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A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of
19%. The market index return is 12% and has a standard deviation of 16%. What is
Jensen's alpha of the portfolio if the risk-free rate is 6%?
A. .017
B. .028
C. .036
D. .078
Consider a hedge fund with $200 million at the start of the year. The benchmark S&P
500 Index was up 16.5% during the same period. The gross return on assets is 21%, and
the expense ratio is 2%. For each 1% above the benchmark return, the fund managers
receive a .1% incentive bonus.
What was the management cost for the year?
A. $4,877,000
B. $4,900,000
C. $5,929,000
D. $6,446,000
A portfolio consists of three index funds: an equity index accounting for 40% of the
total portfolio, a bond index accounting for 30% of the total portfolio, and an
international index accounting for 30% of the total portfolio. After each quarter the
portfolio manager buys and sells some of each sector to preserve the original weights
for each sector. This is an example of ____________.
A. a passively managed core with an actively managed component
B. a totally passively managed fund
C. passive asset allocation with active security selection
D. active asset allocation with passive security selection
Compensation of money managers is _____ based on alpha or other appropriate
risk-adjusted measures.
A. never
B. rarely
C. almost always
D. always
Empirical evidence confirms that investors become __________ as they approach
retirement.
A. greedier
B. less interested in investments
C. more risk averse
D. more risk tolerant
Major functions of the investment committee include all but which one of the
following?
A. Engage in security selection for each portfolio managed.
B. Broadly determine the overall asset allocation of the investment company.
C. Determine the asset-class weights for each portfolio.
D. Determine the asset universe.
You hold a subordinated debenture in a firm. In the event of bankruptcy you will be
paid off before which one of the following?
A. mortgage bonds
B. senior debentures
C. preferred stock
D. equipment obligation bonds
It appears from empirical work that exchange rate risk ____________.
A. has been declining for individual investments in recent years
B. is mostly diversifiable
C. is mostly systematic risk
D. is unimportant for an investment in a single foreign country
The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund
has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield?
A. 5%
B. 10%
C. 15%
D. 20%
An investment adviser has decided to purchase gold, real estate, stocks, and bonds in
equal amounts. This decision reflects which part of the investment process?
A. asset allocation
B. investment analysis
C. portfolio analysis
D. security selection
Trend analysts who follow bonds are most likely to monitor the ____________.
A. confidence index
B. odd-lot trading
C. short interest
D. TRIN statistic
Inflation has an adverse effect on your savings because:
I. It erodes the purchasing power of the dollars you have saved.
II. It increases the real rate of return on the dollars you save.
III. Unless sheltered, it increases the taxes owed on investment income.
A. I only
B. II and III only
C. I and III only
D. I, II, and III
Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is
15%. What is the beta on a stock with an expected return of 17%?
A. .5
B. .7
C. 1
D. 1.2
Portfolio A has a beta of .2 and an expected return of 14%. Portfolio B has a beta of .5
and an expected return of 16%. The risk-free rate of return is 10%. If you manage a
long-short equity fund and want to take advantage of an arbitrage opportunity, you
should take a short position in portfolio ______ and a long position in portfolio
__________.
A. A; A
B. A; B
C. B; A
D. B; B
The average returns, standard deviations, and betas for three funds are given below
along with data for the S&P 500 Index. The risk-free return during the sample period is
6%.
You want to
evaluate the
three mutual
funds using the
Sharpe ratio for
performance evaluation. The fund with the highest Sharpe ratio of performance is
__________.
A. fund A
B. fund B
C. fund C
D. The answer cannot be determined from the information given.
When life insurance companies seek long term investments, they are focusing
on________.
A. maximizing returns
B. smoothing out long-term returns
C. tax considerations
D. the investment horizon
Which of the following is not an example of a financial intermediary?
A. Goldman Sachs
B. Allstate Insurance
C. First Interstate Bank
D. IBM
The combined liabilities of American households represent approximately __________
of combined assets.
A. 11%
B. 14%
C. 25%
D. 33%
Suppose that U.S. equity markets represent about 35% of total global equity markets
and that the typical U.S. investor has about 95% of her portfolio invested only in U.S.
equities. This is an example of _________.
A. home-country bias
B. excessive diversification
C. active management
D. passive management
Your two best friends each tell you about a person they know who successfully started a
small business. That's it, you decide; if they can do it, so can you. This is an example of
_____________.
A. mental accounting
B. framing bias
C. conservatism
D. representativeness bias
Price volatility is greatest on which one of the following investments?
A. commercial paper
B. 20-year zero-coupon bonds
C. Treasury notes
D. Treasury bills
From day 1
to day 4, the
TRIN has
___ and is
___.
A. increased; bullish
B. increased; bearish
C. decreased; bullish
D. decreased; bearish
Which of the following funds invest specifically in stocks of fast-growing companies?
A. balanced funds
B. growth equity funds
C. REITs
D. equity income funds
The discount rate is the ________.
A. interest rate banks charge each other for overnight loans of deposits on reserve at the
Fed
B. interest rate the Fed charges commercial banks on short-term loans
C. interest rate that the U.S. Treasury pays on its bills
D. interest rate that banks charge their best corporate customers
In regard to bonds, convexity relates to the _______.
A. shape of the bond price curve with respect to interest rates
B. shape of the yield curve with respect to maturity
C. slope of the yield curve with respect to liquidity premiums
D. size of the bid-ask spread
You are thinking of investing in one of two assets. Asset A has higher systematic risk
than asset B. You can be sure that asset A's
_______ return will be higher than asset B's, but you can't be sure if asset A's _______
return will be higher than asset B's.
A. realized; expected
B. real; nominal
C. expected; realized
D. nominal; expected
At contract maturity the basis should equal ___________.
A. 1
B. 0
C. the risk-free interest rate
D. -1
Under firm-commitment underwriting, the ______ assumes the full risk that the shares
cannot be sold to the public at the stipulated offering price.
A. red herring
B. issuing company
C. initial stockholder
D. underwriter
A coupon bond that pays interest semiannually has a par value of $1,000, matures in 8
years, and has a yield to maturity of 6%. If the coupon rate is %, the intrinsic value of
the bond today will be __________.
A. $1,000
B. $1,062.81
C. $1,081.82
D. $1,100.03
A pension fund has an average duration of its liabilities equal to 15 years. The fund is
looking at 5-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its
interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds
to immunize if there are no other assets funding the plan?
A. 52%
B. 48%
C. 33%
D. 25%
A mutual fund invests in large-capitalization stocks. Its performance should be
measured against which one of the following?
A. Russell 2000 Index
B. S&P 500 Index
C. Wilshire 5000 Index
D. Dow Jones Industrial Average
Which of the following are not managed investment companies?
A. hedge funds
B. unit investment trusts
C. closed-end funds
D. open-end funds
