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A conservative asset allocation would rely heavily on bonds and short-term securities.
Utility stocks are often suitable for low-risk, current-income-oriented portfolios.
An investment portfolio should be built around the needs of the individual investor.
Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation?
Asset allocation should focus on
A moderate asset allocation alternative might include
II. common stocks.
III. foreign securities.
IV. options and commodities futures.
Which one of the following provides the greatest reduction in total risk?
Tactical asset allocation is most suitable for
large institutional investors.
asset allocation plan should consider which of the following factors?
I. economic outlook
II. capital preservation
III. changing investment goals
IV. investor risk tolerance
An asset allocation plan should consider which of the following investor characteristics?
I. income and employment security
II. marital status
III. age and proximity to retirement
IV. social relationships and peer groups
Fred and Martha are in their seventies and retired. Which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk?
The Dow Jones Industrial Average (DJIA) includes 500 of the largest companies traded on U. S. exchanges.
The key areas to monitor when evaluating your portfolio holdings are the overall performance of both the economy and the financial markets, and the returns on your investments.
Once you establish a portfolio designed to achieve your investment goals, you can relax and forget about your investments until such time as you need the funds.
Investors need to monitor economic and market activity to assess the potential impact these factors can have on their investment portfolios.
Several indexes are available to monitor the performance of stocks, but nothing similar is available for bonds or mutual funds.
The S&P 500 Stock Composite Index and the NASDAQ Composite Index can be used to represent the stock market as a whole.
If an investor's portfolio is comprised of a broad range of common stocks, the best measure to use as a basis of comparison of performance is the
The S & P 500 Index is an appropriate benchmark for
The best index to assess the performance of a portfolio diversified among several asset classes such as stocks, bonds and real estate is
Lipper indexes are to assess the performance of
I. equity funds.
II. bond funds.
III. money market funds.
IV. Real Estate Investment Trusts (REITs).
The holding period return (HPR) of one's portfolio should be compared to investment goals
I. to assess whether the proper rate of return is being earned for the risk involved.
II. to be sure one's portfolio is outperforming the S&P 500 Index.
III. to isolate any problem investments.
IV. to determine when to change benchmarks from the S&P 500 to the NASDAQ Composite Index.
Holding period return (HPR) captures total return performance by considering current income and capital gains and is most appropriate for holding periods of one year or less.
A rational investor will require the same return from a corporate security as from a government security.
Only capital gains that have been realized should be included in the measurement of a portfolio's return over a given period of time.
For a stock investment, the dividend yield is calculated by
The holding period return for mutual funds should be based on
To compute the holding period return on a bond investment, the investor should divide the purchase price of the bond into
Juan's investment portfolio was valued at $125,640 at the beginning of the year. During the year, Juan received $603 in interest income and $298 in dividend income. Juan also sold shares of stock and realized $1,459 in capital gains. Juan's portfolio is valued at $142,608 at the end of the year. All income and realized gains were reinvested. No funds were contributed or withdrawn during the year. Whats the amount of income Juan must declare this year for income tax purposes?
On January 1, Stacy's portfolio was valued at $96,534. During the year Stacy received $3,285 in interest and $4,100 in dividends. She also sold one stock at a gain of $850. The value of the portfolio on December 31 of the same year was $113,201. At the end of June, Stacy withdrew $5,000 from the portfolio. What is the holding period return for the year?
Six months ago, Suzanne purchased a stock for $28 a share. Today she sold the stock at a price of $32 a share. During the time she owned the stock, she received a total of $1.30 in dividends per share. What is her holding period return?
Ten months ago, Junior purchased a stock for $14 a share. The stock pays a quarterly dividend of $0.50 per share. Today, Junior sold the stock for $15 a share. What is his holding period return?
Ten years ago, Taylor purchased 444.44 shares in a mutual fund for $22.50 per share. He has never made an additional investment in this fund, but because of reinvested dividends and capital gains, he now owns 1,200 shares with a net asset value of $25.88 per share. Ignoring taxes, his compound average annual rate of return (IRR) is
Tim purchased a stock ten months ago for $14 a share, received a $1 dividend per share last month, and sold the stock today for $16 per share. Tim has a marginal tax rate of 30%. Both capital gains for securities held more than one year and dividend income is taxed at 15%. What is Tim's after-tax holding period return?
On February 19, 2004, Angela purchased 100 shares of ABC stock at a total cost of $1,712.50. She received a total of $125.00 in dividends and sold the stock today, February 22, 2005. Her net proceeds from the sale are $1,892.40. Angela has a combined state and federal marginal tax rate of 32%. Her combined state and federal tax rate on both her capital gains in excess of one year and her dividend income is 18%. What is Angela's after-tax holding period return on her investment in ABC stock?
