Wealth Management Exam Review
Course Introduction
Wealth Management is a comprehensive course designed to introduce students to the principles, strategies, and tools used in managing individual and institutional wealth. The course covers key topics such as investment planning, portfolio management, tax strategies, estate planning, risk assessment, and retirement planning. Students will explore both traditional and modern approaches to asset allocation, learn about financial instruments and markets, and develop a thorough understanding of how economic and personal factors influence wealth accumulation and preservation. Through case studies and practical applications, students will build the analytical and decision-making skills necessary to effectively manage wealth for themselves or clients in a variety of professional contexts.
Recommended Textbook
Analysis of Investments and Mangement of Portfolios International 10th Edition by Reilly
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30 Chapters
2359 Verified Questions
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Page 2
Chapter 1: An Overview of the Investment Process
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Sample Questions
Q1) The nominal risk free rate of interest is a function of
A) The real risk free rate and the investment's variance.
B) The prime rate and the rate of inflation.
C) The T-bill rate plus the inflation rate.
D) The tax free rate plus the rate of inflation.
E) The real risk free rate and the rate of inflation.
Answer: E
Q2) Refer to Exhibit 1.8.Calculate the HPY for the portfolio.
A) 10.6%
B) 6.95%
C) 13.5%
D) 10%
E) 15.7%
Answer: A
Q3) The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Asset Allocation Decision
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Sample Questions
Q1) Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.
A)True
B)False
Answer: True
Q2) The majority of a pension fund's return is explained by asset allocation.
A)True
B)False
Answer: True
Q3) An appropriate investment objective for a typical 25-year-old investor is a low-risk strategy,such as capital preservation or current income.
A)True
B)False
Answer: False
Q4) Individual security selection is far more important than the asset allocation decision.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Global Market Investment Decision
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Sample Questions
Q1) All of the following are ways to invest in real estate except
A) Real Estate Investment Trusts (REITs)
B) Raw Land
C) Land Development
D) Rental Properties
E) All of the above are ways to invest in real estate.
Answer: E
Q2) Convertible bonds are bonds
A) That are convertible into more bonds.
B) That are convertible from unsecured to secured status.
C) That are convertible into company stock.
D) That are convertible into specific assets.
E) That have an option attached.
Answer: C
Q3) Income bonds are considered as safe as debentures because they pay higher rates of interest.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Securities Markets: Organization and Operation
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Sample Questions
Q1) Trading in the secondary markets for Corporate bonds
A) Takes place through a network of primary dealers
B) Takes place over the counter by dealers who buy and sell on their own account
C) Takes place on the NYSE bond annex
D) All of the above
E) None of the above
Q2) Which of the following is <b>not </b>a function of the specialist?
A) Assists the Federal Reserve in controlling the money supply
B) Acts as a broker who handles the limit orders or special orders placed with member brokers
C) Buys and sells securities in order to stabilize the market
D) Acts as a dealer in assigned stocks to maintain a fair and orderly market
E) All of the above are functions of a specialist
Q3) A block trade is one which involves a minimum of
A) 1,000 shares.
B) 5,000 shares.
C) 10,000 shares.
D) 100,000 shares.
E) 1,000,000 shares.
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Page 6
Chapter 5: Security-Market Indexes
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Sample Questions
Q1) There is a high correlation between the Wilshire 5000 index and the alternative NYSE series (S&P 500 and the NYSE),representing the substantial influence of large NYSE stocks on the Wilshire 5000 index.
A)True
B)False
Q2) Refer to Exhibit 5.2.Calculate a value weighted index for January 15th if the initial index value is 100.
A) 102.31
B) 100
C) 123.07
D) 111.54
E) None of the above
Q3) An example of a value weighted stock market indicator series is the A) Dow Jones Industrial Average.
B) Nikkei Dow Jones Average.
C) S & P 500 Index.
D) Value Line Index.
E) Shearson Lehman Hutton Index.
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Chapter 6: Efficient Capital Markets
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Sample Questions
Q1) Refer to Exhibit 6.2.What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?
A) 2.4%
B) 1.5%
C) -1.5%
D) 2.0%
E) -3.2%
Q2) The strongest explanations for the size anomaly are
A) risk measurements
B) higher transaction costs
C) P/E ratio
D) a and b.
E) b and c.
Q3) The implication of efficient capital markets and a lack of superior analysts have led to the introduction of
A) Balanced funds.
B) Naive funds.
C) January funds.
D) Index funds.
E) Futures options.
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Chapter 7: An Introduction to Portfolio Management
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Sample Questions
Q1) Refer to Exhibit 7.7.What is the standard deviation of this portfolio?
A) 4.87%
B) 3.62%
C) 4.13%
D) 5.76%
E) 6.02%
Q2) Between 1980 and 2000,the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.08 and 0.10,respectively,and the covariance of these index returns was 0.0007.What was the correlation coefficient between the two market indicators?
A) .0906
B) .0985
C) .0796
D) .0875
E) .0654
Q3) In a three asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.
A)True
B)False
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9
Chapter 8: An Introduction to Asset Pricing Models
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Sample Questions
Q1) The line of best fit for a scatter diagram showing the rates of return of an individual risky asset and the market portfolio of risky assets over time is called the
A) Security market line.
B) Capital asset pricing model.
C) Characteristic line.
D) Line of least resistance.
E) Market line.
Q2) The existence of transaction costs indicates that at some point the additional cost of diversification relative to its benefit would be excessive for most investors.
A)True
B)False
Q3) Refer to Exhibit 8.7.What are the estimated rates of return for the three stocks (in the order A,B,C)?
A) 13.0%, 10.6%, 8.8%
B) 15.0%, 11.1%, 2.9%
C) 18.7%, 11.1%, 8.8%
D) 21.7%, 10.0%, 6.9%
E) 25.0%, 11.1%, 7.1%
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Chapter 9: Multifactor Models of Risk and Return
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Sample Questions
Q1) Studies indicate that neither firm size nor the time interval used are important when computing beta.
A)True
B)False
Q2) Refer to Exhibit 9.1.In the list above which are assumptions of the Arbitrage Pricing Model?
A) (1) and (4)
B) (1), (2), and (3)
C) (1), (3), and (5)
D) (2), (3), (4), and (6)
E) All six are assumptions
Q3) A 1994 study by Burmeister,Roll,and Ross defined all of the following risk factors except
A) Confidence risk
B) Market risk
C) Inflation risk
D) Market-timing risk
E) Business cycle risk
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Chapter 10: Analysis of Financial Statements
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Sample Questions
Q1) Which of the following is <b>not</b> a flow ratio?
A) Interest coverage
B) Fixed charge coverage
C) Debt/equity
D) Cash flow/long term debt
E) Cash flow/total debt
Q2) Inventory turnover,net fixed asst turnover and equity turnover are measures of operating efficiency.
A)True
B)False
Q3) Refer to Exhibit 10.9.Calculate the profit margin for the firm.
A) 22.5%
B) 18.4%
C) 17.6%
D) 15.3%
E) 11.9%
Q4) Traditional cash flow and Free cash flow are equivalent concepts.
A)True
B)False
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Chapter 11: Security Valuation Principles
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Sample Questions
Q1) If the estimated value of an asset is greater than the market price,you would want to buy the investment.
A)True
B)False
Q2) Which of the following factors influence an investor's required rate of return?
A) The economy's real risk-free rate (RFR)
B) The expected rate of inflation (I)
C) A risk premium
D) All of the above
E) None of the above
Q3) Dividend growth is a function of
A) Return on equity.
B) The retention rate.
C) The payout ratio.
D) All of the above.
E) None of the above.
Q4) Fundamentalists typically use the "Bottom-Up Approach" whereas technicians use the "Top-Down Approach" to the valuation process.
A)True
B)False
Page 13
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Chapter 12: Macroanalysis and Microvaluation of the Stock Market
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Sample Questions
Q1) If a diffusion index for new orders went from 87 to 74 and then to 68,it would indicate ____ receipt of new orders and indicate a ____ in breadth and the possibility of a future ____ in the series.
A) Limited, strengthening, decline
B) Limited, weakening, increase
C) Widespread, strengthening, increase
D) Widespread, weakening, decline
E) Widespread, weakening, increase
Q2) If interest rates rise due to inflation,and expected cash flows to a firm rise,then you would expect stock prices to
A) Rise.
B) Rise and then decline.
C) Remain unchanged.
D) Decline.
E) None of the above.
Q3) Stock prices move coincidentally with the economy.
