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Series 65 Exam > Portfolio Management > Flashcards

Portfolio Management Flashcards

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Series 65 flashcards
1
Q 
Portfolio management styles are:
A. Active and passive
B. Growth and income
C. Systematic and nonsystematic
D. Top down and bottom up
A

A

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2
Q 
Which of the diversification factors below will not reduce the nonsystematic risk of a portfolio?
A. Maturity
B. Industry in which issuer operates 
C. Coupon rate
D. Geographic location of issuer
A

C

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3
Q

The use of index funds as an investment vehicle for asset classes:
A. Increases market risk
B. Reduces market risk
C. Increases the standard deviation of returns
D. Reduces the standard deviation of return

A

B and d

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4
Q

An index fund manager, in order to meet its investment objective, attempts to:
A. Matches portfolio composition exactly do the designated index and achieve the same investment return as the annex
B. Exceed the underlying indexes return by slightly over weighting securities that he or she expects to outperform the market to cover the funds expenses
C. Minimize reallocating of the portfolio weightings as prices of securities in the index change in order to keep the fund expenses at a low level.
D. Maximize portfolio returns by only investing in the stock is included in the index that provide both current return and have capital gains potential

A

B.

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5
Q 
The manager of a small cap portfolio wishes to use an index to establish a benchmark rate of return. Most appropriate index to use is the:
A. Russell 2000 index
B. Standard and pours 400 index
C. Dow Jones industrial average
D. NASDAQ 100 index
A

A

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6
Q

Market capitalization of a company is determined by
A. Market value per share times issued shares
B. Market value per share times outstanding shares
C. Tangible asset value per share times issued shares
D. Cannibal asset value per share times outstanding shares

A

B.

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7
Q 
When the market price of a share of stock is multiplied by the number of shares that the company has outstanding, this is known as:
A. Market weight
B. Market capitalization
C. Common equity
D.  Net worth
A

B

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8
Q 
A corporation that has a market capitalization of $400 billion would be an appropriate investment 4 A:
A.  Microcap
B.  Small cap
C.  Mid cap
D. Large cap
A 
B. 
3-1-5 rule
300 million
1 billion
5 billion
More than 5 billion
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9
Q 
A company that has a market capitalization of between 6 billion and $7 billion is considered to be:
A. Small cap
B. Mid cap
C. Large cap
D.  Nano cap
A

C

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10
Q

Arrange the following in order of market capitalization from smallest to largest of companies included in the index:
Standard & Poor’s 500 index
Standard & Poor’s MidCap 400 index
Russells 2000 index

A

321

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11
Q

Passive portfolio management is
A. Buying and holding the investment chosen by the registered investment advisor
B. Determining the securities to be bought or sold based on investment research performed by the registered investment advisor
C. Managing a portfolio to meet the performance of a benchmark portfolio
D. Managing a portfolio to exceed the performance of a benchmark portfolio

A

C.

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12
Q

Which of the following is a passive investment:
A. Making investments in an individual retirement account
B. Making investments in a 401(k) account
C. Investing in 100 shares each of 10 different companies
D. Investing in shares of a S&P 500 index fund

A

D.

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13
Q

A trader uses a predetermined strategy where investment funds are moved from one sector to another based on a calendar schedule, using the following sectors as the asset classes, utilities, retailers, consumer staples, technologies, and transportation stocks. This is an example of:

A. Portfolio rebalancing
B. Tactical asset allocation
C. Rotational investing strategy
D. Strategic asset allocation

A

C.

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14
Q

A portfolio manager generate a 10% rate of return on a small cap portfolio, compared to an 8% rate of return on the benchmark portfolio and a 6% rate of return on Standard & Poor’s 500 index over the same time period. The passive rate of return on the portfolio is:

A. 2%
B. 6%
C. 8%
D. 10%

A

C

This is a very tricky question, the passive rate of return is that achieved by investing in an appropriate index fund. Here the benchmark index has an 8% rate of return this is the return that any passive investor could achieve by investing in an index fund that mimics that index.

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15
Q

A portfolio manager generates 15% rate of return on an aggressive growth portfolio compared to a 13% rate of return on the benchmark portfolio and a 10% rate of return on the Standard & Poor’s 500 index over the same time period. The passive rate of return on a portfolio is:

A. 2%
B. 3%
C. 13%
D. 15%

A

C.

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16
Q

A portfolio manager generate a 10% rate of return on a small cap portfolio, compared to an 8% rate of return on the benchmark portfolio and a 6% rate of return on the Standard & Poor’s 500 index over the same time period. The active rate of return on a portfolio is:

A. 2%
B. 4%
C. 6%
D. 10%

A

A.
Again a very tricky question. The active rate of return measures a managers performance against the appropriate benchmark portfolio, the manager achieve a 10% rate of return compared to the benchmark portfolio return of 8% thus the active rate of return is 2%

17
Q 
A portfolio manager generated 20% rate of return on a small cap portfolio, compared to a 15% rate of return on the benchmark portfolio and a 10% rate of return on the Standard & Poor's 500 index over the same time period. The active rate of return for the portfolio is
A.  5%
B. 10%
C. 15%
D. 20%
A

A.

18
Q 
A money market fund would not include in its portfolio:
A. Treasury bills
B. CDs
C. Guaranteed repurchase agreements
D. Treasury bonds
A

D.

Money market funds are an asset class that invest in short term maturities of one year or less. Investments are typically treasury bills, bank certificates of deposits, commercial paper and repurchase agreements. Treasury bonds are a long-term investment with a 30 year life

19
Q

The management company that invests in highly liquid and a very short term securities such as CDs, treasury bills, commercial paper and repurchase agreements is a:

A

Money market fund

20
Q 
Which of the following is an asset class:
A. Jewelry
B. Furniture
C. Real estate
D. Life insurance
A

C.

Asset allocation theory says that allocating assets among a selection of asset classes based on investment objective and risk tolerances provides needed diversification. The typical asset classes are money market, fixed income securities, equities, commodities, and real estate

21
Q 
The use of multiple asset classes when constructing a portfolio reduces which type of risk:
A. Regulatory risk
B. Market risk
C. Investment rate risk
D. Purchasing power risk
A

B.

22
Q

Client might not wish to invest his or her funds in a single indexed fund because the client:

A. Will get a lower rate of return than investing in a single stock or just a few stocks
B. Gives up the ability to allocate funds amongst different asset classes
C. Will not achieve the desired level of diversification relative to returns achieved
D. Gives up the ability to passively manage his or her portfolio

A

B

23
Q

Strategic portfolio management is the selection of the:

A. Securities in which to invest
B. Asset classes in which to invest
C. Target asset allocation for each asset class selected for the investment
D. Variation permitted in target asset allocation for each asset class selected for investment
A

C

24
Q

The target allocation for a specific asset class has been set to 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15% and can increase it to 25% as he or she sees fit. If this action is taken by the manager, this is termed:

A. Portfolio rebalancing
B. Strategic asset management
C. Tactical asset management
D. Active asset management

A

C.

The selection of the percentage of total assets to be allocated to a given asset class is called strategic asset management that is setting the investment strategy. The permitted variation from this percentage that is given to the asset manager so that the manager can take advantage of market opportunities is called tactical asset management

25
Q 
And advisor to a mutual fund at foresees and economic slowdown and believes that sit down chain restaurants are going to underperform. Advisors sells those stocks out of the funds portfolio and holds the proceeds as cash, pending reinvestment. This is an example:
A. Strategic asset allocation
B. Rebalancing
C. Diversification
D. Tactical asset allocation
A

D

26
Q

A potential client is 81 years old and has asked his representative for recommendations of speculative .com stocks. The customer has a broadly diversified bond and highly dividend paying stock portfolio that provides retirement income, in addition to the customer receiving Social Security. The customer is concerned that his purchasing power is decreasing and wishes to allocate an increased portion of his portfolio too aggressive growth stocks. The best recommendation for this customer is to:

A. Not allocate any of his portfolio to those stocks because they give no current income, which the customer needs
B. Allocate a portion of the customers portfolio to those stocks that will not reduce the customers retirement income below the amount needed for comfortable living
C. Allocate a portion of the customers portfolio to those stocks as directed by the customer since he is making the investment decision
D. Tell the customer that aggressive growth stocks are not suitable for a person who is in such a late stage of life

A

B.

27
Q

The 25-year-old man receives $50,000 and wants to retire at age 65 with an income of $1500 per month from his investment portfolio. Advisor should invest

A. 100% in bonds and the 0% in stocks
B. 65% in bonds and 35% in stocks
C. 25% in bonds and 75% in stocks
D. 0% in bonds and 25+75% in stocks

A

C
As a rule of thumb when balancing investments between stocks and bonds the portion of the portfolio that should be invested in equities is 100% minus that persons age

28
Q

Which statements are true:
A. Strategic portfolio management establishes the basic portfolio structure
B. Tactical portfolio management establishes the basic portfolio structure
C. Strategic portfolio management allows market timing adjustments to portfolio structure
D. Tactical portfolio management allows market timing adjustments to portfolio structure

A

A and D

29
Q

If a passively managed fund either underperforms or over performs the benchmark index this is called

A

Tracking error

Series 65 Exam (13 decks)

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