FINANCE- In addition to the legislation and guidelines

1. In addition to the legislation and guidelines that may apply, the investment policy that is decided upon by the investment manager (for a client) should include all the following elements EXCEPTA: specific goals about continuing educationB: the asset classes for investmentC: rate of return expectations (including timeframe) and expected volatilityD: an investment review processE: a policy review process2. Return metrics, risk-adjusted return metrics, and benchmarking are all examples ofA: monitoring.B: performance evaluation.C: manager selection.D: assessment of capital markets.E: none of the above3. Susan has 40% of her portfolio invested in a mutual fund to track the S&P 500 and 40% in a mutual fund to track the Dow Jones Industrial Average (DJIA) and 20% in government securities. To evaluate the performance of her portfolio, what is Susan’s best benchmark?A: the DJIA IndexB: the S&P 500 IndexC: a government security indexD: a 50%/50% combination of A and BE: a combination of A, B, and C4. The financial planning process include all of the following EXCEPTA: assessing the current status of the financial markets.B: analyzing the client’s financial status.C: monitoring the portfolio.D: developing a policy statement.E: establishing a client-advisor relationship.5. Commonly used sentiment indicators include all of the following EXCEPTA: short-interest ratio.B: volatility index.C: insider trading activity.D: put/call ratio.E: long-interest ratio.6. An active approach to investingA: focuses on individual security selections.B: has lower research costs than a passive approach.C: assumes financial markets are efficient.D: has lower trading costs than a passive approach.E: all of these choices are true.7. Features of dollar cost averaging include all of the following EXCEPTA: purchase of fewer shares when prices are high.B: lower average price per share if prices are variable.C: greater unrealized gains if prices increase.D: purchase of more shares when prices are low.E: a predictable investment outlay.8. An investment in an assortment of bonds with staggered maturities is called aA: barbell strategy.B: ladder portfolio.C: immunization.D: duration strategy.E: bullet strategy.9. A short sale occurs when an investor does which of the following?A: buys a stock and uses it as collateral for a loanB: sells a stock at a lossC: borrows a stock and then sells itD: sells a stock for less than fair market valueE: none of these are examples of a short sale10. Jason is unhappy with the performance of his mutual fund. He sells his shares in the current fund and repurchases shares in a similar fund with the same firm. This transactionA: is not a taxable event since the two funds are similar.B: is not a taxable event since the funds are with the same company.C: is a taxable event.D: may not be a taxable event if the shares have been held for more than one year.E: may not be a taxable event if the managers of the two funds are different.11. Tax-efficient investment strategies includeA: adjusting for taxable and after-tax yields.B: adjusting for capital gains taxes versus ordinary income taxes.C: controlling the timing of recognition of gains and losses.D: considering tax effects of mutual fund investing.E: all of these are tax-efficient strategies.12. The best type of asset to include in a tax-deferred retirement plan isA: treasury bond.B: corporate bond.C: growth stock.D: municipal bond.E: equity mutual fund.13. Factors that should be considered in the purchase of a stock includes all of the following EXCEPTA: dividends.B: growth potential.C: quality of a firm’s management.D: coupon rate on a firm’s bonds.E: price.14. Joe purchased 1,000 shares of IBM several years ago for $60. Joe died yesterday. The closing price of IBM was $90. The “basis” of this stock for federal estate tax purposes isA: $ 0.B: $30,000.C: $45,000.D: $60,000.E: $90,000.15. Preferred stock with cumulative fixed dividendsA: are required to pay dividends each quarter.B: must pay the missed dividend before common shareholders can receive dividends.C: are taxed on the accumulated dividends.D: are considered to be bankrupted if one year of dividends is missed.E: all of the above are true16. Types of permanent insurance policies include all of the following EXCEPTA: universal life.B: straight life.C: whole life. D: variable life.E: all of the above are types of permanent insurance policies17. Advantages of investing in a life insurance policy include which of the following?A: complex evaluation is needed to decide on the appropriate policy.B: higher premiums for those in moderately poor health.C: proceeds from the policy are not subject to federal income taxes.D: it is not often available to persons in extremely poor health.E: the cost of coverage reduces the amount of funds available for current consumption or investment in the future.18. Some form of annuity would be indicated whenA: investors want a retirement income that they can never outlive.B: as a supplement to an IRA.C: when investors want more control over their investment and are willing to bear the risk associated with the selection.D: when investors want a monthly income equal to or higher than could be generated by other conservative investments.E: all of the above.19. Factors that are used to determine if an investor is a “dealer” in real estate include all of the following EXCEPTA: number and frequency of sales.B: development and improvements that have been made.C: amount of the original purchase price that was financed.D: length of time the property has been held.E: existence of a sales office.20. Methods to hold real estate as an investment include all of the following EXCEPTA: limited partnerships.B: C corporations.C: L corporations.D: REITs.E: all of the above are methods to invest in real estate.21. Disadvantages of investing in real estate investment trusts (REITs) include all of the following EXCEPTA: large initial investment.B: loss of control in management of assets.C: lower potential return than direct investment in real estate.D: all of the above are disadvantages to investing