In addition to the legislation and guidelines that may apply,

Subject: Business / Finance
Question
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 EXCEPT

A: specific goals about continuing education

B: the asset classes for investment

C: rate of return expectations (including timeframe) and expected volatility

D: an investment review process

E: a policy review process

Return metrics, risk-adjusted return metrics, and benchmarking are all examples of

A: monitoring.

B: performance evaluation.

C: manager selection.

D: assessment of capital markets.

E: none of the above

The financial planning process include all of the following EXCEPT

A: 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.

Commonly used sentiment indicators include all of the following EXCEPT

A: short-interest ratio.

B: volatility index.

C: insider trading activity.

D: put/call ratio.

E: long-interest ratio.

An active approach to investing

A: 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.

Features of dollar cost averaging include all of the following EXCEPT

A: 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.

A short sale occurs when an investor does which of the following?

A: buys a stock and uses it as collateral for a loan

B: sells a stock at a loss

C: borrows a stock and then sells it

D: sells a stock for less than fair market value

E: none of these are examples of a short sale

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 transaction

A: 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.

Tax-efficient investment strategies include

A: 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.

The best type of asset to include in a tax-deferred retirement plan is

A: treasury bond.

B: corporate bond.

C: growth stock.

D: municipal bond.

E: equity mutual fund.

Factors that should be considered in the purchase of a stock includes all of the following EXCEPT

A: dividends.

B: growth potential.

C: quality of a firm’s management.

D: coupon rate on a firm’s bonds.

E: price.

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 is

A: $ 0.

B: $30,000.

C: $45,000.

D: $60,000.

E: $90,000.

Preferred stock with cumulative fixed dividends

A: 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 true

Types of permanent insurance policies include all of the following EXCEPT

A: universal life.

B: straight life.

C: whole life.

D: variable life.

E: all of the above are types of permanent insurance policies

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.

Some form of annuity would be indicated when

A: 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.

Factors that are used to determine if an investor is a “dealer” in real estate include all of the following EXCEPT

A: 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.

Methods to hold real estate as an investment include all of the following EXCEPT

A: limited partnerships.

B: C corporations.

C: L corporations.

D: REITs.

E: all of the above are methods to invest in real estate.

Disadvantages of investing in real estate investment trusts (REITs) include all of the following EXCEPT

A: 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.

Which of the following risk factors is least important for Mortgaged-Backed Securities (MBS)?

A: inflation (purchasing power) risk

B: reinvestment risk

C: liquidity risk

D: interest rate risk

E: none of the above risk factors is a major problem for MBSs

Advantages of investing in oil and gas include all of the following EXCEPT

A: 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.

Disadvantages of investing in precious metals include all of the following EXCEPT

A: possible government controls.

B: no current income.

C: sales taxes may be imposed.

D: potentially high returns.

E: assay costs may be involved.

Venture capital firms may

A: 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.

Advantages of investing in American Depositary Receipts (ADRs) include

A: 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.

Cash flows that a company generates in excess of the necessary investments in the company’s assets are

A: cash dividends.

B: free cash flow to equity.

C: earnings.

D: book value.

E: none of these choices fits the definition.

What is the correlation with the greatest potential for diversification?

A: -1.0

B: -0.5

C: 0.0

D: +1.0

E: +2.0

Common behavioral finance issues include

A: confirmation bias.

B: loss aversion.

C: mental accounting.

D: optimism.

E: all of these choices are common behavioral finance issues.

The portfolio on the efficient frontier that is selected by an investor depends on

A: 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.

The semi-strong form of the efficient market hypothesis states that

A: 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.

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: $ 900

B: $1,500

C: $2,100

D: $2,700

E: $3,500

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: $1,560

B: $1,695

C: $1,980

D: $2,040

E: $2,400

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 public

B: $37,500

C: $54,000

D: $70,000

E: $87,500

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: $150

B: $247

C: $401

D: $425

E: $500

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 is

A: $0.16.

B: $0.48.

C: $0.64.

D: $1.92.

E: $2.56.

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 are

A: $50 loss against ordinary income

B: $50 capital gain

C: $50 capital loss

D: $50 gain against ordinary income

E: No tax effects since Treasury securities are exempt from taxes

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 be

A: XYZ does not need to pay preferred stock dividends to be able to pay common stock dividends

B: $1

C: $2

D: $3

E: $4

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 EXCEPT

A: 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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