Investment Planning FPSB Questions

What two categories of information in the mutual fund registration statement (prospectus) are most important for potential investors to consider when they are trying to select the best fund to achieve their goals?

Do exchange traded funds (ETFs) that passively track an index normally have higher or lower fees compared with typical mutual funds and are they more or less tax-efficient?

In addition to trading like shares of stock, how are closed-end investment companies (i.e., closed-end funds or listed investment companies) different from open-end mutual fund companies?

In a normally distributed sample, approximately what percentage of the data (returns) will lie within one standard deviation either side of the mean?

What term correctly identifies the difference between the risk-free return and an investment’s total return?

Covariance is the statistical term for the correlation between two variables multiplied by the standard deviation for each variable. What does covariance show?

What generally happens on the secondary securities market?

What is the intrinsic value of a dividend paying stock where the current dividend is $1.25 and it is expected to grow annually at 4%, with a 7% required rate of return? (Use the dividend discount model.)

What is the problem represented by using the LBMA Gold Price (bullion) as a benchmark to compare a fund of large-cap stocks?

What sequence best represents the risk-return trade-off from lowest risk to highest?

Factors such as changes in interest rates and changes in inflation contribute to:

What is most likely not an advantage of an ETF?

To what investment risk may a bond be subject if it is not held to maturity that will not be present if it is held to maturity?

The standard deviation of returns for Stocks and Bond B are 20% and 8% respectively. If the correlation between the two stocks is 0.50, a portfolio consisting of 50% invested in Stocks and 50% in Bonds has a standard deviation closest to:

Which of the following is a reasonable description of duration in reference to bonds?

Under typical scenarios what type of risk cannot be mitigated through diversification?

Why is a mutual fund (collective or pooled investment scheme) technically called an open-end investment company?

How are mutual funds priced?

How is nominal yield calculated compared with current yield?

Stock S has a standard deviation of 0.20 and Stock T has a standard deviation of 0.14. Stock S and Stock T have a perfect positive correlation of +1. According to Markowitz portfolio theory, how much should be invested in each stock to minimize the portfolio’s variance?

Which of the following investment categories are listed from those generally considered to lowest risk to highest risk?

If investors objective is to replicate the performance of the S&P 500, should buy a(n):

What sequence best represents the risk-return trade-off from lowest risk to highest?

What is the name of the factor that measures systematic risk?

In what type of an economic environment might a corporation call a preferred stock or bond?

A mutual fund trades on the NYSE. Its recent price is $17 USD, but its Net Asset Value (NAV) is $19 USD. The fund is most likely:

_______ are created by way of separating the cash flows associated with a regular G-Sec into separate securities.

The method of repaying debt with the highest interest rate first, regardless of what the individual debt amount owed is called ?

Paying off the debt with the smallest balance first is called ?

If an investment’s return is 8.0% with a beta of .90 and an available risk-free rate of 2.5%, what is the Treynor ratio (T)?

What is the holding period return (HPR) for an investor who purchased 100 shares of stock for $40 per share and held the stock for four years, during which it paid dividends of $0.25, $0.26, $0.27 and $0.28 per share, respectively; then she sold the stock at the end of the four-year period for $50 per share?

What does the capital market line (CML) show?

Which one of the following assumptions of Markowitz’s Modern Portfolio Theory directly contrasts with a basic assumption of behavioral finance?

Arbitrage pricing theory (APT) can be used to determine an asset’s required return by looking at which two influences?

What is the science of applying psychology to finance called?

What term is used to describe those who try to avoid having too much money?

What is the name of the bias that applies when newly acquired information conflicts with a preexisting understanding which can result in mental discomfort?

Selective perception is most likely an aspect of what type of behavioural bias?

The point of tangency between the capital market line (CML) and the efficient frontier of risky assets most likely identifies the:

Which one of the following would be true if an adviser agrees with the strong form of the Efficient Market Hypothesis (EMH)?

An investment manager who analyzes past prices and trading volumes in order to predict future changes in the prices of securities is most likely engaging in:

What behavioral bias is an individual most likely exhibiting when they have unrealistically positive self-evaluations relative to the people around them?

What is the name of a behavioral bias that places a higher value on an owned asset over assets that are not owned?

What is the name of the behavioral bias where an individual has a tendency to respond to various situations differently based on the context in which a choice is presented?

You are advising a new client. He has a good understanding of the markets but is very focused on the shares of his employer because the price has been rising for a long time and he is confident about what they are doing. Which of the following alternatives is a good solution for the issue?

Assume the following for Company XYZ:
Pre-tax income reported at £6.4 million in the most recent fiscal year which is likely for future years;
Interest expense reported at £1,600,000 and depreciation and amortization of £4 million;
£20 million of interest-bearing debt outstanding.
Assume that following an analysis of Company ABC’s operations, risks and growth prospects, an EBITDA multiple of 6x is considered appropriate
The shareholder value using the multiple of EBITDA methodology for business valuation is most likely closest to:

Executive stock options typically cannot be exercised immediately following the date they are awarded by the company. What is the common term to identify the options status at which it can be used to purchase or receive company stock?

What is the most professional way to develop a client investment portfolio?

Once per year often is considered a good time-frame to evaluate a portfolio. What rationale should support the decision to rebalance a portfolio?

In addition to security selection, what activity best reflects tactical asset allocation?

With regard to the concept of Dynamic asset allocation, which of the following statements is true?

Which one of the following is one of the measures evaluated as part of fundamental analysis?

Several methods exist to address a concentrated stock position. Which one of these is most similar to an equity collar?

Regarding Strategic asset allocation, which of the following statement is true?

Which one of the following best illustrates a correctly-stated client’s SMART goal?

Which of the following equations correctly identifies the process to determine a company’s liquidity ratio(acid test)?

Assume the following for Company XYZ:
Pre-tax income reported at £12.8 million in the most recent fiscal year which is likely for future years;
Interest expense reported at £3,200,000 and depreciation and amortization of £8 million;
£40 million of interest-bearing debt outstanding.
Assume that following an analysis of Company ABC’s operations, risks and growth prospects, an EBITDA multiple of 8x is considered appropriate
The shareholder value using the multiple of EBITDA methodology for business valuation is most likely closest to:

Which one of the following Efficient Market Hypothesis (EMH) forms is most likely based on the belief that all public information is already fully incorporated into the price of a security?

In addition to supporting compliance to the exact letter of the law, what should a business culture promote if it’s focused on protecting consumers?

At its core, what is a reasonable definition of fiduciary state?

What is the definition of money laundering?

What is the ultimate objective of mandating compliance with regulatory requirements?

What is the primary purpose of financial regulation according to the International Monetary Fund?

Fiscal drag and fiscal boost are variations of what type of fiscal policy?

What is a typical business response when the government enacts legislation that increases costs to the business?

What are the three stages of money laundering (in order)?

Which one of the following best summarizes investment adviser responsibility toward clients?

Governments focus on using two primary policies to impact their economy, one of which is monetary. What is the second?

Governments focus on using two primary policies to impact their economy, one of which is monetary. What is the second?