in REITs.E: A and C are disadvantages, but B is not.22. Which of the following risk factors is least important for Mortgaged-Backed Securities (MBS)?A: inflation (purchasing power) riskB: reinvestment riskC: liquidity riskD: interest rate riskE: none of the above risk factors is a major problem for MBSs23. Advantages of investing in oil and gas include all of the following EXCEPTA: a deduction for the depletion of the oil or gas reserve in the ground. B: the possibility of paying the alternative minimum tax.C: unlimited liability.D: long-term capital gain treatment upon the sale of his or her interest.E: losses that are tax deductible.24. Disadvantages of investing in precious metals include all of the following EXCEPTA: possible government controls.B: no current income.C: sales taxes may be imposed.D: potentially high returns.E: assay costs may be involved.25. Venture capital firms mayA: assist in the development of new products and services.B: contribute management expertise.C: share past experience from other venture capital investments.D: play an active role overall in the business they finance.E: all of these choices are accurate.26. Advantages of investing in American Depositary Receipts (ADRs) includeA: increased international diversification.B: lower exchange rate risk.C: less complicated and more favorable taxes.D: increased availability of information.E: all of the above are advantages of investing in ADRs.27. Cash flows that a company generates in excess of the necessary investments in the company’s assets areA: cash dividends.B: free cash flow to equity.C: earnings.D: book value.E: none of these choices fits the definition.28. Free cash flow to equity isA: the company’s operating cash flow, less capital investments and net debt payments.B: the company’s operating cash flow, in addition to capital investments and net debt payments.C: the company’s future operating cash flow.D: the company’s past operating cash flow.E: the company’s capital investments and net debt payments.29. What is the correlation with the greatest potential for diversification?A: -1.0B: -0.5C: 0.0D: +1.0E: +2.030. Common behavioral finance issues includeA: confirmation bias.B: loss aversion.C: mental accounting.D: optimism.E: all of these choices are common behavioral finance issues.31. The portfolio on the efficient frontier that is selected by an investor depends onA: the level of market activity.B: the investor’s risk-return indifference curves.C: the investor’s financial position.D: the level of interest rates in the market.E: the investor’s liquidity position.32. The semi-strong form of the efficient market hypothesis states thatA: security prices reflect all information, public and private.B: security prices reflect all public information.C: security prices reflect all market information.D: security prices reflect all accounting information.E: security prices reflect all economic information.33. Cameron pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Ten years ago, Cameron purchased a position in a limited partnership for $10,000. Three years later, she was required to contribute $2,000 more to the partnership. Two years ago, she was required to contribute an additional $2,000. If Cameron sells her limited partnership investment today for $20,000, what are the taxes?A: $ 900B: $1,500C: $2,100D: $2,700E: $3,50034. Iris pays 15% in dividends and capital gains taxes and 35% in ordinary income taxes. Several years ago, she purchased a Mortgage-Backed Security (MBS) for $20,000 which was the par value of the underlying assets. At the end of this year, she received a statement stating she had received $700 in scheduled amortization of principal, $1,200 in interest, and $500 in unscheduled collection of principal. What is Iris’s after-tax cash flow this year from this investment?A: $1,560B: $1,695C: $1,980D: $2,040E: $2,40035. Corey pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Four years ago, she invested $500,000 in a private placement offering with some friends. The initial price was $50 a share. The investment group is now discussing the possibility of publicly selling their shares. One of the members of the group believes they could get at least $75 a share. If this is correct, what are Corey’s taxes when she sells her shares (ignoring commissions and fees)?A: $0 because the group is not allowed to sell their private placement shares to the publicB: $37,500C: $54,000D: $70,000E: $87,50036. Stella pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. In 1990, she paid $1,000 for three American Eagle $50 gold coins (1 oz gold) and $340 for one coin in December 2003. In July 2004, she sold all four coins to net $460 each. What is the after-tax cash flow from this investment?A: $150B: $247C: $401D: $425E: $50037. A 6.4% preferred stock has a par value of $30 and is currently selling in the market at $40. The quarterly dividend for this stock isA: $0.16.B: $0.48.C: $0.64.D: $1.92.E: $2.56.38. Three years ago, Charles purchased a $1,000 face value 10-year Treasury note for par. The market value of this bond is now $950. If Charles sells the bond today, the tax implications of sale areA: $50 loss against ordinary incomeB: $50 capital gainC: $50 capital lossD: $50 gain against ordinary incomeE: No tax effects since Treasury securities are exempt from taxes39. XYZ Corporation has a cumulative preferred stock that pays $1 per share per quarter. The firm did not declare a dividend the last two quarters. To be able to pay dividends to common shareholders, the preferred stock dividend this coming quarter must beA: XYZ does not need to pay preferred stock dividends to be able to pay common stock dividendsB: $1C: $2D: $3E: $440. Zack needs a $100,000 loan to start his new business. Due to his age and inexperience, he is unable to obtain a bank loan. Possible alternatives to raise the funds include all of the following EXCEPTA: promissory note from his mother.B: having his mother co-sign a bank loan. C: selling personal assets.D: issuing debt in the market.E: all of the above are possible sources of funds for Zack



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