HS 328 - Exam 2 || All Answers are Flawless.
The decision of whether to go public is an important one for private companies. Which of the
following statements is (are) a disadvantage of going public?
I. Loss of some control over business operations
II. The obligation to file annual and quarterly reports to the SEC
a. I only
b. II only
c. Both I and II
d. Neither I nor II correct answers c. Both I and II
Explanation: Companies that go public have less control over their business operations and must
file reports to the SEC.
At 11 PM EST, an investor in New York buys shares of a company listed on the NYSE. Through
which of the following did the investor make this purchase?
a. An organized exchange
b. An over-the-counter market
c. The fourth market
d. The primary market correct answers b. An over-the-counter market
Explanation: The "third market" involves over-the-counter trades of exchange-listed securities
after those exchanges have closed.
The goals of regulatory oversight include all the following EXCEPT
,a. reducing inequality.
b. enhancing transparency.
c. increasing integrity.
d. maintaining accuracy in financial reporting. correct answers a. reducing inequality.
Explanation: The goals of regulatory oversight are fostering transparency, integrity, and accuracy.
Which securities law regulates the offering and sale of securities in the primary market and
ensures more transparency in financial statements?
a. The Securities Act of 1933
b. The Securities Exchange Act of 1934
c. The Investment Advisers Act of 1940
d. The Investment Company Act of 1940 correct answers a. The Securites Act of 1933
Explanation: The Securities Act of 1933 requires disclosures of new securities in the primary
market. The Securities Exchange Act of 1934 focuses on the trading of securities in the
secondary market. The Investment Advisers Act of 1940 regulates investment advisers and
requires registration with the SEC for firms or any individual advisers with assets under
management exceeding $100 million. The Investment Company Act of 1940 forms the backbone
of financial regulation and established the foundation for mutual funds and hedge funds.
A young client is building a retirement portfolio. Which of the following asset allocations is most
appropriate?
a. 80% cash, 10% bonds, 10% equities
b. 5% cash, 80% bonds, 15% equities
c. 0% cash, 50% bonds, 50% equities
d. 5% cash, 10% bonds, 85% equities correct answers d. 5% cash, 10% bonds, 85% equities
,Explanation: Portfolios with long time horizons, such as the retirement portfolio of a young
client, should be dominated by equities with relatively low allocations toward bonds and cash.
Which of the following is an example of an equity?
a. Treasury bills
b. Municipal bonds
c. Common stock
d. Real estate correct answers c. Common stock
Explanation: Equities include common stock and preferred stock.
Which of the following is considered to be a traditional asset class for a retirement portfolio?
a. Derivatives
b. Equities
c. Hedge funds
d. Real estate correct answers b. Equities
Explanation: The three major asset classes for retirement portfolios are bonds, equities, and
money market securities. Real estate is considered to be an alternative investment.
An investment manager routinely uses technical analysis to outperform his benchmark portfolio.
He also finds that fundamental analysis and a little bit of insider trading (which is illegal) provide
improved returns. Based on this information, he is investing in a market that is
a. inefficient.
, b. weak-form efficient.
c. semi-strong form efficient.
d. strong-form efficient. correct answers a. inefficient
Explanation: Technical analysis should not provide improved returns in any type of efficient
market. This market is inefficient.
A mutual fund's returns over the past 4 years were -4%, -15%, 13%, and 13%. What was its
geometric mean return over these years?
a. 1.03%
b. 1.75%
c. 2.08%
d. 11.17% correct answers a. 1.03%
Explanation:
GMR = [(1 + -4%) × (1 + -15%) × (1 + 13%) × (1 + 13%)](1/4) − 1
GMR = [(0.96) × (0.85) × (1.13) × (1.13)](1/4) − 1
GMR = [1.0420](1/4) − 1
GMR = 1.0103 − 1 = 0.0103 = 1.03%
Four years ago, an investor contributed $5,000 to an investment portfolio. A year later, the
investor contributed another $1,000. Another year later, the investor withdrew $1,000. Last year,
the investor contributed $2,000. Today, the portfolio is worth $10,000. What was this investor's
dollar-weighted return over the past 4 years?
