The alpha coefficient is a measure of:

I stock specific risk

II market risk

III a stock's price relative to the market as a whole

IV a stock's price relative to a specific industry

Answer: 

I stock specific risk

IV a stock's price relative to a specific industry

Common shares of which of the following issuers are likely to have a Beta coefficient much lower than +1?

A. Tool and die maker

B. Pharmaceutical manufacturer

C. Public utility

D. Electronics manufacturer

Answer: C

Which of the investments listed below offers the greatest protection against market risk?

A. Common Stocks

B. Treasury Bills

C. Preferred Stocks

D. Treasury Bonds

Answer: B

The risk inherent in a portfolio that can be diversified away is known as:

Answer: non-systematic risk

The Capital Asset Pricing Model (CAPM) would identify the most efficient investments as those with the:

Answer: highest return for the lowest level of risk assumed

"CAPM" stands for:

Answer: Capital Asset Pricing Model

The market theory that states that technical and fundamental analysis is of no use in selecting stocks for a portfolio is known as the:

Answer: Efficient market theory

A constant ratio investment plan is one which:

Answer: maintains a fixed percentage amount of a portfolio's assets in equities

A constant dollar investment plan requires:

Answer: that the same aggregate dollar amount be kept invested in equities

A trader liquidates an exchange listed stock position and invests the proceeds in an exchange listed stock index fund. The trader has reduced which risk?

A. Call risk

B. Inflation risk

C. Liquidity risk

D. Capital risk

Answer: D

If a portfolio manager's market sentiment is bearish, then which of the following are appropriate actions?

I Cash positions will be decreased

II Cash positions will be increased

III Investments in stock positions will be decreased

IV Investments in stock positions will be increased

Answer: 

II Cash positions will be increased

III Investments in stock positions will be decreased

An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be:

A. Emerging markets fund

B. Single stock

C. Municipal bond

D. Index fund

Answer: D

A young couple in a low tax bracket have 2 young children and they want to start saving for the kids' college education. The best recommendation would be:

A. T-Bills

B. Growth funds

C. Municipal bond funds

D. 20 year maturity municipal bonds

Answer: B

A retired customer that has a portfolio of blue chip stocks is looking to supplement his retirement income. An appropriate recommendation would be to:

A. sell covered calls

B. sell naked calls

C. sell covered puts

D. sell naked puts

Answer: A

A customer has an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market interest rates have dropped, the customer's income has declined and she would like to reallocate part of the portfolio to corporate bonds that offer potential growth. The best recommendation is to buy:

A. convertible debentures

B. equipment trust certificates

C. long term zero coupon bonds

D. commercial paper

Answer: A

If one asset class greatly underperforms another class in an asset allocation plan, the portfolio must be:

A. renegotiated

B. rebalanced

C. repositioned

D. realigned

Answer: B

Which of the following are appropriate investment strategies for a client with a 20-year time horizon?

I Holding less cash

II Holding more stock

III Holding less bonds

Answer: I, II, III

The portfolio management technique that uses a market index as a performance benchmark that the asset manager must exceed is called:

A. Passive asset management

B. Active asset management

C. Tactical asset management

Answer: B

Which of the following investment portfolios is LEAST liquid?

A. An aggressive growth fund

B. A U.S. Government securities fund

C. A money market fund

D. An income fund

Answer: A

Defensive stocks included in a portfolio's construction will minimize exposure to:

A. market risk

B. credit risk

C. legislative risk

D. marketability risk

Answer: A