Review Practice Session Flashcards
(30 cards)
Victoria Gregory’s financial situation is as follows:
Cash flow $15,000
Short term debts $23,000
Long-term debts $140,000
Taxes paid $8000
Invested assets $45,000
Personal use assets $192,000
What is her net worth?
A. $81,000.
B. $89,000.
C. $112,000.
D. $252,000.
B. $89,000
Which of the following is a matter that needs to be clarified before making investment recommendations?
A. The client’s goals.
B. Risk parameters of the client.
C. Time horizons of the goals.
D. All of the above.
D. All of the above
Which one of the following best describes the purposes of an investment policy?
A. To educate the client about the relative performance of different asset classes and to form a baseline for performance.
B. To acquaint the investment professional with the clients financial situation and to determine the timing of acquisitions and sales.
C. To provide a foundation of which the client’s portfolio is constructed and to provide a basis for review and adaptation to change conditions.
D. To select the individual assets and to make an estimate of their individual rates of return.
C. To provide a foundation of which the client’s portfolio is constructed and to provide a basis for review and adaptation to change conditions.
Investment policy statements primary purpose is to provide broad guidelines with which to establish a foundation for portfolio construction, and to provide a basis for periodic review .
Which of the following is the key element that all investment policy should contain
A. A statement of the investment vehicles, deemed suitable and unsuitable for the portfolio.
B. A statement regarding the portfolios, asset allocation.
C. A statement of the client risk tolerance level.
D. All of the above.
D. All of the above.
If international stocks were added to a portfolio of US stocks, which one of the following risks would specifically be added to the portfolio
A. Purchasing power risk.
B. Interest rate risk.
C. Exchange rate risk.
D. Default risk.
C. Exchange rate risk. 
The wrist free rate is 4%. The market rate of return is 11%. The standard deviation of XYZ stock is 20 and a beta of XYZ stock is 1.1 using the capital asset pricing model. What is the expected return of XYZ stock
A. 7.7%.
B. 10.2%.
C. 11.7%.
D. 12.1%. 
C. 11.7%
4 + (11 - 4) 1.1 =11.7
Assume each of the asset classes below has the following correlation to long-term government bonds
Treasury bills .67
Corporate bonds .81
Large stocks .37
Small stocks .12
Which one of the following correctly states the impact of diversification on the portfolio of long-term government bonds
A. Treasury bills provide more diversification than small stocks.
B. Small stocks provide more diversification than large stocks.
C. Corporate bonds provide more diversification than large stocks.
D. There is no diversification effect because all of the correlations are positive.
B. Small stocks provide more diversification than large stocks.
Portfolio X had a sharp ratio of 1.1 while portfolio Y had a sharp ratio of .55 based on this information which one of the following statements is correct
A. Portfolio X had a better performance and portfolio Y
B. Portfolio X had worse performance and portfolio Y
C. Portfolio X had twice the performance of portfolio Y.
D. Portfolio X had better performance and portfolio Y on a risk adjusted basis.
D. Portfolio X had better performance and portfolio Y on a risk adjusted basis.
What implication of the Brison study is that investors should
A. Ignore market timing when managing portfolios.
B. Ignore market timing and security selection when managing portfolios.
C. Ignore security selection and concentrate on asset allocation with less attention given to market timing.
D. Concentrate on asset allocation with less attention given to security selection and market timing.
D. Concentrate on asset allocation with less attention give a security selection and market timing 
Tactical asset allocation attempts to
A. Maximize returns on long-term portfolios.
B. Create efficient portfolios that provide the best balanced risk and return over the long-term.
C. Move assets from those that appear overvalue to those that appear undervalued.
D. Divide the portfolio, decor, holdings, and investments to take advantage of perceived opportunities.
C. Move assets from those that appear over value to those that appear undervalued. 
Company XYZ has earnings this year of $1.80 per share expect earnings next year to increase by 15% and generally trade at a 10% premium to the S&P 500 index currently the PE of the S&P 500 index is 20. What is the expected value of XYZ next year
A. $36.00.
B. $39.60.
C. $40.40.
D. $45.54.
D. $45.54
The PE is (20 x 1.10 =22) and is multiplied, correctly, by next year’s earnings, E, (1.80 x 1.15 = 2.07)
22 x 2.07 =45.54
P = $45.54.
