HS 328 Investments || Top Grade Assured.
All of the following is (are) among the responsibilities of FINRA EXCEPT
A)
educating investors.
B)
fostering market transparency.
C)
writing and enforcing rules governing the activities of all registered broker-dealer firms and
registered brokers in the U.S.
D)
writing and enforcing rules governing the activities of all registered investment advisors. - The
correct answer is (D).The SEC and state securities regulators are responsible for regulation of
registered investment advisors.
All of the following are likely to be classified as investment advisers by the U.S. Securities and
Exchange Commission (SEC) EXCEPT
A)
a financial analyst who issues a new report on the performance of value stocks directly to a
client.
B)
an analyst who recommends a triple-A-rated bond to a client.
C)
a money manager who makes asset allocation assignments for institutional investors.
D)
a financial firm that acts as a dealer in investment grade bonds. - The correct answer is (D).
Broker-dealers are explicitly excluded from being classified as advisers under the legal
framework of the Investment Advisers Act. Individuals or firms that issue reports or offer
investment advice, including asset-allocation decisions, are considered to fit the definition of an
investment adviser.
,Which of the following can be greatly reduced by diversification?
A)
Systematic risk
B)
Market risk
C)
Unsystematic risk
D)
Systematic and unsystematic risk - The correct answer is (C).Unsystematic risk is reduced by
diversification.
Sam's retirement fund is expected to earn a nominal rate of 7 percent, and the inflation rate is
estimated at 3 percent. What is Sam's real rate of return?
A)
1.43%
B)
2.33%
C)
3.88%
D)
4.00% - The correct answer is (C).Real return = (1.07 ÷ 1.03) − 1 = 3.8835%
Security A has the following returns over 4 years: 4%, 7%, 0%, and -1%. What is the mean
return and the standard deviation (sample) for Security A?
A)
Mean of 2.5% and standard deviation of 3.2%
B)
Mean of 2.5% and standard deviation of 3.7%
,C)
Mean of 4% and standard deviation of 3.2%
D)
Mean of 4% and standard deviation of 3.7% - The correct answer is (B).The mean is 2.5 percent
and the standard deviation is close to 3.7 percent. You can calculate these using the ∑+ key on a
financial calculator.
If an investor owns a single share of a stock with a beta of 0.75, what can you conclude about his
investment risk relative to the market?
A)
The investor's total risk is 3/4 of the risk of the market.
B)
The investor is taking 75 percent more total risk than the risk of the market.
C)
The investor's systematic risk is ³⁄₄ of the risk of the market.
D)
The investor's diversifiable risk is 75% more than the total risk of the market. - The correct
answer is (C).Beta only measures systematic risk relative to 1, the market's beta. Beta assumes a
stock is added to an already diversified portfolio. Because a single stock has both diversifiable as
well as systematic risk, an investor who purchases only a single stock may have a total risk
greater than the market's risk.
Maggie considers four potential securities with identical expected returns but different
correlations with her existing portfolio as part of her asset-selection decision. Which security
would provide Maggie with the greatest diversification benefit?
A)
Security 1 with a correlation coefficient of +1.0
B)
Security 2 with a correlation coefficient of +0.32
C)
, Security 3 with a correlation coefficient of 0.00
D)
Security 4 with a correlation coefficient of -0.38 - The correct answer is (D).Since the returns of
the four potential securities are the same, the primary consideration is the risk element. The best
security is the one with the lowest correlation, which is Security 4.
Which of the following is accurate regarding the capital market line (CML)?
A)
The portfolios on the new efficient frontier are some combination of the risk-free asset and the
market portfolio.
B)
The CML is a line that begins at the risk-free rate of return and crosses the efficient frontier at
the market portfolio.
C)
The CML represents the most efficient portfolios of individual stocks.
D)
The slope of the CML is an investor's indifference curve. - The correct answer is (A).
The CML is a combination of the risk-free return and the market portfolio. Option (B) is
incorrect, as the CML does not cross the efficient portfolio, rather it is tangent to it. Option (C) is
incorrect as the CML consists of the market portfolio and the Rf. Option (D) is incorrect as the
slope is the Sharpe Ratio.
Which of the following techniques or strategies would take advantage of a perceived
undervaluation in the energy sector of the economy?
