Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 66 > Ch 12 Portfolio Management and Investment Risk > Flashcards

Ch 12 Portfolio Management and Investment Risk Flashcards

1
Q

Identify the range from the following set of numbers: 7, 3, 5, 4, 4, 6

A
  1. Range is calcuated by starting with the largest value (7) and then subtracting the smallest value (3).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

A 20-year U.S. Treasury zero-coupon bond is most susceptible to _________ risk.

A

inflation risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the risk that certain circumstances or factors may have a negative impact on the profitability of a company?

A

Business risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Sue bought a 6% bond at par. One year later, her bond’s value has fallen to $970. What is her annual return?

A

Sue received the 6% rate of interest, but her bond lost 3% of its value. (-$30 + 60) ÷ $1,000 = 3%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

True or False: Systematic rebalancing involves buying and selling on a periodic basis.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the formula for determining a stock’s current yield?

A

Annual dividend ÷ current market value of the stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the difference between the current ratio and the quick asset ratio?

A

The quick asset ratio is more stringent since it excludes inventory from the current assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

If a bond is trading at a discount to its value based on DCF, will an investor earn more or less than a comparable bond?

A

A bond trading at a discount to its DCF value will earn more than comparably priced bonds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

A stock with a positive alpha is generally considered a _______ opportunity by an analyst.

A

buying

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What types of securities tend to have a high beta?

A

Growth stocks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is an efficient market?

A

A market in which prices reflect all known information; therefore, nothing will be overvalued or undervalued.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What return will an investment have if its net present value is greater than zero?

A

The investment will generate a positive return.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Which type of risk is non-diversifiable?

A

Market risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

“A dollar received today is worth more than a dollar received tomorrow” describes what concept?

A

The time value of money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Standard deviation is a measure of the dispersion of ____________ returns.

A

expected returns.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

True or False: A country with high interest rates will generally have a stronger currency.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

True or False: When the market suffers a large, general decline, most stocks are affected.

A

True. Stocks are subject to the risks of the market as a whole.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

True or False: A low beta security would be expected to rise more than a high beta security in a bull market.

A

False. An asset with a low beta would be less volatile and would, therefore, be expected rise less in a rising market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Is market risk considered a form of diversifiable or non-diversifiable risk?

A

Non-diversifiable risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

An investor needs an IRR of 5%. His investment has a negative NPV. Is its IRR greater than, less than, or equal to 5%?

A

A negative NPV would indicate that an investment has an IRR that is less than the required rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define sector rotation.

A

A strategy that anticipates the next turn in the business cycle and shifts assets into the sectors that will benefit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What rule can be used to determine how long it takes for an amount of money to double at a given rate of return?

A

The Rule of 72

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Are inflationary periods characterized by rising or falling interest rates?

A

Rising

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

__________ value determines how much a dollar amount invested today will be worth at a set point in the future.

25
Define capital risk.
The risk that an investor may lose a part or her entire investment (principal). Capital risk is a form of diversifiable risk.
26
True or False: Investors who are planning to hold bonds until maturity have no risk.
False. Opportunity risk (the risk of missing out on a superior investment) is a risk these types of investors face.
27
True or False: Dollar weighted return (DWR) takes into account the deposits into or withdrawals out of the portfolio.
True. DWR includes the weighted value of cash flows into and out of the portfolio when calculating return.
28
True or False: Strong-form market efficiency advocates believe they can beat the market.
False. Strong-form market efficiency states that no person can beat the market.
29
MPT has found that having asset classes with a slight ___________ correlation provides the best long-term performance.
MPT has found that having asset classes with a slight negative correlation provides the best long-term performance.
30
What happens to the U.S. trade deficit if the dollar is weakening?
The trade deficit will shrink as U.S. goods become cheaper for foreign consumers.
31
What are small-cap stocks?
Typically stocks of new companies with more volatility, but also with more growth potential
32
True or False: Inflation is a persistent rise in the general level of prices.
True
33
______________ measures the degree to which the movements of two variables are related.
Correlation
34
What is a time-weighted return?
A time-weighted return is a geometric mean (average) that eliminates the effect of varying cash inflows (dividends).
35
What is the present value of a perpetual monthly payment of $1,000 earning 5% per year?
$240,000 = ($1,000 x 12 mo)/.05
36
What is a major disadvantage when using an arithmetic mean to measure investment performance?
Arithmetic means (averages) can misrepresent compounding effects on an investment's return.
37
What are large-cap stocks?
Stocks of mature companies with a long history of dividend payments
38
_________ value projects what an investment will be worth at some point in the future.
Future
39
If a stop order is activated, at what price will the trade be executed?
The next trade after activation.
40
How are secured creditors treated in a liquidation?
They are given priority up to the value of their collateral and are unsecured for any remaining claim.
41
Define positive financial leverage.
It is when the return achieved is greater than the cost of borrowing.
42
Which market is considered negotiated?
The over-the-counter (OTC) market in which market makers negotiate prices (e.g., the OTCBB)
43
An investor needs an IRR of 5%. His investment has a NPV of $0. Is its IRR greater than, less than, or equal to 5%?
A NPV of $0 would indicate that an investment has an IRR that is equal to the required rate.
44
What is a dollar-weighted return?
A dollar-weighted return is a geometric mean (average) used to measure how a portfolio performed over time.
45
True or False: Perfect negative correlation is -1.00, while a perfect positive correlation is 1.00.
True
46
A security has appreciated from $10 to $15 over three months and has paid no dividend. What is the annualized return?
200%, which is calculated by multiplying the holding period return (50%) by four quarters
47
What type of risk does beta measure?
Non-diversifiable
48
The _______________________ is often considered the most important measure of inflation.
Consumer Price Index (CPI)
49
Modern Portfolio Theory (MPT) focuses on differing __________ of assets rather than on _____________ securities.
classes of assets rather than on individual securities.
50
Do those who favor market timing (active strategies) believe markets are efficient or inefficient?
Inefficient. They may alter their portfolio to take advantage of anticipated economic events.
51
What are micro-cap stocks?
Stocks of emerging companies that would generally be suitable only for speculative investors
52
True or False: The S&P 500 is a large-cap index.
True
53
List the risks associated with investing in 30-year U.S. Treasury bonds.
Inflation risk and interest-rate risk
54
Two investments have the same price, but the net present value (NPV) of choice A is $50 while B's is $40. Which is best?
Investment A is better. NPV measures net cash flows above a discount rate. A greater NPV indicates more value.
55
Define currency risk.
The risk that foreign investments will be worth less in the future due to changes in exchange rates.
56
Market, interest rate, and inflation risk are all types of ___________ risk.
systematic risk.
57
Another name for a security's risk-adjusted return is its ________.
alpha.
58
What type of risk is liquidity risk?
It is non-systematic risk, since liquidity risk may be diversified against by buying actively traded assets.

Series 66 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions