# 1 If your client is not knowledgeable about the market, you should ____ versus comparable portfolios. increase...

## Question:

**1**

If your client is not knowledgeable about the market, you should ____ versus comparable portfolios.

increase the frequency of trading | ||

increase the risk of the portfolio | ||

decrease your time with the client | ||

decrease the risk of the portfolio |

**Question 2**

Which of the following is FALSE?

the benchmark chosen must be investable | ||

the benchmark most be chosen in advance | ||

the benchmark must match the portfolio allocation | ||

the benchmark must be used over short time period | ||

**Question 3**

It is appropriate for a financial planner to assess the ethic or cultural background of a client when creating the portfolio.

True | ||

False |

**Question 4**

Which is a harder condition to meet: prudent man or prudent expert?

prudent man | ||

prudent expert | ||

they are the same | ||

**Question 5**

An investor assumes her income will stay the approximately same over the next five years. If she carries higher personal debt levels in period one, she will have

higher future consumption in period two | ||

steady future consumption in period two | ||

lower future consumption in period two | ||

**Question 6**

Which of the following is NOT a common portfolio mistake?

Investors tend to rebalance unevenly | ||

Investors tend to overestimate the cost of retirement | ||

Investors tend to compare the assets within a portfolio | ||

Investors wait to long to start investing |

**Question 7**

A fiduciary must allow an investor to be undiversified if the investor chooses to be.

True | ||

False | ||

Maybe – but only if it is well documented that the fiduciary told the investor the portfolio is not diversified and the investor accepted the additional risk |

**Question 8**

Which of the following is NOT a common portfolio management mistake?

underestimating the cost of retirement | ||

not saving enough when earning a good income | ||

starting to save too late | ||

viewing all assets as a basket and willing to shift risk between accounts | ||

**Question 9**

A Value Line ranking of ____ is a good indicator of one-year performance.

1 | ||

5 | ||

1 and 5 | ||

1 or 5 |

**Question 10**

Which of the following is correct?

Efficiency means that investors won’t earn profits for an extended period of time. | ||

Efficiency means that investors won’t earn normal profits for an extended period of time. | ||

Efficiency means that investors won’t earn abnormal profits for an extended period of time. | ||

Efficiency means all three things listed above. |

**Question 11**

Milton Friedman _____ insider trading and Peter Bernstein ______.

was against; promoted varying asset allocations during the business cycle | ||

was against; promoted a steady asset allocation during the business cycle | ||

was for; promoted varying asset allocations during the business cycle | ||

was for; promoted a steady asset allocation during the business cycle |

**Question 12**

After a crisis, the market returns to normal trend usually

within a few months | ||

within a year | ||

within a few years |

**Question 13**

This type of efficiency says that market prices reflect all public information

weak form | ||

semi-strong form | ||

strong form |

**Question 14**

Investors tend to ____ to new, unexpected information.

underreact | ||

overreact |

**Question 15**

While still being legal, most companies will ____ earnings when the firm gives guidance about its earnings a few weeks before earnings are announced.

Under-estimate | ||

Over-estimate | ||

Correctly estimate |

**Question 16**

Weak form efficiency says

past information is already reflected in the stock price | ||

past and present information is already reflected in the stock price | ||

all public and private information is already reflected in the stock price | ||

all private information is already reflected in the stock price |

**Question 17**

If the beta for a portfolio increases holding all else constant, its required return will

increase which is good | ||

increase which is bad | ||

decrease which is good | ||

decrease which is bad |

**Question 18**

An investor puts $5,000 into a mutual fund on January 1st, another $5,000 on February 1st, and a third $5,000 on March 1st. On March 31st, the fund has $16,000. What is the holding period yield for the three months? (don’t worry about annualizing it)

1.67% | ||

6.7% | ||

16% | ||

60% |

**Question 19**

Stock D has a correlation of 0.7 and 0.2 with Stock E and F, respectively. Stock E has a correlation of 0.3 with Stock F. Which of the following portfolios will have the least amount of risk?

equally invested in D and E | ||

equally invested in D and F | ||

equally invested in E and F | ||

totally invested in F |

**Question 20**

The year-ending prices of ComTech for the last six years are $50.00, $57.00, $66.12, $74.05, $70.35 and $77.39. What is the arithmetic mean?