A)
Dollar-cost averaging into a portfolio
B)
Strategic asset allocation rebalancing
C)
Tactical asset allocation
All of the following is (are) among the responsibilities of FINRA EXCEPT
A)
educating investors.
B)
fostering market transparency.
C)
writing and enforcing rules governing the activities of all registered broker-dealer firms and
registered brokers in the U.S.
D)
writing and enforcing rules governing the activities of all registered investment advisors. - The
correct answer is (D).The SEC and state securities regulators are responsible for regulation of
registered investment advisors.
All of the following are likely to be classified as investment advisers by the U.S. Securities and
Exchange Commission (SEC) EXCEPT
A)
a financial analyst who issues a new report on the performance of value stocks directly to a
client.
B)
an analyst who recommends a triple-A-rated bond to a client.
C)
a money manager who makes asset allocation assignments for institutional investors.
D)
a financial firm that acts as a dealer in investment grade bonds. - The correct answer is (D).
Broker-dealers are explicitly excluded from being classified as advisers under the legal
framework of the Investment Advisers Act. Individuals or firms that issue reports or offer
investment advice, including asset-allocation decisions, are considered to fit the definition of an
investment adviser.
,Which of the following can be greatly reduced by diversification?
A)
Systematic risk
B)
Market risk
C)
Unsystematic risk
D)
Systematic and unsystematic risk - The correct answer is (C).Unsystematic risk is reduced by
diversification.
Sam's retirement fund is expected to earn a nominal rate of 7 percent, and the inflation rate is
estimated at 3 percent. What is Sam's real rate of return?
A)
1.43%
B)
2.33%
C)
3.88%
D)
4.00% - The correct answer is (C).Real return = (1.07 ÷ 1.03) − 1 = 3.8835%
Security A has the following returns over 4 years: 4%, 7%, 0%, and -1%. What is the mean
return and the standard deviation (sample) for Security A?
A)
Mean of 2.5% and standard deviation of 3.2%
B)
Mean of 2.5% and standard deviation of 3.7%
,C)
Mean of 4% and standard deviation of 3.2%
D)
Mean of 4% and standard deviation of 3.7% - The correct answer is (B).The mean is 2.5 percent
and the standard deviation is close to 3.7 percent. You can calculate these using the ∑+ key on a
financial calculator.
If an investor owns a single share of a stock with a beta of 0.75, what can you conclude about his
investment risk relative to the market?
A)
The investor's total risk is 3/4 of the risk of the market.
B)
The investor is taking 75 percent more total risk than the risk of the market.
C)
The investor's systematic risk is ³⁄₄ of the risk of the market.
D)
The investor's diversifiable risk is 75% more than the total risk of the market. - The correct
answer is (C).Beta only measures systematic risk relative to 1, the market's beta. Beta assumes a
stock is added to an already diversified portfolio. Because a single stock has both diversifiable as
well as systematic risk, an investor who purchases only a single stock may have a total risk
greater than the market's risk.
Maggie considers four potential securities with identical expected returns but different
correlations with her existing portfolio as part of her asset-selection decision. Which security
would provide Maggie with the greatest diversification benefit?
A)
Security 1 with a correlation coefficient of +1.0
B)
Security 2 with a correlation coefficient of +0.32
C)
, Security 3 with a correlation coefficient of 0.00
D)
Security 4 with a correlation coefficient of -0.38 - The correct answer is (D).Since the returns of
the four potential securities are the same, the primary consideration is the risk element. The best
security is the one with the lowest correlation, which is Security 4.
Which of the following is accurate regarding the capital market line (CML)?
A)
The portfolios on the new efficient frontier are some combination of the risk-free asset and the
market portfolio.
B)
The CML is a line that begins at the risk-free rate of return and crosses the efficient frontier at
the market portfolio.
C)
The CML represents the most efficient portfolios of individual stocks.
D)
The slope of the CML is an investor's indifference curve. - The correct answer is (A).
The CML is a combination of the risk-free return and the market portfolio. Option (B) is
incorrect, as the CML does not cross the efficient portfolio, rather it is tangent to it. Option (C) is
incorrect as the CML consists of the market portfolio and the Rf. Option (D) is incorrect as the
slope is the Sharpe Ratio.
Which of the following techniques or strategies would take advantage of a perceived
undervaluation in the energy sector of the economy?
A)
Dollar-cost averaging into a portfolio
B)
Strategic asset allocation rebalancing
C)
Tactical asset allocation
