iollowing The data appiy to questions 19-21. Below are key data on five of the 9 cells in the Morningstar 3X3 gnd- jumbled of courseBelow identify which of the five cells fit the specified caregory.
17
.s I 16.1 I 19.3 i
16-3
6.243
I 34,0s8
1,008 133,s59
Select the best cell, A-E, from the table above.
19.
The Smail Value pcrfolio is most likely to be:
$:
)c d.D
e.E
a.A b.B
20.
The Large Growth portrolio is most Likely to be:
@o
e.E
21.
a-A b.B c.C
The Mid Blend portfolio is most likely to be:
@n
b.B c.C d.D e.E
The followlng data
appt_v
to questions ?9-30.
Five nort'olios, A-E. have the icllcn.ing data-
A
Beu
R2
D
D
C
1.45
0.95
95
i
r00
D
E 0.95
100
I
145
80
90
29.
Which is likely to have the sreatest total risk (Sigma)?
^A d,- /1
@o
e.E
c.C
b.ts
30.
Which is likely to have the least total risk (Sigma)?
G)
3
a.A b.B c.C d.D /a
r'
l.
Which of the follorying is trte? a. Load frrnds are bought by investors directly from the firnd company. b. a01ft)s are employee-sponsored and [RA.s are employer-sponsored. c. Class A shares are No Load funds. d. Invesknents in the "lnvestment" Vehicle (as opposed to the "Retirement" Vehicle) are permitted tax advar,tages. "Breaq points" are a mechanism for reducing the front-end load for A @ shares for larger amounts invested.
Of the following statements, seiect the one which describes Warren Buffet's practice of diversification- Warren Buffet: a- Practices diversification because it gives him the maximum return for a
32-
b. c. d.
@
given risk: Practices diversification because it gives him the minimum risk. Does not practice diversification because he wants to reduce risk. Does not practice diversification because he is not averse to risk. Oort not practice diversification because he believes he ca:r increase his relurn by making concenbated invesblents.
fi
The ibilou,'ing applies to questions -59-60. The yield on a standard (nomrnal) 10-"'ear Treasun' rs 5or'o (iN;f%) The f.ield on a 10vear TlPS is i'z'. (iR:--:9t).
j9. If iN increases to 7?'o arLd iR rernains
Treasuri,
ar l%n.
uhich oithe fcllo*'ing is tree'l
a.
@ c.
d. e.
Price Chanees TiPS decrease decrease renlaln constant d-.t.u.. remaln constant decrease rernain constant remain constant remain constant increase
60. Which of the follorving statements is ftlse?
@ ttre expected rate of inflation over the next fu'o years is 2% b. if the actual rate of inflation over the next lrvo years is greater tiran the expected c.
d. e.
61 .
rate of inflation over the next hvo years, the TIPS wiil outperform tire nominal bond. if the expected rate of inflation increases by l':zt, and the yield on nominal Treasuries increases by 79'o. the yield on TIPS'"viil ren-rain constant. if the expected rate of inflation increases by l% and the yield on nominal Treasuries remains constant, the yreld on TIPS rviil decrease b1' 1o% all of the above are true. .
STR.FS are formed from a 10-year Treasury. Which of the following is false? Trventy-one distinct Treasury securities rvill be lormed from the 1O-year Treasury. Each STRIPS security is a zero coupon bond. The sum of the present vaiue of each of the STRIPS securities (atthe appropriate current Treasury yreld) will equal approxintately the current price of tire 1O-year Treasury. A single STRIPS security ri'ili provide a singie pa.'rment at a specihc time r,,'ith no investment risk. AII of tl-re above are true.
t
V
ra.
b.
c.
d.
)
The fcllowirg data appl_v to quesfions 1-2.
The iollowi.,q
tr-r-e
r3rull-s ior
I
-,-ne
neturns I ;tr2l34
lJ-a
S&P500 rnif j-t-lcr-.s -.\ :-n,l B o..':l roiLr p:rioJs.
i
ji
1.
The closest B
B foeta) and Rz for A
R2 1.0
are
(h)
C.
a.
2 1.5 1.0 1.5
i.0
1.0
d.
e.
)
0.8 0.8
2
The closest B (beta) and R2 for B are
G)t-o -b. 1.0 c. i.5 d. 1.5
e. 2.0
---\ B -
R'
0.8
1.0
0.8
1.0
0.8
The foLtrow'lsg data apFl-r to questious l-2-15. Ccasider the follor",-ing asset alfocation fcr i-nv-rstor [-oes A, B, C, anC D.
