Question 1

An investor adopts a policy of investing in both an aggressive managed fund and a short- term bond fund. When the value of the aggressive fund exceeds 65% of the portfolio value, shares of that fund are sold such that the aggressive fund represents only 45% of the portfolio. This is an example of a_________ plan.

Accepted Answer

The answer of An investor adopts a policy of investing...

Question 2

Asset allocation should focus on

Accepted Answer

Asset allocation should focus on the investor's financial and family situation to ensure that the investment strategy aligns with their risk tolerance, financial goals, and time horizon.

Question 3

An investment portfolio should be built around the needs of the individual investor.

Accepted Answer

Every investor is unique and has different goals, risk tolerance, and time horizon. Therefore, it is essential to build an investment portfolio that aligns with their needs and preferences. A personalized portfolio can help achieve financial objectives and mitigate risks, leading to better long-term outcomes.

Question 4

Holding period return (HPR) captures total return performance by considering current income and capital gains and is most appropriate for holding periods of one year or less.

Accepted Answer

The answer of Holding period return (HPR) captures total return...

Question 5

A stop- loss order guarantees that an investor's unrealised profit will be protected.

Accepted Answer

A stop-loss order is designed to limit an investor's loss by selling a security when it reaches a certain price, but it does not guarantee protection of unrealized profits due to potential price gaps or market volatility.

Question 6

The key areas to monitor when evaluating your portfolio holdings are the overall performance of both the economy and the financial markets, and the returns on your investments.

Accepted Answer

Monitoring the overall performance of the economy and financial markets, as well as the returns on your investments, is critical to evaluating your portfolio holdings. This helps you determine whether your investments are performing well and adjust your portfolio as needed.

Question 7

Dollar-cost averaging is a formula plan to purchase the same number of shares at regular intervals of time.

Accepted Answer

Dollar-cost averaging involves investing a fixed dollar amount at regular intervals, not purchasing the same number of shares.

Question 8

Sharpe's measure is a measure of the risk premium per unit of total risk.

Accepted Answer

This statement is correct. Sharpe's measure, also known as the Sharpe ratio, is calculated by dividing the excess return of an investment over the risk-free rate by the standard deviation of its returns, thus providing a measure of the risk premium per unit of total risk.

Question 9

Juan's investment portfolio was valued at $125,640 at the beginning of the year. During the year, Juan received $603 in interest income and $298 in dividend income. Juan also sold shares and realised $1,459 in capital gains. Juan's portfolio is valued at $142,608 at the end of the year. All income and realised gains were reinvested. No funds were contributed or withdrawn during the year. What is the amount of income Juan must declare this year for income tax purposes?

Accepted Answer

The answer of Juan's investment portfolio was valued at $125,640...

Question 10

The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as

Accepted Answer

Portfolio revision involves selling certain securities and purchasing new ones to maintain or improve the portfolio's performance.

Question 11

The two primary media for warehousing liquidity are

Accepted Answer

Money market managed funds and money market deposit accounts are designed to provide liquidity and are commonly used for short-term cash management.

Question 12

The holding period return measures only the capital appreciation of an investment.

Accepted Answer

The holding period return measures both the capital appreciation and any income generated by an investment, such as dividends or interest payments.

Question 13

Only capital gains that have been realised should be included in the measurement of a portfolio's return over a given period of time.

Accepted Answer

The answer of Only capital gains that have been realised...

Question 14

Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long- term capital appreciation?

Accepted Answer

A portfolio with 85% growth shares is suitable for someone like Marti who is young and willing to accept a fair amount of risk for long-term capital appreciation. Growth shares typically offer higher potential returns over the long term compared to bonds or money market funds.

Question 15

Investors need to monitor economic and market activity to assess the potential impact these factors can have on their investment portfolios.

Accepted Answer

It is important for investors to stay informed about economic and market developments so they can make informed decisions about their investments and adjust their portfolios accordingly. Failure to do so could result in missed opportunities or significant losses.

Question 16

Once you establish a portfolio designed to achieve your investment goals, you can relax and forget about your investments until such time as you need the funds.

Accepted Answer

While it's important to have a long-term investment strategy and avoid constantly checking and making changes to your portfolio, it's also important to regularly monitor and rebalance your investments to ensure they are still aligned with your goals and risk tolerance. Market conditions and personal circumstances can change, so it's wise to review your portfolio periodically and make adjustments as needed.

Question 17

Dollar-cost averaging is a formula plan which automatically causes investors to purchase more shares when the price is low and purchase fewer shares when the price is high.

Accepted Answer

Dollar-cost averaging involves investing a fixed amount of money at regular intervals, which can result in purchasing more shares when prices are low and fewer shares when prices are high.

Question 18

An investor's portfolio should only contain securities that are suitable to the investor's goals and needs.

Accepted Answer

An investor's portfolio should be personalized according to their goals, needs, risk tolerance, and financial situation. Securities that do not align with these factors should not be included in the portfolio.

Question 19

Sharpe measures total risk while Treynor and Jensen measure only systematic risk.

Accepted Answer

The answer of Sharpe measures total risk while Treynor and...

Question 20

Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.

Accepted Answer

This is a correct statement. The Sharpe ratio is calculated by subtracting the risk-free rate of return from the expected return on the portfolio and dividing the result by the standard deviation of the portfolio's return. It measures the excess return earned per unit of risk taken on by the investor.

Quiz 13: Managing Your Own Portfolio