The decision of whether to go public is an important one for private companies. Which of the
following statements is (are) a disadvantage of going public?
I. Loss of some control over business operations
II. The obligation to file annual and quarterly reports to the SEC
a. I only
b. II only
c. Both I and II
d. Neither I nor II correct answers c. Both I and II
Explanation: Companies that go public have less control over their business operations and must
file reports to the SEC.
At 11 PM EST, an investor in New York buys shares of a company listed on the NYSE. Through
which of the following did the investor make this purchase?
a. An organized exchange
b. An over-the-counter market
c. The fourth market
d. The primary market correct answers b. An over-the-counter market
Explanation: The "third market" involves over-the-counter trades of exchange-listed securities
after those exchanges have closed.
The goals of regulatory oversight include all the following EXCEPT
,a. reducing inequality.
b. enhancing transparency.
c. increasing integrity.
d. maintaining accuracy in financial reporting. correct answers a. reducing inequality.
Explanation: The goals of regulatory oversight are fostering transparency, integrity, and accuracy.
Which securities law regulates the offering and sale of securities in the primary market and
ensures more transparency in financial statements?
a. The Securities Act of 1933
b. The Securities Exchange Act of 1934
c. The Investment Advisers Act of 1940
d. The Investment Company Act of 1940 correct answers a. The Securites Act of 1933
Explanation: The Securities Act of 1933 requires disclosures of new securities in the primary
market. The Securities Exchange Act of 1934 focuses on the trading of securities in the
secondary market. The Investment Advisers Act of 1940 regulates investment advisers and
requires registration with the SEC for firms or any individual advisers with assets under
management exceeding $100 million. The Investment Company Act of 1940 forms the backbone
of financial regulation and established the foundation for mutual funds and hedge funds.
A young client is building a retirement portfolio. Which of the following asset allocations is most
appropriate?
a. 80% cash, 10% bonds, 10% equities
b. 5% cash, 80% bonds, 15% equities
c. 0% cash, 50% bonds, 50% equities
d. 5% cash, 10% bonds, 85% equities correct answers d. 5% cash, 10% bonds, 85% equities
,Explanation: Portfolios with long time horizons, such as the retirement portfolio of a young
client, should be dominated by equities with relatively low allocations toward bonds and cash.
Which of the following is an example of an equity?
a. Treasury bills
b. Municipal bonds
c. Common stock
d. Real estate correct answers c. Common stock
Explanation: Equities include common stock and preferred stock.
Which of the following is considered to be a traditional asset class for a retirement portfolio?
a. Derivatives
b. Equities
c. Hedge funds
d. Real estate correct answers b. Equities
Explanation: The three major asset classes for retirement portfolios are bonds, equities, and
money market securities. Real estate is considered to be an alternative investment.
An investment manager routinely uses technical analysis to outperform his benchmark portfolio.
He also finds that fundamental analysis and a little bit of insider trading (which is illegal) provide
improved returns. Based on this information, he is investing in a market that is
a. inefficient.
, b. weak-form efficient.
c. semi-strong form efficient.
d. strong-form efficient. correct answers a. inefficient
Explanation: Technical analysis should not provide improved returns in any type of efficient
market. This market is inefficient.
A mutual fund's returns over the past 4 years were -4%, -15%, 13%, and 13%. What was its
geometric mean return over these years?
a. 1.03%
b. 1.75%
c. 2.08%
d. 11.17% correct answers a. 1.03%
Explanation:
GMR = [(1 + -4%) × (1 + -15%) × (1 + 13%) × (1 + 13%)](1/4) − 1
GMR = [(0.96) × (0.85) × (1.13) × (1.13)](1/4) − 1
GMR = [1.0420](1/4) − 1
GMR = 1.0103 − 1 = 0.0103 = 1.03%
Four years ago, an investor contributed $5,000 to an investment portfolio. A year later, the
investor contributed another $1,000. Another year later, the investor withdrew $1,000. Last year,
the investor contributed $2,000. Today, the portfolio is worth $10,000. What was this investor's
dollar-weighted return over the past 4 years?