An investor in the 25% marginal tax bracket purchased a bond for $983, received $85 in interest, and then sold the bond for $955 after holding it for six months. The tax rate for capital gains with holding periods in excess of one year is 15%. What are the pre-tax and post-tax holding period returns?
Investors who wish to minimize the effect of taxes on their investment returns should try to avoid
short-term capital gains.
On January 1, Tim's portfolio was valued at $432,098. During the year Tim received $10,563 in interest and $15,060 in dividends. He also sold stock at a net loss of $12,870 and used the proceeds to purchase another stock. Tim did not contribute any more funds nor withdraw any funds during the year. On December 31 of the same year, Tim's portfolio was valued at $398,189. What is the holding period return for the year?
Sharpe's measure of portfolio performance adjusts for risk by dividing total portfolio return by the portfolio beta.
Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.
Portfolio revision is the ongoing process of systematically studying the issues in the portfolio and selling certain issues and purchasing others as the means of maintaining a portfolio that best meets the investor's objectives.
Which of the following are reasons to consider selling an investment that is currently in a portfolio?
I. The investment has met the original objective.
II. Better investment opportunities currently exist.
III. The outlook for the investment has improved.
IV. The investment has not met expectations and no change is expected.
A problem investment
Allison's portfolio has an expected return of 14% and a standard deviation of of 20%. Brianna's portfolio has an expected rate of return of 11% and a standard deviation of 12%. The risk-free rate is 3%. According to the Sharpe measure,
Brianna has the better portfolio.
the portfolio's standard deviation of return.
The Sharpe's measure for Jane Smith's investment portfolio is 0.40, while the Sharpe's measure for the market is 0.30. This information suggests that Smith's portfolio
Phil has a portfolio with a 13.2% total return. The beta of the portfolio is 1.48 and the standard deviation is 13%. Currently, the risk-free rate of return is 4% and the overall market has a total return of 11%. What is the value of Treynor's measure for Phil's portfolio?
The portfolio's are equally desirable.
Treynor's measure of portfolio performance focuses on
Both Treynor's and Jensen's measures
A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is
Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?
Which of the following statements about Jensen's measure are correct?
I. Through its use of the capital asset pricing model, Jensen's measure automatically adjusts for market return.
II. In general, the higher the Jensen's measure, the better a portfolio has performed.
III. Jensen's measure is referred to as alpha.
IV. A positive Jensen's measure indicates an investment has underperformed the market on a risk-adjusted basis.
The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as
Dollar cost averaging is a formula plan to purchase the same number of shares of stock at regular intervals of time.
Dollar cost averaging is a formula plan which automatically causes investors to purchase more shares when the price is low and purchase fewer shares when the price is high.
Investors who use formula plans believe that they have above average ability to time the market and pick successful investments.
A constant-ratio plan requires an investor to periodically rebalance the portfolio.
Which one of the following statements concerning formula plans is correct?
Formula plans are based on the adherence to a mechanical set of rules with regard to when to buy and/or sell.
Dollar cost averaging is a procedure by which an investor
Which one of the following statements is correct concerning dollar cost averaging plans?
The goal of dollar cost averaging is long-term capital appreciation.
The general theory of dollar cost averaging is
When using a constant dollar plan,
The formula plan that requires maintaining a target dollar investment in the speculative portion of an investor's portfolio is the
The constant-ratio plan
time the cyclical movements of the stock market and thereby "buy low and sell high."
Investors who who accept the random walk theory should use
Which of the following is ideally suited to automatic investing through a payroll deduction plan?
Under the variable-ratio plan, additional speculative investments are made when the ratio
If an investor has a loss position in an investment and wants to sell it, the best time to sell for tax purposes is when a capital gain is available against which the loss can be applied.
An investor who wants to take advantage of a temporary decline in the price of a stock should use a limit order.
A stop loss order may not protect an investor's profits if
Which of the following are characteristics of stop-loss orders?
I. the risk of whipsawing
II. the ability to limit downside losses
III. the guaranteed execution within the order period
IV. the conversion to a market order
Suppose the shares of the Chickadee Corporation traded seven times in the following sequence one day last week: 46, 45.88, 45.75, 45.50, 45.63, 46, 46.13. In this case, a limit order to sell at 46 would have been executed
The two primary media for warehousing liquidity are
Which of the following are reasons why a person may want to warehouse liquidity?
I. protect against total loss
II. ability to exploit future opportunities
III. capitalize on the high rates of return available on cash
IV. protect against the need to disturb the existing portfolio
a maximum of $3,000 of losses in excess of capital gains can be written off against ordinary income in any one year.
Which of the following are generally considered to be good investment guidelines?
I. Sell any security that has become riskier than anticipated.
II. Hold all securities until they produce the highest profit attainable.
III. Sell securities only if the profit can be offset with a tax loss.
IV. Sell any security that no longer meets the needs of the investor.
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