Question 1

If you are looking to add a new mutual fund for the purpose of diversification, the fund you would select would have what?

Accepted Answer

A) Largest negative correlation 
B) Smallest negative correlation 
C) Zero variance 
D) Largest positive correlation

Question 2

Your client wants to know the systematic risk of his diversified portfolio. What would you first determine before answering the client's question?

Accepted Answer

A) Covariance 
B) Coefficient of Variation 
C) Bell Curve 
D) Beta

Question 3

You have a new client, it is time to make investment decisions and you want to reduce professional liability exposure; what should be created for each client?

Accepted Answer

A) Probability Analysis 
B) Performance Benchmarks 
C) Technical Analysis 
D) Investment Policy Statement.

Question 4

Interest rates have an inverse relationship with what type of investments?

Accepted Answer

A) Bonds 
B) Stocks 
C) Neither bonds nor stocks 
D) Both bonds and stocks

Question 5

What would have to be completed to compare the benefits of a project to the cost of a project?

Accepted Answer

A) Cost-benefit Analysis 
B) Project-benefit Analysis 
C) Cost-price Analysis 
D) Benefit-price Analysis

Question 6

What is a bond? Select all that apply:

Accepted Answer

A) It is a contract by which an investor lends money in return for a promise of future cash flows. 
B) It is an instrument for large institutions such as governments and large companies to borrow on the world capital markets. 
C) A token of trust between lenders and borrowers. 
D) A piece of paper that represents an amount of money that is lent or borrowed.

Question 7

Your client want to invest 80 percent of their funds in stocks that are steady and not effected by the economy and to invest another 20 percent of their funds in stock that would take advantage of economical shifts. Where type of stocks would you suggest 80 percent of the funds purchase?

Accepted Answer

A) Interest-sensitive Stocks 
B) Foreign Stocks 
C) Defensive Stocks 
D) None of the above

Question 8

What investments types rely on demand for pricing?

Accepted Answer

A) Natural Resources 
B) Tangible Assets 
C) Neither A or B 
D) Both A and B

Question 9

Behind the random walk model, the current price is the best prediction of future prices.

Accepted Answer

A) True 
 B)False

Question 10

Some bonds are debt obligations issued by state and local governments, others are sold with no coupon at a discount, still others are promissory notes; what type of bond are issued to purchase specific fixed assets that are pledged to secure debt?

Accepted Answer

A) Corporate Bonds 
B) Municipal Bonds 
C) Asset-backed Securities 
D) Mortgage pass-through Securities

Question 11

A client is an owner of a semi-large firm in Kansas, but they want to retain their dollars for use later to pay for goods purchased from other U.S. firms. The client has decided to take some funds and invest in Barclays Bank in London. What would the client's funds be known as once the investment is made?

Accepted Answer

A) International Euros 
B) Foreign Banker's Acceptances Funds 
C) Intra-continental Foreign Commercial Paper 
D) Eurodollars

Question 12

Higher rates of return do not alone indicate superior performance. For a complete picture of a fund's performance risk and return must be calculated; what are the composite measures?

Accepted Answer

A) Treynor Index 
B) Sharpe Index 
C) Jensen Index 
D) All of the above

Question 13

If a corporation issues a 10-year $100,000 8% bond. What is the total that the issuing corporation pays to the bondholder over the next 10 years?

Accepted Answer

A) $80,000 
B) $140,000 
C) $180,000 
D) $100,000 
E) $200,000

Question 14

The tangent line is strongly related to duration; both estimate the rate of change in price. After the first percentage change in price, what is used to approximate the second and added to the duration?

Accepted Answer

A) Current Yield 
B) Bond Duration 
C) Convexity 
D) Yield to Maturity

Question 15

Beta used to determine risk is only accurate when calculated for what?

Accepted Answer

A) Investment Risk 
B) Reinvestment Risk 
C) Diversified Portfolios 
D) Streamed Portfolios

Question 16

What measurement does not include any reinvestment income or price appreciation or depreciation?

Accepted Answer

A) Current Yield 
B) After-tax Return 
C) Yield to Call 
D) Yield to Maturity

Question 17

Your 68 year old client wishes to make an investment, but doesn't want any risk or have their money tied-up for too long; what investment vehicle would be best for the given situation?

Accepted Answer

A) U)S. Series EE and HH Bonds 
B) High-grade Common Stock 
C) Treasury Bills 
D) Money Market Accounts

Question 18

Volatility is the amount by which the price of a security swings up and down. If the price of a security moves up and down frequently, it has_____ volatility. Fill in the blank with the most suitable word.

Accepted Answer

A) high. 
B) low. 
C) medium. 
D) no.

Question 19

A client has $100,000 to invest. They are considering a short-term investment that is unsecured but think it may be a good idea to have the issuer to be a large corporation. What investment vehicle should a financial planner suggest?

Accepted Answer

A) U)S. Series EE and HH Bonds 
B) High-grade Common Stock 
C) Commercial Paper 
D) Money Market Accounts

Question 20

Your client's investment stocks are not paying cash dividends but he wants to know how much the value of her stocks is. You inform her that there is a way to determine the value without cash dividends; what would you use to determine the stock value?

Accepted Answer

A) Current Yield 
B) Bond Duration 
C) Convexity 
D) P/E Ratio

Exam 4: Investment Planning