[aisfinsriiate Term Bonfu
Stock
Ai,ulclu 80r45lzo.O
LO
PErcent of Portroiio
37
10
o
o
50
15 15
60 70
Sma]l Stock
)
5
lnternational Stock
20
!2
The Portfolio most appropriate
lor an aggressive 23-year old with no dependents
wouid be:
^A :1 cl--
b.B c.C )D
13.
The
assets
porfoiio most appropriate for a cautious 55-year old who has j..rst enough
would be:
to .^ last through retirement (3/ A b.B c.C d.D
l4
For
al investor with a risk tolerance of 6 on a scale of I - l0 ( 10 being the most
risk tolerant), the ideai porfolio would be:
ac d.D
15.
a.A b.B
For an investor with a risk toleralce of 3 on a scale risk toierant), the ideal porrfolio ''zrould be:
of
1-10 (10 being the most
a.A
@e c.C
d.D
The folloering data appty to questions 16-17.
Thd
tolowing
asset a[ocations appiy to three target retiremeut funds.
A, B, and C, for
Intermediate Term B onds U.S. Total StockMarket
16.
The 2045 firnd applies to firnd:
a-
A
B
C
b.
c)
t7.
The 2030 firnd applies to filnd:
@s
18.
a.A
c.C
Which of the follovring is not truea. Il general, an older person is less risk tolerant. b. In general, a more wealthy person is more risk tolerant. c, In general, a person with a longer investrnent horizon is more risk tolerantA @) tn general, a person with more dependants is more risk tolerant. e. AII of the above are tue.
$
The following data appty to quesf,ions 19-21. Belou'are key'data on five of the 9 cells in the Morningstar 3X3 Below identify which of the five cells fit the specified category.
gt(
jumbled of course.
A
Std. Dev. (%)
B
16.1
C
19.3
D
16.3
E
Mkt. Cap (SMit) P/E P/B Div. Yield (%)
r7.5 6,243 t7.4
2.2 0.3
34.058
15.3
1,008
16-3
33,s59
2r.6
3.3 0.2
2r.5 t.097 22.t
2.7
0
2.3
t.7
0.3
I
Select the best cell, A-E, from the table above.
19.
The Small Value portrolio is most likely to be:
a.A b.B
d.D
E,E
) c
20.
The Large Growth porrfolio is most likely to be:
6)n
e.E
21.
The Mid Blend porrfolio is most likely to be:
a.A b.B c.C
@e
b.B c.C
d_D
e-E
The followlng data appl]'io questions 12-?6. All of ihe follorving data describe various Larqe Blend pordolios.
Alpha
Beta
Rz
0
1.0 1.45 80
0.8
-0.1
0.5
-0.6 0.99
99 Li10/ /o
1 1 trO/
0.99
97
c.95
85
I
0.96
95
r00
1,Bo/o '10./
Sigma Gotal Risk)
18%
7B%
26%
1}o/n
22%
10%
18j%
70% 2s0
1.25
Turnover Number of
Stocks
t/o
LJ
/O
NA
1.35
40
1.6
40
1.4
s00
0.1
400
0.8
Expense
?2.
The lndex Fund is:
a.A b.B
@c
d.D e.E
23.
A concenhated, low tumover fund ("Buy and Flold") with the greatest total systematic market and unsystematic risk of those shown is:
@A
b.B c.C d.D e.E
24.
A diversified fund with the smallest total of systematic and unsystematic risk is:
a.A b.B c.C
d.D
@E
25.
A closet index Fund is:
oE
a-A b.B c.C d.D
A concentraied lorv lumo\.-r fund ("Buy and Hold") rvith rhe least total of s.vstemalic 6i1{ rrnsl,5tenalic risk of 'rhe Buy a-nd Hold fitnfu shom is:
a-A
@e
.E
c.C d.D
27.
With regard to the persistence of mutual f,rnd return performance, which of the following is faise? a, Among the top performing firnds. they may change in rank from year to year, but tend to remain among the top perlorming fiurds. b. I-n general, funds with high expense ratios tend to underperform those with low expense ratios. c. The worst performing funds tend to lsyaain among the worst performing fi.nds from year to year. d. The ra:rk ordering of fi.rnd perFormance changes from year to year@ ngeneral, it is impcssible to forecast a fund overperformance or underperfo[nance from year to year at all
You read that over 2 ggftain period 'rhe S&P500 returns 6.21% and the DJWilshire500O returns 7 -5lVo- You estimate that the return on the Russeil 2000 over this period should be: a. 5.33%
b.
G;
91
6.2r% 7.28%
16.13%
e.
Impossible to tell
The foilo*'ieg data appry fc quesilons ?9-30.
Five poiCclios. A-E. ha"'e the fcllo.r'hg dat-a
A
Beta
R?