A)True
B)False
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Chapter 13: Industry Analysis
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Sample Questions
Q1) The relationship between an economic series such as disposable personal income and industry sales is usually stronger in an industry that is more specialized.
A)True
B)False
Q2) Which of the following are <b>not </b>typically considered a threat of new entrants to an industry?
A) Low current prices relative to costs
B) Large capital requirements
C) Extensive distribution channels with exclusive distribution contracts
D) Government policy restricting access to raw materials
E) Large volume purchases relative to the sales of a supplier
Q3) The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.
A)True
B)False
Q4) Consumer staples tend to outperform other industries the most at the peak of a business cycle.
A)True
B)False
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Chapter 14: Company Analysis and Stock Valuation
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Sample Questions
Q1) Which of the following ratios is least likely to be impacted by accounting manipulation?
A) P/E
B) ROE
C) ROI
D) P/S
E) PM
Q2) Refer to Exhibit 14.2.Determine the P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 8 years.
A) 6.4
B) 20.5
C) 16.5
D) 23.8
E) 29.5
Q3) Operating free cash flow and Free cash flow to equity are equivalent cash flow concepts.
A)True
B)False
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Chapter 15: Equity Portfolio Management Stragtegies
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Sample Questions
Q1) Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?
A) Time the markets by shifting between different types of securities based on market forecasts and estimated risk premiums.
B) Shift funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does.
C) Individual stockpicking in order to buy low and sell high.
D) Choices a and b only
E) All of the above
Q2) Refer to Exhibit 15.1.The recommended portfolio for Tom Luck is
A) Portfolio A because it has expected utility of 9.95
B) Portfolio A because it has expected utility of 4.5
C) Portfolio B because it has expected utility of 5.33
D) Portfolio B because it has expected utility of 7.27
E) Portfolio C because it has expected utility of 6.75
Q3) Growth stocks consistently outperform value stocks.
A)True
B)False
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17
Chapter 16: Technical Analysis
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Sample Questions
Q1) Technical analysts believe that security prices do not adjust rapidly.
A)True
B)False
Q2) The confidence index published by Barron's is the ratio of the average yield on 10 top grade corporate bonds to the
A) Average yield on 30 blue chip corporate stocks.
B) Average yield on 40 convertible corporate bonds.
C) Yield on U.S. Treasury bills.
D) Yield on the Dow Jones average of 40 bonds.
E) Yield on the Shearson Lehman Hutton Corporate Bond Index
Q3) For technical trading rules to consistently generate superior returns,the market would have to be inefficient.
A)True
B)False
Q4) A high put/call ratio indicates a pervasive bearish attitude by sophisticated investors so it is a bearish indicator.
A)True
B)False
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Chapter 17: Bond Fundamentals
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Sample Questions
Q1) Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.
A)True
B)False
Q2) Treasury bonds which can be purchased at a discount to be used at par to pay estate taxes are called
A) Estate bonds.
B) Flower bonds.
C) Municipal bonds.
D) Probate bonds.
E) Survivor bonds.
Q3) How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?
A) $10,150.00
B) $10,000.00
C) $101.16
D) $10,160.00
E) None of the above
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Chapter 18: The Analysis and Valuation of Bonds
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Q1) Refer to Exhibit 18.2.What is the price of the Talmart corporate bonds?
A) $965.63
B) $966.13
C) $1,034.65
D) $1,135.10
E) $1,051.97
Q2) If the price before yields changed was $925,what is the resulting price?
A) $865.22
B) $918.66
C) $889.11
D) $1000.00
E) $1012.45
Q3) Calculate the modified duration for a 10-year,12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years.
A) 6.43 years
B) 6.55 years
C) 6.79 years
D) 6.86 years
E) 7.01 years
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Page 20
Chapter 19: Bond Portfolio Management Strategies
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Sample Questions
Q1) Refer to Exhibit 19.9.Assume that your investment horizon is 5 years and your portfolio consists only of Bond Y and Bond X.Indicate the proportions invested in each bond,so that the portfolio is immunized.
A) 50% in Bond Y and 50% in Bond X
B) 76% in Bond Y and 24% in Bond X
C) 36% in Bond Y and 64% in Bond X
D) 100% in Bond X
E) 100% in Bond Y
Q2) Refer to Exhibit 19.8.Assume that your investment horizon is 6 years and your portfolio consists only of Bond C and Bond D.Indicate the proportions invested in each bond,so that the portfolio is immunized.