9.4% | ||

9.13% | ||

11.5% | ||

10.9% |

**Question 21**

The ________ mean finds a growth rate.

arithmetic | ||

geometric | ||

**Question 22**

Asset allocation means

Diversifying among asset classes | ||

Diversifying within asset classes | ||

Diversifying between the optimal risky portfolio and the minimum variance portfolio | ||

Diversifying between the optimal risky portfolio and the risk-free rate |

**Question 23**

What is the annualized holding period return of an investment that cost $60, earned $1.00 in dividends the first year, $1.40 in year two, $1.85 in year three, and $2.00 in year four and was sold for $55 at the end of the fourth year?

20.5% | ||

4.8% | ||

0.5% | ||

2.1% |

**Question 24**

Which of the following correlation coefficients represents the least amount of co-movement between two assets?

0.85 | ||

0.15 | ||

-0.15 | ||

-0.85 |

**Question 25**

Which is a better measure for predicting a typical year’s stock price performance?

geometric mean | ||

standard deviation | ||

beta | ||

arithmetic mean |

**Question 26**

The nominal risk free rate is a function of

the real risk free rate and the investor’s variance | ||

the prime rate and the rate of inflation | ||

the T-bill rate plus the inflation rate | ||

the tax free rate plus the rate of inflation | ||

the real risk free rate plus the rate of inflation |

**Question 27**

Which measure will rank in the same order as Alpha?

Sharpe | ||

Treynor | ||

Both will rank with Alpha | ||

Neither will rank with Alpha |

**Question 28**

As indicated by mutual fund flows, investors tend to

beat the market | ||

seek safety | ||

invest in last year's winner | ||

invest in last year’s loser |

**Question 29**

A mutual fund that was in the top quartile of funds in one year is more likely to be in the top quartile of fund in the next year.

True | ||

False |

**Question 30**

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95.

Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10.

The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

What would happen if Fund A’s beta increased to more than the beta of Fund B? Hold all else constant.

A’s Treynor’s ratio would increase and it would be a buy | ||

A’s Treynor’s ratio would increase and it would not be a buy | ||

A’s Treynor’s ratio would decrease and it would be a buy | ||

A’s Treynor’s ratio would decrease and it would not be a buy |

**Question 31**

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05.

Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11.

Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90.

Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92.

The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

Which of the following funds has a negative alpha?

A, B, C, D | ||

A, B, D | ||

B, C | ||

C |

**Question 32**

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05.

Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11.

Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90.

Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92.

The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

Which of the following funds has the best expected alpha?

A | ||

B | ||

C | ||

D |

**Question 33**

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95.

Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10.

The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

Which of the funds has an alpha that will plot above the Security Market Line?

Fund A | ||

Fund B | ||

Both Fund A and Fund B | ||

Neither Fund A or Fund B |

**Question 34**

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95.

Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10.

The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

Which of the funds has a Sharpe’s Ratio that is better than the market’s ratio?

Fund A | ||

Fund B | ||

Both Fund A and Fund B | ||

Neither Fund A or Fund B |

**Question 35**

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05.

Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11.

Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90.

Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92.

The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00.

The T-bill has an expected return of 4.5%

Which of the following funds is least desirable regarding the coefficient of variation?

Fund A | ||

Fund B | ||

Fund C | ||

Fund D |

**Question 36**

The bid-ask spread increases if the price level _____ and volatility _____.

increases; increases | ||

increases; decreases | ||

decreases; increases | ||

decreases; decreases |

**Related Book For**

## Ethics in Accounting A Decision Making Approach

ISBN: 978-1118928332

1st edition

Authors: Gordon Klein