B 0.95
95
C
1.45 90
tool ao lroo
i
I
D r.45
E 0.95
29.
Which is likely to have the greatest total risk (Sigma)?
@o .E
U.L
a.A b.B c.C
30.
Which is likell, to have the least totai risk (Sigma)?
@e
3
a.A b.B ^(\-. u d.D
l.
Which of the foilowing is frue? a. Load funds are bought by investors directly from the fi.rnd company. b. a0lft)s are employee-sponsored and IRAs are employer-sponsored. c. Class A shares are No Load fi.rnds. d. Investnenis in the "Ilvestrnent" Vehicle (as opposed to the "Retirement" Vehicle) are permitted tax advantages. "Break points" are a mechanism for reducing front-enci the ioad ior A @ shares for larger amounts invested.
32.
Of the following statements, select the one which describes Warren Buffet's practice of diversification. Warren Buffet: a^ Practices diversification because it gives him the maximum return for a given risk. b. Practices diversification because it gives him tlre minimum risk. c. Does not practice diversification because he wants to reduce riskd. Does not practice diversification because he is not averse to risk. (g no.r not practice diversification because he believes he can increase his refrrm by makiag concentiated investments.
-q
# ,*
17.
trhich of the flollc-rw-ine is not true about Hedee Funds? a. They pror.ide a varietv of sn-atesies not formd in other hvestment vehicles-
b.
c. d.
@l
rnvestoent returns rvhich may-be uncorrelared with the underlying market (R2 is low') Their investrrent strategies and porfolios are non-transparent. Their return is based (almost) enrireiy on generating alphaal of the above are u-ue.
The,v prov'ide
38.
A closed end frrnd has the following holdings of tbr-ee stocks A, B, and C at the
end of the trading day.
Number of Shares
Price s20
$33 $12
'a 7 L/ UL,t a 1'\
c 44D
=-
A
B
100
BO
-
C
150
zc"+a t6ot2
b++ o
5a_4 FP
=
5'4o =2j1 z-1d
The firnd also has $500 of liabilities. At the end of ttre day, there are 250 shares of this fund outstanding. What is its NAV?
a. 61 u,t 23.76
c.25.76
d. 59.40 e. &.40
39.
Which of the following is not frue? a. An investnent vehicle relers to the taxation, liquidity and expense features pertaining to the investrnent shategy included in the vehicle. b. The net rehrrn of an investnent strategy will be affected by the vehicle in which it operates. c. Diversified stock, large cap value stock. and core bond are examples of investrnent stategies. @ X specific investrnent stategy can be in only one type of investment vehiclee. IRAs, Roth IRAs and 401(K)s are examples of invesEnent vehicles.
+1.
The data that apol-v to
d- r.l. /a-a (b,..' ts
^
a-n
ETF are:
c.C d. Could be A or B e. Could be B or C
Use ihe follawing data
for
B
qr:est-ions 48-5$"
C
A True A]
Beta
Rz
D
IS
0
1
E
F
G B
USS
0
USS 0.9
85 1.52
USS
0.6
IS
B
0
no u.o
1.1
04
0.95
93
I r00
0.18
25Vo
t.2
93
100
92 1.68
100 0.31
Expense
Weieht
l0Y"
t.26 5%
0.2
r0y,
l0V.
30%
10%
Legend:
USS-U.S. Stocks IS- lntemational Stocks B-Bonds
48.
Tbe mix between U.S. stocks, international stocks, and bonds in this portrolio is
as
follows:
G) qoy, c. 40% d. 60% e. 60Y"
a- 25%
U.S.
Stock
International
20% A% 0% 20%
15%
Stock
Bonds 60% 40% 60% 40%
2C%
49.
If this portfolio was used in a core/satellite sh'ategy, the portion of the entire portlolio in the core porfolio would be:
a. b.
c.
d.
35% 40% 50% 60%
@ ssn
50.
If the hvestor increased the size of the core porrlolio relative to the satellite porrfolio, which of the tbllowing is true? a- the potential for generating alpha increases and the expenses increase. b. the potential for generating alpha increases and the expenses decrease. c. the potential for generating alpha decreases a:rd the expenses ilcrease. @ tn. potentiai for generating alpha decreases and the expenses decrease. e. none ofthe above-
-i1.
The 1926-200-i ,e!-Ims and risks from lbbotson for iour assei classes are eiven The risk ilee rate r-rll fie return is 4910. , ,belon'.
