AAMS Review Exam with Verified Answers

As the investment policy statement formulation moves to policy implementation, the - A) investment professional takes a leading role. An investor notices that technology stocks are in a strong bull market and wants to take advantage of it. Even though valuations are at record high levels, he buys a technology stock that a brokerage firm is recommending. Which one of the following is the investor demonstrating? - rationalization One change in a client's situation that would require an adjustment in the asset management process would be - a sudden early retirement from employment. Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have fallen. Dan's bonds are most likely subject to which one of the following risks? - reinvestment risk Jim Wilson has a $20,000 portfolio of four different stocks. The distribution of this capital and the betas of these stocks are shown below. % of Portfolio Value/ Beta Stock A 10% 1.10 Stock B 20% 1.15 Stock C 30% 1.30 Stock D 40% 1.25 What is the weighted-average beta of Jim's stock portfolio? - 1.23 The risk-free rate is 3%, the market rate of return is 10%, the standard deviation of XYZ stock is 20, and the beta of XYZ stock is 1.40. Given this information, and using the capital asset pricing model, what is the expected return of XYZ stock? - 12.80% Assume the following asset classes have the correlations to long-term corporate bonds shown below: Treasury bills: .01 Gold: -.25 Large stocks: .31 Small stocks: .26 Which one of the following provides the most diversification benefit to a portfolio consisting of long-term corporate bonds? - Gold An employer plans to use corporate-owned life insurance to informally fund a nonqualified deferred compensation agreement and wants flexibility regarding investment choices. Which one of the following types of life insurance should this employer choose? - Variable life insurance