Investments

Question 1

Regulation T sets the initial margin at:

Answer 1

50%

Question 2

Margin Call =

Answer 2

loan / (1 - mainteance margin)

Question 3

Value Line ranks _______ & Morningstar ranks _________.

Answer 3

stocks ; primarily mutual funds

Question 4

Treasury bills:

Answer 4

issued in varying maturities up to 52 weeks. $100 denominations

Question 5

Commercial paper:

Answer 5

short-term loans between corporations. Maturities of 270 days or less. $100,000 denominations

Question 6

Bankers acceptance:

Answer 6

• Facilitates imports/exports
• Maturities of 9 months or less
• Can be held until maturity or traded

Question 7

Investment policy statement establishes RR TTLLU:

Answer 7

risk
return
taxes
time-line
liquidity
legal
and unique circumstances

Question 8

confirmation bias

Answer 8

people tend to filter information and focus on information supporting their opinions

Question 9

Diversification benefits (risk is reduced) begin anytime:

Answer 9

correlation is less than +1

Question 10

Systematic risk:

Answer 10

PRIME:
purchasing power risk
reinvestment risk (mostly impacts bonds)
interest rate risk
market risk
exchange rate risk

Question 11

Capital market line (CML)

Answer 11

specifies the relationship between risk and return in all portfolios. Uses SD as its measure of risk

Question 12

Capital Asset Pricing Model (CAPM)

Answer 12

Calculates the relationship of risk and return for an individual security using Beta as its measure of risk.

Question 13

Mutual funds report on a:

Answer 13

time-weighted basis

Question 14

If the required rate of return decreases,

Answer 14

the stock price will increase

Question 15

Dividend payout ratio =

Answer 15

common stock dividend / EPS

Question 16

Return on equity =

Answer 16

EPS / stockholders equity per share

Question 17

EE bonds are not:

Answer 17

marketable securities

Question 18

Which bonds mitigate against purchasing power risk?

Answer 18

I bonds and TIPS

Question 19

Agency bonds are not backed by the full faith and credit of the US Gov except:

Answer 19

GNMA’s

Question 20

Zero-coupon bonds are particularly suited for what type of account?

Answer 20

IRA’s (generate phantom income)

Question 21

Bond duration:

Answer 21

is the weighted average maturity of all cash flows

Question 22

As term increases or decreases:

Answer 22

duration will increase or decrease

Question 23

Unit Investment Trusts (UITs):

Answer 23

passively managed and self-liquidating

Question 24

Stock index funds are tax efficient because:

Answer 24

they have a low turnover rate

Question 25

C-shares are usually most appropriate for:

Answer 25

short-term investors

Question 26

American Depository Receipts (ADRs)

Answer 26

do not eliminate exchange rate risk

Question 27

Max gain if stock price appreciates:

Answer 27

buying a call

Question 28

Max gain if stock price falls:

Answer 28

buying a put

Question 29

“protecting profits” or “locking in a gain”

Answer 29

buying a put

Question 30

The smaller the coupon:

Answer 30

the greater the volatility

Question 31

The primary reason to use a ladder bond strategy:

Answer 31

lower overall interest rate risk

Question 32

Representativeness:

Answer 32

thinking a good company is a good investment

Question 33

Bottom-up equity managers:

Answer 33

value managers & technicians

Question 34

Top-down equity managers:

Answer 34

group rotation managers & market timers

Question 35

The indifference curve:

Answer 35

measures what level of risk an investor will accept for a given levels of return

Question 36

An investor may use options on debt instruments to protect against:

Answer 36

interest rate risk

Question 37

If bonds are selling at a premium:

Answer 37

then interest rates have decreased since the bonds were issued

Question 38

ADRs:

Answer 38

trade foreign securities in the US Market

Question 39

The Capital Market Line (CML) uses _ as a measure of risk

Answer 39

standard deviation

Question 40

The security market line (SML) uses _ as a measure of risk

Answer 40

beta

Question 41

The ___ is the best index to use capturing the overall US Market.

Answer 41

Wilshire

Question 42

Time-weighted return is only concerned about the:

Answer 42

security’s cash flows

Question 43

When evaluating the return of 2 investment managers, use:

Answer 43

time-weighted return

Question 44

Anchoring results in:

Answer 44

buying securities that have fallen because it “must” get back up to that recent high

Question 45

Duration:

Answer 45

an accurate measure of a bond’s sensitivity to interest rate risk

Question 46

Intrinsic value:

Answer 46

the discounted value of all future stream of cash flows

Question 47

Standard deviation measures:

Answer 47

a security’s performance relative to expectations of performance