Reirrrn \7.4V'o Small Cap Stock i2.i9/o Large Cap Stock 6.294 Long Corporate Bonds Iltermediate Treasur.v Bonds 5.586
R-isk
32.9o,h
20.2o,/o
8.5% 5.7%
Based on the Sharpe Ratio, which is the best asset class? a- Small Cap Stocks
@ L*g. CaP Stocks c. Long Corporate Bonds d. Intermediate Treasury Bonds 52.
Which of the following is true regarding alpM? a. hvestcrs who believe i:n the Efficient Market Hypothesis attempt to generate alpha in their investnents. b. Most investors are able to generate a positive alpha in their portfolios. c. lnvestors whose portfoiios are on the Capital Marlcet Line are attempiing , to generate alpha. /l U A concenfated portfolio is most iikely attempting to generate positive alpha e. A porfolio with a high rurnover indicates that the porrfolio manager believes that alpha cannot be generated? Which of the fotlowing is false regarding the placement of assets ia either the ent Account (l) or the Retirement Account (R)? a. A municipal bond firnd shou-ld go in I. @ ehieh vieta bond tund should go in I. c. A capital gains oriented stock fi.rnd should go in R. d. A "cash fund" (money market frrnd) should go in L e. A passive stock fi.rnd should go in I.
51.
lnves
54.
Compare the investrnent approach of Warren Buffet/Chris Davis @D) with tbe investrnent approach of Harry. Markowitz/Bill Sharpe G4S). Which of the following is not h-ue? a. BD attempt to generate alpha in each asset class while IvIS do not. b. BD do much more firndamental research on individuai stocks than do MS. c. BD porrloiios are composed of a ferver number of stocks than MS porrfolios. d. The MS approach uses more mathematical and computer resources than the BD approach. @ ntt of the above are true.
i-;.
Select the one reason out of the foliori.ing reasons r.vhich is not a benefit of,adding iniernational stocks to a U.S. corlmon stock porfolioz. Have a greater coverase of stocks lor searchil_e i-or alpha retltrns. b. lntemational stocks prolide some additional diversificaiion to U.S. stocks. c. Given their retur-n- risli and correlation cb-aracreristics- the i-nternationa-l stock asset ciass mav fall on the Efficieni Frontier. @ Cu.l-ocv exchange rate fluctuations add to rhe risk of internationa-l stocks. e. All of the above ar-e benefits.
56. Al investor who believed in *.he semi-sbcng
form of the trfficient lvlarliet Hwothesis and wanted to stay out ofjail would invest in: a. Active Funds, b. The Risk Free Asset @ Passive Funds d. Core-Satellite Funds e. The l,{arket Forfolio
The foUowing data app!y to questions 57-59.
Consider the following data for the A, B, and C classes for the same mutual fi-rnd.
Class A B C 57.
If
be:
Load 5%Front
5Yo
A-nnual Expeuse
l%
None a.A b.B -F.\, ^ G)L
d.
al withdrawai for 5 years; 0%
thereafter L5%
2.0%
an investor were going to hold the frrnd for one year, the best funci ciass wouici
Cannot tell
class would
58.
If an investor were going to hold the fund for six years, the best fi.rnd
be:
a-A
@e
59.
c.C d. Canlot tell
2C years, the best fi.rnd class would
iian investor were going to hoid'uhe fuad for
be:
@a
d.
b.B c.C
Cannot tell
fl
IE
-q
.*
64.
Which of the following is not true? ([f denotes Traditional Finance; BF denotes Behavioral Finance) a- BF assumes'rhat investors aie oveiconfident are extenely loss a-.'erse; and are prone to hindsight. b. Hindsight is a psychological 6sslani5m which permits investors to Efisnalizs past investuent mistakes in a way that they do not have to admit a mistake. c. Regret finds that investors feel worse when they sell a stock which goes up than when they hold a stock that goes downG) gf assumes tbat the gg6a6mic agenl including investors, is rational, including such characteristics as being unbiased by emotions, using all available information and having consistent opinions and beliefse. TF describes how investors should behave; BF describes how investors actually behave.
The following data from the Wall Street Journal and Barron's foc- asselrs A, B, and C appty to questions 4547.
CG A- No Exchange Specified o
l\,
NAV
75.25
Net CHG -0.04
++z-r-,4-l
t s )
u.L4
,.1 - dc-7 -
B. A-m encan Stock Exch a
Dry
2.49
YLD%
2.4
CLOSE l 05.84
NET CHG
0.1 7
New York Stock
45.
The data that apply to a rnutual fund are:
@n
b.B c-C d. Could be A or B
e- Could be B or C
46.
The data that apply to a closed end bond fund are:
a-A b.B
@c
d. Could be A or B e. Could be B or C
,{*"
datathrtappiy to anETF are:
a-A
@e
c.C d. Could be A or B
e.
Could be B or C
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