A) 50% in Bond C and 50% in Bond D
B) 64% in Bond C and 36% in Bond D
C) 36% in Bond C and 64% in Bond D
D) 100% in Bond D
E) None of the above
Q3) The duration of a perpetual bond is always equal to its term to maturity.
A)True
B)False
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Page 21
Chapter 20: An Introduction to Derivative Markets and Securities
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Sample Questions
Q1) A forward contract is similar to an option contract because they both
A) Can provide insurance against the price of the underlying stock
B) Are paid for up front in the form of premiums
C) Are paid for at the end of the contract in the form of premiums
D) Require a future settlement payment
E) None of the above
Q2) Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?
A) 60.60% gain
B) 6.06% loss
C) 60.60% loss
D) 6.06% gain
E) None of the above
Q3) The option premium is the price the call buyer will pay to the option seller if the option is exercised.
A)True
B)False
Q4) Forward and future contracts,as well as options,are types of derivative securities.
A)True
B)False
22
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Chapter 21: Forward and Futures Contracts
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Q1) Refer to Exhibit 21.9.If you anticipate a cash inflow of $2 million next week,how many futures contracts should you buy or sell in order to mitigate the effect of this inflow on the portfolio's performance (rounded to the nearest integer)?
A) Sell 6 contracts
B) Buy 6 contracts
C) Sell 8 contracts
D) Buy 8 contracts
E) None of the above
Q2) Stock index futures are useful in providing a hedge against movements in an underlying financial asset.
A)True
B)False
Q3) The number of future contracts needed to hedge a unit of the spot assets is solely a function of the variance of the spot prices.
A)True
B)False
Q4) The cost-of-carry model is useful for pricing future contracts.
A)True
B)False
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Chapter 22: Option Contracts
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Sample Questions
Q1) Refer to Exhibit 22.4.A long straddle is an appropriate strategy if
A) An investor wishes to generate additional income.
B) An investor wished to insure against a decline in share values.
C) An investor expected share prices to be volatile.
D) An investor expected share prices to remain in a trading range.
E) An investor expected share prices to be volatile, but was inclined to be bullish.
Q2) Refer to Exhibit 22.5.Calculate the possible prices of the stock one year from today.
A) $37.50 or $17.50.
B) $62.50 or $37.50.
C) $62.50 or $17.50.
D) $50 or $45.
E) None of the above.
Q3) Refer to Exhibit 22.6.Calculate the price of the call option today (C ).
A) $7.77
B) $14.35
C) $0
D) $4.21
E) $6.44
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24
Chapter 23: Swap Contracts,convertible Securities,and
Other Embedded Derivatives
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Q1) Refer to Exhibit 23.10.Suppose that 3-month LIBOR is 4.0% on the rate determination day,and the contract specified settlement in arrears at month 6,describe the transaction that occurs between the dealer and Newport.
A) The dealer is obligated to pay Newport $125,000.
B) The dealer is obligated to pay Newport $115,000.
C) Newport is obligated to pay the dealer $125,000.
D) Newport is obligated to pay the dealer $115,000.
E) None of the above
Q2) The issuance of convertibles will ultimately lead to greater dilution than an initial issue of stock.
A)True
B)False
Q3) An investor considering investment in warrants as part of an overall program,should consider which of the following?
A) Diversification
B) Cutting losses short, and letting profits run
C) A low intrinsic value
D) Viewing warrant selection as a portion of the total investment process
E) All of the above
Page 25
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Chapter
Assets, and Industry Ethics
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Q1) Suppose you consider investing $5,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year.Alternatively,you could invest in a no load fund which is expected to earn 10% and which takes a 1/2 percent redemption fee.Which is better and by how much?
A) Load fund by $320.50
B) Load fund by $575.50
C) Funds are equal
D) No load fund by $320.50
E) No load fund by $575.50
Q2) The market price of a closed-end investment company has generally been
A) 5 to 20 percent below the NAV.
B) 25 to 35 percent below the NAV.
C) Equal to the NAV (within a 2 percent range).
D) 5 to 20 percent above the NAV.
E) 25 to 35 percent above the NAV.
Q3) A common hedge fund strategy known as long-short equity is a type of arbitrage strategy.
A)True
B)False
Page 26
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Chapter 25: Evaluation of Portfolio Performance
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Q1) Refer to Exhibit 25.8.Which of the following statements is true?
A) Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested the funds in stocks and bond indexes.
B) Sector/security selection improved the port-folio performance by 1.4%; each sector return was higher than for index value.
C) Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested the funds in stocks and bond indexes.
D) Sector/security selection improved the port-folio performance by 6.8%; each sector return was higher than for index return.
E) None of the above is a true statement.
Q2) The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.
A)True
B)False
Q3) The market rewards investors for bearing total risk.
A)True
B)False
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Chapter 26: Investment Return and Risk Analysis Questions
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Q1) Refer to Exhibit 1A.1.The expected return from this investment is
A) -0.0752
B) -0.0040
C) 0.00
D) 0.0075
E) 0.4545
Q2) Refer to Exhibit 1A.1.The standard deviation of your expected return from this investment is
A) 0.001
B) 0.004
C) 0.124
D) 1.240
E) None of the above
Q3) Refer to Exhibit 1A.2.The expected return for project X is
A) 0.0 percent
B) 0.5 percent
C) 2.5 percent
D) 5.0 percent
E) 7.5 percent
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Chapter 27: Investment and Retirement Plans
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Q1) Defined contribution pension plans promise to pay retirees a specific income stream after retirement.
A)True
B)False
Q2) Many endowments are tax-exempt.
A)True
B)False
Q3) Banks face regulatory constraints at both the state and federal level.
A)True
B)False
Q4) Endowment funds
A) Are formed from the contributions to charitable and educational institutions.
B) Are attractive investments for individuals with low liquidity needs.
C) Usually have very short investment horizons.
D) Provide retirement benefits for public employees.
E) Provide death benefits for its contributor's survivors.
Q5) Cash flows for nonlife insurance companies,such as property and casualty,are similar to cash flows of life insurance companies.
A)True
B)False
Page 29
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Chapter 28: Calculating Covariance and Correlation
Coefficient of Assets
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Q1) What is the correlation coefficient for two assets with a covariance of .0032,if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?
A) 0.2963
B) 0.3456
C) 0.8721
D) 1.5980
Q2) Refer to Exhibit 3A.1.Calculate the coefficient of correlation.
A) -0.456
B) -0.354
C) 0.000
D) 0.456
E) 3.538
Q3) Refer to Exhibit 3A.1.Calculate the covariance.
A) -32.20
B) -23.32
C) 1.00
D) 23.32
E) 32.20
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Chapter 29: Portfolio Variance and Stock Weight
Calculations
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Sample Questions
Q1) Refer to Exhibit 7A.1.Show the minimum portfolio variance for a two stock portfolio when r<sub>1.2</sub> = 1.
A) E(?<sub>2</sub>) ¸ [E(?<sub>1</sub>) - E(?<sub>2</sub>)]
B) E(?<sub>2</sub>) ¸ [E(?<sub>1</sub>) + E(?<sub>2</sub>)]
C) E(?<sub>1</sub>) ¸ [E(?<sub>1</sub>) - E(?<sub>2</sub>)]
D) E(?<sub>1</sub>) ¸ [E(?<sub>1</sub>) + E(?<sub>2</sub>)]
E) None of the above
Q2) Refer to Exhibit 7A.1.What weight of security 1 gives the minimum portfolio variance when r<sub>1.2 </sub>= .60,E(?<sub>1</sub>)= .10 and E(?<sub>2</sub>)= .16?
A) .0244
B) .3679
C) .5697
D) .6309
E) .9756
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Chapter 30: Portfolio Optimization with Negative
Correlation: Finding Minimum Variance and Weight
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2 Verified Questions
2 Flashcards
Source URL: https://quizplus.com/quiz/24349
Sample Questions
Q1) Refer to Exhibit 7B.1.What is the value of W when r . = -1 and E(s )= .10 and E(s )= .12?
A) 45.46%
B) 50.00%
C) 59.45%
D) 54.55%
E) 74.55%
Q2) Refer to Exhibit 7B.1.Show the minimum portfolio variance for a portfolio of two risky assets when r . = -1.
A) E( 1) ¸ [E( 1) + E( 2)]
B) E( 1) ¸ [E( 1) - E( 2)]
C) E( 2) ¸ [E( 1) + E( 2)]
D) E( 2) ¸ [E( 1) - E( 2)]
E) None of the above
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