Portfolio Management Styles/Techniques

Question 1

Portfolio management styles are:
A. Active and passive
B. Growth and income
C. Systematic and non-systematic
D. Top down and bottom up

Answer 1

A.

The management styles are basically active asset management or passive asset management

Question 2

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 region of issuer

Answer 2

C
The coupon rate has no bearing on diversification. In the trading market, the price of a bond is determined by the market yield for that type of security not the coupon rate. To reduce nonsystematic risk, meaning the risk that anyone security may be a bad investment, diversification of a bond portfolio by choosing different issuers, different industries, different geographic if you were locations, and different maturities, since long-term prices are more volatile than short term prices are all valid

Question 3

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 returns

Answer 3

B and D
Index funds are broadly diversified, since they hold all of the securities in a designated index. This reduces market risk or Standard deviation of returns. The impact of diversification on the portfolios market average, along with lowering the risk associated with that rate of return.

Question 4

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

Answer 4

B.
Because there are expenses associated with running a mutual fund, such as management fees, brokerage fees, administrative fees, and index fund manager that is attempting to match the performance of a designated index must actually do better than the index performance of a designated index to cover these expenses. To do so, The manager will tactically very asset allocations from the index percentage by small amounts to time the market to achieve a better rate of return

Question 5

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

Answer 5

A.

Russell 2000 and Small cap
Standard and poors 400 is MidCap
Dow Jones industrial average of 30 stocks is large cap
The NASDAQ 100 consists of 100 largest NASDAQ issues and is also large cap

Question 6

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

Answer 6

B.
Market capitalization of a company is the current market price per share times the number of outstanding shares, issued stock minus treasury stock, the ratings agencies categorize companies it by their market capitalization

Question 7

A corporation that has a market capitalization of $400 million would be an appropriate investment for a:
A. Microcap mutual fund
B. Small cap mutual fund
C. Mid cap mutual fund
D. Large cap mutual fund

Answer 7

B.
A microcap stock is one with a market capitalization of up to $300 million

A small cap stock is one with a market capitalization between 300 million and $1 billion

A mid cap stock is one with a market capitalization between 1 billion and $5 billion

A large cap stock is one with a market capitalization over $5 billion

Question 8

In microcap stock is one with a market capitalization of what?

Answer 8

Up to $300 million

Question 9

A mid-cap stock has a market capitalization of what?

Answer 9

Between