Which one of the following statements is correct in regarding dollar cost averaging
A. The invested amount varies periodically.
B. The strategy provides protection if an investment falls over a long-term.
C. The time period between investments is fixed.
D. Investors purchased the same number of shares each period.
C. The time period between investments is fixed.
Sarah Allen has adopted a value averaging strategy of increasing her account value by 5000 each month how many shares rounded to the nearest whole share should she purchase the second month given the information provided below
Price/share Amount invested. Shares bought Shares owned. Total invested. Total value
$5. $5000. 1000. 1000. 5000. 5000
$6. $5000.
A. 538
B. 667
C. 833
D. 1,000
B. 667
If the second month the shares from month, one are worth $6000 the total account value from 2 should be $10,000 so Sarah needs to buy 4000 worth of shares 4000 divided by the month two price of six dollars equals 667 shares
4000/6 =666.667
The amount remaining after making adjustments to total income, is the definition of which one of the following
A. Ordinary income.
B. Adjusted gross income.
C. Taxable income.
D. Net income.
B. Adjusted gross income.
Total income minus adjustments equals adjusted gross income
The return of capital dividend from a stock
A. Is taxed at ordinary income tax rates.
B. Is taxed as a capital gain.
C. Reduces the investors basis in the stock.
D. Is added to the investors basis in the stock.
C. Reduces the investors basis in the stock.
A return of capital dividend itself is not taxed, but instead reduces the investors basis in the stock
A client has decided to move the funds from her former employers 403B plan into an IRA to avoid a possible 20% withholding tax she should
A. Complete a tax-free rollover, taking control of the money for no more than 60 days.
B. Provide the pension plan administrator with a rollover document.
C. Instruct the pension plan to transfer the funds directly to her new IRA.
D. Transfer the funds to a Roth IRA.
C. Instruct the pension plan to transfer the funds directly to her new IRA.
The 10% penalty for withdrawals before age 59 1/2 from qualified retirement appliance is not assessed on distributions made
A. Due to disability.
B. Due to separation from service after age 55.
C. Pursuant to a qualified domestic relations order.
D. All of these
D. All of these
Partnership income is taxed at
A. C corporation rate.
B. Personal tax rate of the individual partners.
C. S corporation rate.
D. Applicable capital gains rate.
B. Personal tax rate of the individual partners
Partnership income is tax at the personal income tax rates of the individual partners because it is taxed to the partners
Which one of the following is a tax consequence of a rabbi trust?
A. The trust assets may be available for general used by the employer.
B. Rabbi trust or deferred compensation plans that do not need to be the requirements opposed by the IRS.
C. Rabbi trust assets are excluded from general creditors and bankruptcy proceedings.
D. The employer is taxed on the earnings in the plan as they accumulate.
D. The employer is taxed on the earnings in the plan as they accumulate.
Which of the following statements regarding a qualified plan is correct
A. The employers deduction is available in the year that a contribution is made.
B. The plant may discriminate.
C. Certain plans are partially exempt from ERISA requirements.
D. Distribution of tax at capital gains rates if contributions have been in the plan for more than 12 months.
A. The employers deduction is available in the year that a contribution is made.
All the following are tax avoidance technique, except
A. Owning rather than renting a residence to benefit from claiming a home mortgage interest deduction.
B. Utilizing tax credit such as qualifying childcare expenses.
C. Investing in tax-free muni bonds.
D. Invested in zero coupon US treasury bonds.
D. Investing in zero-coupon US treasury bonds.
A civil client has 30,000 in a money market fund $2000 in a checking account a mortgage loan of 110,000 not to be paid off as it will be transferred to the spouse in auto loan of 20,000 and credit card balance of $5000 assume that if he died post them expenses would be $15,000. What would be the cash requirements for this client?
A. $3000.
B. $8000.
C. $10,000.
D. $118,000.
B. $8000
Your client Anne White law age 50 received a $300,000 inheritance from her late parent estate. She would like to invest this money in a safe place where it will grow in value until she takes early retirement at age 60, which one of the following would be the most logical choice for Ann.
A. 10 year term life policy.
B. An immediate annuity.
C. A single premium deferred annuity.
D. A whole life policy.
C. A single premium deferred annuity.
A beneficiary who is guaranteed payments for life with a minimum guarantee of 10 years of payments has selected, which one of the following settlement options
A. Life income with period certain
B. Installments over a fixed period
C. Straight life income.
D. Life income with cash refund.
A. Life income with period certain
