Question 1

Your client wants to know the risk involved with their small portfolio. What type of performance measure should you use?

Accepted Answer

A) Treynor Index 
B) Sharpe Index 
C) Jensen Index 
D) None of the above

Question 2

Coupons are fixed periodic interest payments. They are paid from the bond's issue date to the bond's maturity date. What is the relationship between a bond's yield and its coupons?

Accepted Answer

A) A bond's yield is the sum of total coupons. 
B) A bond's yield is the sum of total coupons divided by the bond's face value. 
C) A bond's yield is the final coupon paid on the maturity date of the bond. 
D) A bond's yield is another name for a coupon.

Question 3

What concept is used to evaluate, rank, and select among various investment projects?

Accepted Answer

A) Annuity Due 
B) Future Annuities 
C) Net Present Value 
D) Stream Annuities

Question 4

What concept states that the larger a sample population the more accurate the prediction acquired by the testing of the sample?

Accepted Answer

A) Law of Adverse Numbers 
B) Law of Large Numbers 
C) Law of Action 
D) Adverse Reaction

Question 5

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 6

Prices are determined by supply and demand. Supply and demand are driven by rational and irrational behavior. Security prices move in trends that persist for long periods of time. The actual shift in supply and demand can be observed in market price behavior. Each of the above statements is assumptions of what type of analysis?

Accepted Answer

A) Efficient Frontier Hypothesis 
B) Market Indicators Analysis 
C) Technical Analysis 
D) Anomalies

Question 7

Naomi owns closely held stock and is considering selling a few shares. What makes this a difficult transaction?

Accepted Answer

A) Annuities affect stock prices. 
B) Bonds affect stock prices. 
C) The lack of an organized market makes it difficult to determine the value of stock 
D) All of the above.

Question 8

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 9

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 10

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 11

Which of the following is true regarding asset allocation and portfolio diversification?

Accepted Answer

A) Through diversification, you should maximize risk in a portfolio by spreading investments across various types. 
B) You should periodically rebalance the asset allocation. 
C) Clients will never understand the techniques you employ, so it is not important to explain them. 
D) You should educate the client at the beginning of portfolio management, but should not need to do it again.

Question 12

What do normal distribution and "skewness" have in common?

Accepted Answer

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

Question 13

What is used to show yields for bond maturities to determine the best value in bonds as an economic indicator?

Accepted Answer

A) Yield Curve 
B) Deflation Curve 
C) Inflation Marker 
D) National Indicator

Question 14

Assume you have a client that is willing to take a moderate level of risk when investing. They are interested in government coupons and want to take advantage the highs and lows of inflation, what should be recommended?

Accepted Answer

A) U)S. Series EE and HH Bonds 
B) Banker's Acceptances 
C) Treasury Inflation Protected Securities 
D) Money Market Accounts

Question 15

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 16

By what means can current stockholders use to maintain their proportionate ownership in a firm?

Accepted Answer

A) Cumulative Rights 
B) Respective Rights 
C) Pre-emptive Rights 
D) Rights of Warrants

Question 17

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 18

What type of bonds helps provide for diversification?

Accepted Answer

A) Dividend Bonds 
B) Local Bonds 
C) Foreign Bonds 
D) Control Bonds

Question 19

What theory recognizes three movements in security markets: major trends, intermediate trends, and short-term trends?

Accepted Answer

A) Efficient Frontier Hypothesis 
B) Market Indicators Analysis 
C) Technical Analysis 
D) Dow Theory

Question 20

Your client as 20 years old and has several thousand dollars' worth of EE bonds that he was gifted on his first birthday. The client's EE bonds are hitting maturity and taxes will be due. The client is also starting college and funds to pay for school. What would you suggest the client do to address their financial dilemma?

Accepted Answer

A) Suggest the client exchange the current bonds for HH bonds 
B) Suggest they use the bonds for college tuition 
C) Both A and B 
D) Neither A or B

Exam 4: Investment Planning