One implication of the Brinson study is that investors should:
A) ignore market timing when managing portfolios.
B) ignore market timing and securities selection when managing portfolios.
C) ignore securities selection, and concentrate on asset allocation with less attention given to market
timing.
D) concentrate on asset allocation with less attention given to securities selection and market timing. -
Answer: D; concentrate on asset allocation with less attention given to securities selection and market
timing
A U.S. dollar-denominated instrument that is a CD issued by foreign branches of major American and
foreign commercial banks is a:
A) negotiable certificate of deposit.
B) Yankee certificate of deposit.
C) Eurodollar certificate of deposit.
D) banker's acceptance. - Answer: C; Eurodollar Certificate of Deposit
The relative performance of different asset classes is dependent on the holding period selected. Based
on historical performance data, which class of assets would be likely to provide the greatest pretax total
return over the long term?
A) small company stocks
B) long-term (L-T) corporate bonds
C) large company stocks
D) long-term (L-T) government bonds - Answer: A; Small Company Stocks
Small company stocks have generally outperformed all other asset classes over the long term according
to Ibbotson and other major tracking data
According to Ibbotson data, which one of the following had the smallest standard deviation since 1926?
, A) L-T corporate bonds
B) Intermediate-term (I-T) government bonds
C) T-bills
D) large company stocks - Answer: C; T-Bills
Investment professional Bill Winters received the latest long-term total return data for different asset
classes. He sees that common stocks returned 8% compounded with a standard deviation of 19.0; T-bills
had a 1.25% return with a standard deviation of 3.4. What is the expected return of a portfolio of 60%
stocks and 40% T-bills?
A) 3.95%
B) 4.63%
C) 5.3%
D) 7.33% - Answer: C; 5.2%
Tactical Asset Allocation attempts to:
A) optimize the risk/return balance on long-term portfolios.
B) create efficient portfolios that provide the best balance risk and return over the long term.
C) move assets from those that appear overvalued to those that appear undervalued.
D) utilize index funds for the core positions, and the satellite portion is then invested to take advantage
of opportunities to add return. - Answer: C; Move assets from those that appear overvalued to those
that appear undervalued.
Tactical Asset Allocation uses security selection and market timing techniques to shift assets from those
perceived to be overvalued to those that are perceived to be undervalued.
Which one of the following is a unique risk associated with international bonds?
A) interest rate risk
B) currency risk
C) call risk
D) purchasing power risk - Answer: B: Currency Risk
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