Ch.21, Chapter 21: PORTFOLIO MANAGEMENT
Multiple Choice Questions
1. Which of the following is NOT part of the portfolio management process, as
described by Maginn, Tuttle, McLeavy, and Pinto (2007)?
a. portfolio factors are monitored.
b. portfolio is rebalanced.
c. portfolio is rebalanced as required.
d. strategies are developed and implemented.
Ans: b
Difficulty: Easy
Ref: Managing Your Financial Assets
2. The first step of portfolio management according to Maginn et al. (2007) is :
a. to assess market conditions.
b. to determine objectives, constraints and preferences.
c. to develop strategies and implement them.
d. to adjust the portfolio as necessary.
Ans: b
Difficulty: Moderate
Ref: Managing Your Financial Assets
3. A financial plan should include decisions on:
a. Children.
b. Spouse.
c. Risk tolerance, purchase of a house, tax planning, life, health, disability, and
protection of business and property insurance, and emergency reserve funds.
d. Career.
Ans: c
Difficulty: Easy
Ref: A Perspective on Investing in Financial Assets
4. In order to protect principal against possible loss caused by distressed selling,
individuals are typically recommended to have a
a. 1-month emergency fund.
b. 2-month emergency fund.
c. 6-month emergency fund.
Chapter Twenty-one 272
Portfolio Management
, d. 9-month emergency fund
Ans: c
Difficulty: Moderate
Ref: What Issues do Investors Face in Financial Planning?
5. The stages of the life cycle for setting individual investment objectives are:
a. Accumulation Phase, Consolidation Phase, Retirement Phase, Estate Phase.
b. Accumulation Phase, Consolidation Phase, Retirement Phase, Gifting Phase.
c. Accumulation Phase, Consolidation Phase, Spending Phase, Retirement Phase,
Gifting Phase.
d. Accumulation Phase, Consolidation Phase, Spending Phase, Gifting Phase.
Ans: d
Difficulty: Difficult
Ref: Investor Objectives
6. Which of the following is not true regarding life-cycle approach?
a. It is most appropriate for institutions. .
b. It automatically adjusts to a more conservative position as the investor nears
retirement age.
c. It is suited to 401(k) plans.
d. It can be implemented using life-cycle (also known as target-date) funds.
Ans: a
Difficulty: Moderate
Ref: Managing Your Financial Assets
7. The first step to establishing an investment policy is to state the
a. minimum investment and maximum fees.
b. SEC guidelines for prudent man investing.
c. objectives and constraints and preferences.
d. asset allocation parameters and time horizons.
Ans: c
Difficulty: Easy
Ref: Managing Your Financial Assets
8. Which of the following is NOT one of the phases of the life-cycle theory of asset
allocation?
a. Accumulation phase
b. Consolidation phase
c. Gifting phase
d. Retirement phase
Chapter Twenty-one 273
Portfolio Management
Multiple Choice Questions
1. Which of the following is NOT part of the portfolio management process, as
described by Maginn, Tuttle, McLeavy, and Pinto (2007)?
a. portfolio factors are monitored.
b. portfolio is rebalanced.
c. portfolio is rebalanced as required.
d. strategies are developed and implemented.
Ans: b
Difficulty: Easy
Ref: Managing Your Financial Assets
2. The first step of portfolio management according to Maginn et al. (2007) is :
a. to assess market conditions.
b. to determine objectives, constraints and preferences.
c. to develop strategies and implement them.
d. to adjust the portfolio as necessary.
Ans: b
Difficulty: Moderate
Ref: Managing Your Financial Assets
3. A financial plan should include decisions on:
a. Children.
b. Spouse.
c. Risk tolerance, purchase of a house, tax planning, life, health, disability, and
protection of business and property insurance, and emergency reserve funds.
d. Career.
Ans: c
Difficulty: Easy
Ref: A Perspective on Investing in Financial Assets
4. In order to protect principal against possible loss caused by distressed selling,
individuals are typically recommended to have a
a. 1-month emergency fund.
b. 2-month emergency fund.
c. 6-month emergency fund.
Chapter Twenty-one 272
Portfolio Management
, d. 9-month emergency fund
Ans: c
Difficulty: Moderate
Ref: What Issues do Investors Face in Financial Planning?
5. The stages of the life cycle for setting individual investment objectives are:
a. Accumulation Phase, Consolidation Phase, Retirement Phase, Estate Phase.
b. Accumulation Phase, Consolidation Phase, Retirement Phase, Gifting Phase.
c. Accumulation Phase, Consolidation Phase, Spending Phase, Retirement Phase,
Gifting Phase.
d. Accumulation Phase, Consolidation Phase, Spending Phase, Gifting Phase.
Ans: d
Difficulty: Difficult
Ref: Investor Objectives
6. Which of the following is not true regarding life-cycle approach?
a. It is most appropriate for institutions. .
b. It automatically adjusts to a more conservative position as the investor nears
retirement age.
c. It is suited to 401(k) plans.
d. It can be implemented using life-cycle (also known as target-date) funds.
Ans: a
Difficulty: Moderate
Ref: Managing Your Financial Assets
7. The first step to establishing an investment policy is to state the
a. minimum investment and maximum fees.
b. SEC guidelines for prudent man investing.
c. objectives and constraints and preferences.
d. asset allocation parameters and time horizons.
Ans: c
Difficulty: Easy
Ref: Managing Your Financial Assets
8. Which of the following is NOT one of the phases of the life-cycle theory of asset
allocation?
a. Accumulation phase
b. Consolidation phase
c. Gifting phase
d. Retirement phase
Chapter Twenty-one 273
Portfolio Management
