QUIZ #2 Canadian Investments
1. Under which of the following circumstances is it most likely that the nominal return of an investment will be less than its real return?
a) During periods of deflation.
b) During periods of low inflation
c) During periods of high inflation.
d) Under no circumstances is it possible for the nominal return to be less than its real return.
Please use the following information for Questions #2 & #3.
You have been provided this information about four securities. You are considering adding one or more to a portfolio that has an expected return of 11% and a variance of 85.
Return Variance Correlation
Security One 8% 81 –.25
Security Two 10% 110 +.75
Security Three 12% 150 –.70
Security Four 14% 220 +.55
2. Which of the following security or securities is or are most likely to increase the portfolio’s expected return while providing diversification benefits?
a) Security One only
b) Security Three only
c) Security One and Security Three only
d) Security Three and Security Four only
3. If the portfolio manager’s only mandate were to maximize the expected return of the portfolio, which of the following security or securities would you recommend that she add to the portfolio?
a) Security Three only
b) Security Four only
c) Security One and Security Three
d) Security Three and Security Four
4. The market is expected to return 10% in the coming year, and a security within it has a beta of 1.2. If the security returns 15%, its alpha would be…
d) Insufficient information.
5. You are examining a mutual fund. You see that it is heavily invested in securities that have low price-earnings and price-book ratios relative to the market. At the same time, its dividend yield exceeds the market yield. You would conclude that the manager is a…
a) sector rotator.
b) value investor.
c) top-down growth investor.
d) bottom-up growth investor.
6. After designing the investment policy statement, the next step in the portfolio management process is to…
a) select the securities.
b) develop the asset mix.
c) monitor the client and economy.
d) determine investment objectives.
7. In the contraction phase of the equity cycle…
a) short-term bonds should be sold and long-term bonds should be purchased.
b) long-term bonds should be sold and short-term bonds should be purchased.
c) both short-term and long-term bonds should be sold and cash-like securities should be purchased.
d) both short-term and long-term bonds should be purchased and cash-like securities should be sold.
8. Jennifer Goldman is a middle-aged woman who has recently received a very large divorce settlement. The most appropriate asset allocation for her would be…
a) 34% equities, 33% bonds and 33% cash
b) 60% equities, 35% bonds and 5% cash
c) 70% equities and 30% bonds
d) 100% equities
9. Jonathan Hartwell met with his investment advisor and it was determined that his $300,000 portfolio would be allocated in the following manner: 50% equities, 40% bonds and 10% cash. Over the course of the next year, the equities in his portfolio appreciated by 10%, the bonds appreciated by 10% and the cash portion grew by 4%. In order to re-balance his portfolio, the investment manager would be required to…
a) sell $600 worth of equities, sell $360 worth of bonds, and buy $960 worth of cash.
b) sell $900 worth of equities, sell $720 worth of bonds, and buy $1,620 worth of cash.
c) sell $1,200 worth of equities, buy $820 worth of bonds, and buy $380 worth of cash.
d) sell $2,400 worth of equities, buy $1,600 worth of bonds and buy $800 worth of cash.
10. In order to calculate the Sharpe Ratio, for the risk measure the analyst requires the ___ of the portfolio.
c) standard deviation
d) The Sharpe Ratio does not require a risk measure.