investments 
C)  more risk averse 
D)  more risk tolerant

Question 18

Which type of insurance product allows policyholders to adjust their death benefit according to their needs?

Accepted Answer

A)  term 
B)  variable life 
C)  universal life 
D)  whole life 
A)  term 
B)  variable life 
C)  universal life 
D)  whole life

Question 19

Endowment funds are held by ________.

Accepted Answer

A)  financial intermediaries 
B)  individuals 
C)  profit-oriented firms 
D)  nonprofit institutions 
A)  financial intermediaries 
B)  individuals 
C)  profit-oriented firms 
D)  nonprofit institutions

Question 20

Which of the following is not one of the main areas covered in the examinations that must be taken in order to achieve the designation of Chartered Financial Analyst?

Accepted Answer

A)  investment management ethics 
B)  securities analysis 
C)  securities marketing techniques 
D)  portfolio management 
A)  investment management ethics 
B)  securities analysis 
C)  securities marketing techniques 
D)  portfolio management

Which of the following typically strives to earn a return on their investments that exceeds the actuarially determined rate of return?

Which one of the following institutions typically has the longest investment horizon?

The term hedge refers to an investment that is used ________.

The risk that a downturn in the market may substantially reduce your investment principal is called ________.

A life insurance firm wants to minimize its interest rate risk, and it is planning on paying out $250,000 in 5 years. Which one of the following investments best matches its goal?

My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service. I must have ________.

Which one of the following would be considered a "cash equivalent" investment?

Which type of insurance product gives policyholders a fixed death benefit and a selection of investment alternatives?

One way that life insurance firms can hedge the risk created by offering whole-life insurance policies is by ________.

_______ is a life insurance policy that will provide a death benefit only and has no savings plan.

Price volatility is greatest on which one of the following investments?

Major functions of the investment committee include all but which one of the following?

The price of your investment increases 20% one month after you buy it. You do not believe that the stock's prospects have changed. Which one of the following actions would indicate the lowest amount of risk aversion?

The choice of an active portfolio management strategy rather than a passive strategy assumes ________.

Empirical evidence confirms that investors become ________ as they approach retirement.

Which type of insurance product allows policyholders to adjust their death benefit according to their needs?

Endowment funds are held by ________.

Which of the following is not one of the main areas covered in the examinations that must be taken in order to achieve the designation of Chartered Financial Analyst?

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Filters

Exam 22: Investors and the Investment Process

Which of the following typically strives to earn a return on their investments that exceeds the actuarially determined rate of return?

Which one of the following institutions typically has the longest investment horizon?

The term hedge refers to an investment that is used ________.

The risk that a downturn in the market may substantially reduce your investment principal is called ________.

A life insurance firm wants to minimize its interest rate risk, and it is planning on paying out $250,000 in 5 years. Which one of the following investments best matches its goal?

My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service. I must have ________.

Which one of the following would be considered a "cash equivalent" investment?

Which type of insurance product gives policyholders a fixed death benefit and a selection of investment alternatives?

One way that life insurance firms can hedge the risk created by offering whole-life insurance policies is by ________.

_______ is a life insurance policy that will provide a death benefit only and has no savings plan.

Price volatility is greatest on which one of the following investments?

Major functions of the investment committee include all but which one of the following?

The price of your investment increases 20% one month after you buy it. You do not believe that the stock's prospects have changed. Which one of the following actions would indicate the lowest amount of risk aversion?

The choice of an active portfolio management strategy rather than a passive strategy assumes ________.

Empirical evidence confirms that investors become ________ as they approach retirement.

Which type of insurance product allows policyholders to adjust their death benefit according to their needs?

Endowment funds are held by ________.

Which of the following is not one of the main areas covered in the examinations that must be taken in order to achieve the designation of Chartered Financial Analyst?

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Filters