Question 1

All of the following are advantages of ETFs over mutual funds except

Accepted Answer

A)  Ability for continuous trading while markets are open
B)  Ability to time capital gain tax realizations
C)  Smaller management fee
D)  Can be bought and sold like common stock
E)  Smaller brokerage commissionF) A) and D)
G) C) and D)

Question 2

Following an earnings momentum strategy, an investor acquires stocks that have enjoyed above-market stock price increases.

Accepted Answer

A) True 
 B)False

Question 3

Exchange-Traded Funds (ETF) are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

Accepted Answer

A) True 
 B)False

Question 4

Growth stocks consistently outperform value stocks.

Accepted Answer

A) True 
 B)False

Question 5

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

Accepted Answer

A) True 
 B)False

Question 6

In returns-based style analysis a coefficient of determination of 95% would suggest that

Accepted Answer

A)  The portfolio manager outperformed 95% of his peers.
B)  The portfolio manager was outperformed by 95% of his peers.
C)  95% of the portfolio return variability could be attributed to portfolio style.
D)  95% of the portfolio return variability could be attributed to stock selection skills.
E)  5% of the portfolio return variability could be attributed to portfolio style.F) B) and C)
G) A) and E)

Question 7

Fund XYZ had a pretax return of 10.2% and a tax-adjusted return of 9.5%. Calculate Fund XYZ's tax cost ratio.

Accepted Answer

A)  0.006
B)  0.106
C)  0.116
D)  0.342
E)  0.635F) B) and D)
G) None of the above

Question 8

Which of the following is not considered an active management strategy?

Accepted Answer

A)  Sector rotation
B)  Use of factor models
C)  Quantitative screens
D)  Full replication
E)  Linear programmingF) A) and B)
G) A) and C) D

Question 9

Which of the following statements concerning active equity portfolio management strategies is true?

Accepted Answer

A)  The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs)  on a risk-adjusted basis.
B)  An actively managed equity portfolio has lower total transaction costs.
C)  An actively managed equity portfolio has lower risk than the passive benchmark.
D)  A key to success for an actively managed equity portfolio is to maximize trading activity.
E)  All of the aboveF) A) and D)
G) B) and C) A

Question 10

Value stocks would have the following characteristics:

Accepted Answer

A)  Low price/book, high price/earnings.
B)  Low price/book, low price/earnings.
C)  High EPS growth, high profitability.
D)  Low EPS growth, high profitability.
E)  None of the above.F) A) and E)
G) B) and E)

Question 11

Which of the following is not considered an asset allocation strategy?

Accepted Answer

A)  Integrated asset allocation
B)  Strategic asset allocation
C)  Tactical asset allocation
D)  Insured asset allocation
E)  None of the above (that is, all are asset allocation strategies) F) C) and D)
G) A) and E)

Question 12

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Accepted Answer

A) True 
 B)False

Question 13

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Accepted Answer

A)  Integrated asset allocation.
B)  Tactical asset allocation.
C)  Sector rotation.
D)  Strategic asset allocation.
E)  Insured asset allocation.F) A) and D)
G) A) and C) A

Question 14

The goal of a passive portfolio is to track the index as closely as possible.

Accepted Answer

A) True 
 B)False

Question 15

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

Accepted Answer

A) True 
 B)False

Question 16

Sharpe's (1991) study reveals that active managers typically outperform passive managers even after transaction costs and fees.

Accepted Answer

A) True 
 B)False

Question 17

The goal of the passive portfolio manager is to minimize

Accepted Answer

A)  Alpha
B)  Beta
C)  Standard error
D)  Tracking error
E)  Portfolio riskF) A) and E)
G) None of the above

Question 18

Growth stocks would have the following characteristics:

Accepted Answer

A)  Low price/book, high price/earnings.
B)  Low price/book, low price/earnings.
C)  High EPS growth, high profitability.
D)  Low EPS growth, high profitability.
E)  None of the above.F) None of the above
G) A) and B)

Question 19

If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Accepted Answer

A)  7.20%
B)  9.60%
C)  9.70%
D)  10.08%
E)  14.29%F) B) and C)
G) All of the above

Question 20

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Accepted Answer

A)  Integrated
B)  Strategic
C)  Tactical
D)  Insured
E)  None of the above.F) C) and D)
G) All of the above

Exam 16: Equity Portfolio Management Strategies

All of the following are advantages of ETFs over mutual funds except

Correct AnswerverifiedShow Answer

Following an earnings momentum strategy, an investor acquires stocks that have enjoyed above-market stock price increases.

Correct AnswerverifiedShow Answer

Exchange-Traded Funds (ETF) are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

Correct AnswerverifiedShow Answer

Growth stocks consistently outperform value stocks.

Correct AnswerverifiedShow Answer

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

Correct AnswerverifiedShow Answer

In returns-based style analysis a coefficient of determination of 95% would suggest that

Correct AnswerverifiedShow Answer

Fund XYZ had a pretax return of 10.2% and a tax-adjusted return of 9.5%. Calculate Fund XYZ's tax cost ratio.

Correct AnswerverifiedShow Answer

Which of the following is not considered an active management strategy?

Correct AnswerverifiedD

Which of the following statements concerning active equity portfolio management strategies is true?

Correct AnswerverifiedA

Value stocks would have the following characteristics:

Correct AnswerverifiedShow Answer

Which of the following is not considered an asset allocation strategy?

Correct AnswerverifiedShow Answer

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Correct AnswerverifiedShow Answer

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Correct AnswerverifiedA

The goal of a passive portfolio is to track the index as closely as possible.

Correct AnswerverifiedShow Answer

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

Correct AnswerverifiedShow Answer

Sharpe's (1991) study reveals that active managers typically outperform passive managers even after transaction costs and fees.

Correct AnswerverifiedShow Answer

The goal of the passive portfolio manager is to minimize

Correct AnswerverifiedShow Answer

Growth stocks would have the following characteristics:

Correct AnswerverifiedShow Answer

If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Correct AnswerverifiedShow Answer

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified