DD, can we do a PM kind of lunch today…in about 90 mins?
whoa now, thats a 10:30am lunch here, thats more of a brunch. If it comes with a mimosa I am in.
Ditch better be getting tipped well for all the special orders coming in…
Little early, but here you are. Question 1 - 88829 Bruce Rose, CFA, and Carla Hume, CFA, each manage a broadly diversified market portfolio for separate clients. Rose’s client has less risk aversion than Hume’s client. If Rose and Hume cannot borrow at the risk-free rate and cannot short-sell in the management of the portfolio, we would expect to see Rose’s portfolio: A) to be less diversified than Hume’s portfolio. B) and Hume’s portfolio to be equally diversified but different from the market portfolio. C) to be more diversified than Hume’s portfolio. -------------------------------------------------------------------------------- Question 2 - 88813 Which of the following statements regarding the ethical conduct necessary for managing portfolios is least accurate? A) The portfolio manager should not presume that they have more knowledge than the client. B) The standard of conduct is embodied by the CFA Institute Code and Standards. C) The portfolio manager should meet standards of competence. -------------------------------------------------------------------------------- Question 3 - 88932 Analysts trying to compensate for instability in the efficient frontier are least concerned about: A) a sharp rise in earnings restatements. B) small changes in expected returns. C) uncertainty in the forecast of variances and returns. -------------------------------------------------------------------------------- Question 4 - 88997 Estimation of the foreign currency risk premium (FCRP) is required in which model? A) Extended capital asset pricing model. B) International capital asset pricing model. C) Domestic capital asset pricing model. -------------------------------------------------------------------------------- Question 5 - 100892 Gil Tabor, CFA and Jan Sills, CFA are discussing how the choice of account type affects investment risk and the amount of that risk borne by the government via taxes. Tabor says that the government bears some of the tax risk in a tax-exempt account. Sills says the government bears some of the risk in a tax-deferred account. With respect to these assertions: A) both Tabor and Sills are incorrect. B) both Tabor and Sills are correct. C) Tabor is correct and Sills is incorrect. -------------------------------------------------------------------------------- Question 6 - 88817 Kelsey Opelt is a portfolio manager and is providing advice for Jay Steele, a retiree. Opelt has been working with Steele for many years. They have a good relationship and Opelt has taught Steele the basic of investments. Steele has fairly steady liquidity requirements. His house is paid for, he has good health insurance, and he has a steady pension. He only requires $1,000 a month in spending money that allows him to enjoy retirement. His children are grown and financially independent. His wife Harriet passed away five years ago. Because of Steele’s steady lifestyle, low liquidity requirements, and investment knowledge, Opelt has not adjusted Steele’s portfolio for capital market expectations in many years. The portfolio has performed quite well recently, due to an average return in the stock market of 25% over the past three years. Opelt should: A) monitor the portfolio and capital market expectations more closely. B) not perform any actions because Steele’s circumstances have not changed, and are not expected to change, for many years. C) not interfere with the portfolio because it is performing so well. -------------------------------------------------------------------------------- Question 7 - 89379 Examples of macroeconomic variables that create systematic risk include: A) variability in the growth of the money supply. B) all of these choices are correct. C) changes in GDP growth rates. -------------------------------------------------------------------------------- Question 8 - 88793 Investment constraints are best defined as factors: A) determining investment choices. B) restricting investment choices. C) encouraging investment choices. -------------------------------------------------------------------------------- Question 9 - 88896 Given the following information, what is the expected return on the portfolio of the two funds? The Washington Fund The Jefferson Fund Expected Return 30% 36% Variance 0.0576 0.1024 Investment $2,000,000 6,000,000 Correlation 0.40 A) 33.0%. B) 31.5%. C) 34.5%. -------------------------------------------------------------------------------- Question 10 - 88986 A Korean investor (currency = won) is considering the purchase of a U.S. bond. The current exchange rate is 100 (won to ). Korean inflation is 1% and U.S. inflation is 5%. Interest rates in Korea are 4% and in the U.S. are 8%. Assuming that the real rate remains constant, what is the domestic currency return from the purchase of the U.S. bond? A) 3%. B) 12%. C) 4%. -------------------------------------------------------------------------------- Question 11 - 88969 Song Lee, CFA, is a money manager for a small firm in Seoul. All of Lee’s clients are local. He is considering adding the stock of a U.S. firm, Stockco, to some of his client’s portfolios. Stockco sensitivity to the world index is 0.8 and the risk premium on the index is 6%. The risk-free rate is 3% in the U.S. and 5% in Korea. Stockco is only sensitive to changes in the value of the U.S. dollar. Lee has measured the sensitivity of Stockco to changes in the value of the U.S. dollar to be 1.2. The foreign currency risk premium on the U.S. dollar is 2%. Assuming that Lee uses the international capital asset pricing model (ICAPM), what is the required return on Stockco? A) 12.2%. B) 14.2%. C) 10.2%. -------------------------------------------------------------------------------- Question 12 - 88858 The single-factor market model predicts that the systematic portion of the variance of an asset’s return is equal to the: A) square of the asset’s beta times the variance of the market portfolio. B) covariance between the asset’s returns and the market returns. C) asset’s beta. -------------------------------------------------------------------------------- Question 13 - 88929 What happens to the minimum-variance frontier when: return forecasts fall? covariance forecasts fall? A) Curve shifts left Curve shifts down B) Curve shifts down Curve shifts left C) Curve shifts down Curve shifts down -------------------------------------------------------------------------------- Question 14 - 88840 Frederick Kurzonkowski, CFA, employs the Treynor-Black portfolio optimization model at his firm, TBP, where he serves as portfolio manager. TBP recently decided against holding short positions in their portfolios. Kurzonkowski is asked to determine the most likely result of the short-sale prohibition on the weights allocated to the long positions in the active portfolio, and to the alpha on the active portfolio. Kurzonkowski should make the following predictions about the effects of the prohibition on short sales on the actively managed portfolio: Allocation to long positions Alpha A) Increases Decreases B) Decreases Increases C) Decreases Decreases -------------------------------------------------------------------------------- Question 15 - 88915 Which of the following is NOT a prediction of the capital asset pricing model (CAPM)? A) All investors hold an equally weighted market portfolio of all assets. B) All investors identify the same risky tangency portfolio and combine it with the risk-free asset to create their own optimal portfolios. C) The market price of risk is the slope of the capital market line. -------------------------------------------------------------------------------- Question 16 - 103985 Diversification can reduce: A) unsystematic risk. B) systematic risk. C) macroeconomic risks. -------------------------------------------------------------------------------- Question 17 - 100888 An investor deposited $33,000 in a zero coupon bond position 20 years ago. It consisted of 100 zero coupon bonds each with a face value of $1,000 and 20 years to maturity. Over the years he has sold portions of the position to pay income taxes on the position as it grew in value. The investor’s current marginal tax rate is 30%. At maturity, and after all taxes have been paid, the value of the position is $84,500. Compute the accrual equivalent after-tax return. A) 4.33%. B) 3.99%. C) 4.81%. -------------------------------------------------------------------------------- Question 18 - 88933 According to the capital asset pricing model (CAPM), if the expected return on an asset is too low given its beta, investors will: A) sell the stock until the price rises to the point where the expected return is again equal to that predicted by the security market line. B) buy the stock until the price rises to the point where the expected return is again equal to that predicted by the security market line. C) sell the stock until the price falls to the point where the expected return is again equal to that predicted by the security market line. -------------------------------------------------------------------------------- Question 19 - 89366 In a multi-factor macroeconomic model the mean-zero error term represents: A) the portion of the individual asset’s return that is not explained by the systematic factors. B) sampling error in estimating factor sensitivities. C) the no-arbitrage condition imposed in multi-factor models. -------------------------------------------------------------------------------- Question 20 - 88884 Karen Mogdans is a money manager working on an account for Jim Howell. In order to channel Mogdans’ knowledge of the risk and return characteristics of different asset classes into a strategic asset allocation for Howell, she needs: A) an investment policy statement (IPS). B) a return target. C) a rebalancing strategy.
A B A B B A B B C B B - this question gets me. not sure if you do LC+1 (1.2+1=2.2)? A B B B A C A A
- B 2) A 3) A 4) B 5) B (if this is wrong, someone is going to have to explain this to me) 6) A 7) B 8) B 9) C 10) B 11) A (really confusing) 12) B? 13) B 14) C 15) A 16) B 17) C (he already paid all taxes right?) 18) C 19) B? 20) A Havent reviewed PM that thoroughly yet, but this didnt seem too bad… Definitely learnable… Might have gotten >60 on this
my answers and the wrong ones there on… 75% for me Question 1 - 88829 A) to be less diversified than Hume’s portfolio. CORRECT -------------------------------------------------------------------------------- Question 2 - 88813 C) The portfolio manager should meet standards of competence. WRONG -------------------------------------------------------------------------------- Question 3 - 88932 B) small changes in expected returns. WRONG SHARP RISE IN EARNINGS RESTATEMENTS -------------------------------------------------------------------------------- Question 4 – 88997 CORRECT B) International capital asset pricing model. -------------------------------------------------------------------------------- Question 5 - 100892 CORRECT A) both Tabor and Sills are incorrect. -------------------------------------------------------------------------------- Question 6 - 88817 CORRECT A) monitor the portfolio and capital market expectations more closely. -------------------------------------------------------------------------------- Question 7 - 89379 CORRECT B) all of these choices are correct. -------------------------------------------------------------------------------- Question 8 - 88793 CORRECT B) restricting investment choices. -------------------------------------------------------------------------------- Question 9 - 88896 CORRECT C) 34.5%. -------------------------------------------------------------------------------- Question 10 - 88986 CORRECT C) 4%. -------------------------------------------------------------------------------- Question 11 – 88969 CORRECT A) 12.2%. -------------------------------------------------------------------------------- Question 12 - 88858 CORRECT A) square of the asset’s beta times the variance of the market portfolio. -------------------------------------------------------------------------------- Question 13 - 88929 CORRECT B) Curve shifts down Curve shifts left -------------------------------------------------------------------------------- Question 14 - 88840 WRONG A) Increases Decreases The prohibition on short sales removes the negative weights within the actively managed portfolio, along with the leverage that the short positions offer to the long positions. When short sales are allowed, more than 100% can be allocated to the long positions. When short sales are not allowed, only 100% can be allocated to the long positions. Therefore, the prohibition on short sales causes the weights to the long positions within the actively managed portfolio to fall. The alpha also is expected to fall: smaller weight is now assigned to positive alpha stocks, and there are no negative weights to assign to negative alpha stocks. -------------------------------------------------------------------------------- Question 15 - 88915 CORRECT A) All investors hold an equally weighted market portfolio of all assets. -------------------------------------------------------------------------------- Question 16 - 103985 WRONG B) systematic risk. -------------------------------------------------------------------------------- Question 17 - 100888 CORRECT C) 4.81%. -------------------------------------------------------------------------------- Question 18 - 88933 WRONG According to the capital asset pricing model (CAPM), if the expected return on an asset is too low given its beta, investors will: B) buy the stock until the price rises to the point where the expected return is again equal to that predicted by the security market line. -------------------------------------------------------------------------------- Question 19 - 89366 CORRECT A) the portion of the individual asset’s return that is not explained by the systematic factors. -------------------------------------------------------------------------------- Question 20 - 88884 CORRECT A) an investment policy statement (IPS).
Judging by CPK scores, I got about 7 or 8 wrong… Can anyone please explain #5 to me. "Gil Tabor, CFA and Jan Sills, CFA are discussing how the choice of account type affects investment risk and the amount of that risk borne by the government via taxes. Tabor says that the government bears some of the tax risk in a tax-exempt account. Sills says the government bears some of the risk in a tax-deferred account. With respect to these assertions: " Here is my take on it. If the account is tax exempt, the government has no stake in it, so i can see this being incorrect. For a tax deferred account, the govt get its money in 40 yrs, when i retire (like on my 401k). They tax my capital gains then. So why do they not have some investment risk, if my investments will eventually pay them? This struck me as funny when i read it in the book, and i will get it wrong on test day if i dont understand why…
- C 2) A 3) A 4) B (ICAPM) 5) A (just guessing) (I think govt doesn’t bear any taxes) 6) A (We won’t get this easy Q in exam) 7) C 8) B (kinda tough) 9) 10) C 11) A? (Calculcation needed) 12) A 13) A (guess) 14) A (I think If short is prohibited, Allocation to long increases and Alpha decreases…need to revise PM stuff big time) 15) C (Beta is the risk in CAPM) 16) A 17) 18) C? 19) A? 20) A
On question 11 why do you not add + 1 to the LC sensitivity of 1.2? If they are a Korean investors investing in a US stock and the US stock has a LC sensitivity of 1.2 dont you add 1? LC+1?? I hate ICAPM…
answers please?
CFAboston "14) A (I think If short is prohibited, Allocation to long increases and Alpha decreases…need to revise PM stuff big " this almost slipped me up too… A short position is borrowing money and selling the stock now. So you can buy more long position with that borrowed money. The less short position the less leverage you can have.
Question 1 - #88829 Your answer: B was incorrect. The correct answer was A) to be less diversified than Hume¡¯s portfolio. Restrictions on short selling or borrowing at the risk-free rate make investors construct portfolios with considerably different compositions. Highly risk-averse individuals tend to hold heavily diversified portfolios, while those with less risk aversion tend to concentrate their portfolios. This question tested from Session 18, Reading 67, LOS b. -------------------------------------------------------------------------------- Question 2 - #88813 Your answer: A was correct! Because the portfolio manager is an expert in the field, he or she has presumably more knowledge than the client. The manager is thus in a position of trust and should adhere to the highest standards of ethical conduct. This question tested from Session 18, Reading 71, LOS g. -------------------------------------------------------------------------------- Question 3 - #88932 Your answer: A was correct! Small changes in expected returns can have a large effect on the efficient frontier ¨C in some cases analysts or money managers will take actions to compensate for those effects. Uncertainty in forecasts is of paramount importance to analysts, since an accurate portrayal of the efficient frontier is impossible without accurate estimates. While historical data is often used to extrapolate future values, analysts realize the limitations of such data in forecasting. As such, changes to historical statistics, such as those caused by a flood of restatements, would be of some concern, but less than the other choices. This question tested from Session 18, Reading 66, LOS i. -------------------------------------------------------------------------------- Question 4 - #88997 Your answer: B was correct! The estimation of an FCRP between all paired currencies is required as part of the international capital asset pricing model. This question tested from Session 18, Reading 68, LOS h. -------------------------------------------------------------------------------- Question 5 - #100892 Your answer: B was incorrect. The correct answer was A) both Tabor and Sills are incorrect. If the investment is held in a tax-exempt account, then the investor bears all the investment risk. This is also true for tax-deferred accounts because even though the government taxes the future accumulation, the variability of returns is not reduced by taxes levied at the time of withdrawal. This question tested from Session 18, Reading 70, LOS g. -------------------------------------------------------------------------------- Question 6 - #88817 Your answer: A was correct! Opelt should monitor the portfolio and capital market expectations more closely. Although it appears that Steele¡¯s circumstances have not changed, capital market conditions can change, which could call for a change in asset allocation. This may well be the case here because of the recent high stock market returns. Monitoring the portfolio and capital market expectations is an important part of portfolio management. This question tested from Session 18, Reading 71, LOS g. -------------------------------------------------------------------------------- Question 7 - #89379 Your answer: B was correct! Systematic risk factors are those variables that: (1) exhibit correlation with other variables and (2) explain the returns of many different assts. GDP growth and the money supply are each examples of systematic risk factors. This question tested from Session 18, Reading 66, LOS j. -------------------------------------------------------------------------------- Question 8 - #88793 Your answer: B was correct! Investment constraints are those factors limiting or restricting investment choices. This question tested from Session 18, Reading 71, LOS c, (Part 2). -------------------------------------------------------------------------------- Question 9 - #88896 Your answer: C was correct! First calculate the portfolio weights on each fund: WWash = $2 million/$8 million = 0.25 WJeff = $6 million/$8 million = 0.75 The expected portfolio return is the weighted average of the funds’ expected returns: E(RP) = (0.25)(30%) + (0.75)(36%) = 34.5%. This question tested from Session 18, Reading 66, LOS a, (Part 2). -------------------------------------------------------------------------------- Question 10 - #88986 Your answer: B was incorrect. The correct answer was C) 4%. The domestic currency return on the U.S. bond is equal to the foreign interest rate plus the currency appreciation. Since the inflation differential favors Korea and the real rate is assumed to be constant, the dollar will appreciate by ¨C4%. Hence, the domestic currency return is 4% [= 8% foreign rate + (¨C4%) currency appreciation]. This question tested from Session 18, Reading 68, LOS f. -------------------------------------------------------------------------------- Question 11 - #88969 Your answer: A was correct! In a single foreign currency world, the ICAPM simplifies to: E(Ri) = R0 + Biw ¡Á RPw + ¦Ãi1 ¡Á FCRP1. Substituting in the numbers from the problem, we get: E(Ri) = 5% + 0.8 ¡Á (6%) + 1.2 ¡Á (2%) = 12.2%. Remember to use the domestic risk-free rate. This question tested from Session 18, Reading 68, LOS j. -------------------------------------------------------------------------------- Question 12 - #88858 Your answer: B was incorrect. The correct answer was A) square of the asset’s beta times the variance of the market portfolio. One of the predictions of the single-factor market model is that Var(Ri) = bi2sM2 + sei2. In other words, there are two components to the variance of the returns on asset i: a systematic component related to the asset¡¯s beta (bi2sM2) and an unsystematic component related to firm-specific surprises (sei2). This question tested from Session 18, Reading 66, LOS g. -------------------------------------------------------------------------------- Question 13 - #88929 Your answer: B was correct! When the expected return forecast declines, the minimum-variance frontier moves down. A decline in covariance forecasts will cause the curve to shift to the left. This question tested from Session 18, Reading 66, LOS i. -------------------------------------------------------------------------------- Question 14 - #88840 Your answer: C was correct! The prohibition on short sales removes the negative weights within the actively managed portfolio, along with the leverage that the short positions offer to the long positions. When short sales are allowed, more than 100% can be allocated to the long positions. When short sales are not allowed, only 100% can be allocated to the long positions. Therefore, the prohibition on short sales causes the weights to the long positions within the actively managed portfolio to fall. The alpha also is expected to fall: smaller weight is now assigned to positive alpha stocks, and there are no negative weights to assign to negative alpha stocks. This question tested from Session 18, Reading 69, LOS c. -------------------------------------------------------------------------------- Question 15 - #88915 Your answer: A was correct! The CAPM predicts that all investors hold the market portfolio - a portfolio in which each asset is held in proportion to its market value. This portfolio is value-weighted, not equally weighted. The capital allocation line is then the capital market line (CML) and the market price of risk is the slope of the CML. The security market line (SML) describes the relationship between asset risk and expected return, where risk is measured by beta. This question tested from Session 18, Reading 66, LOS e. -------------------------------------------------------------------------------- Question 16 - #103985 Your answer: B was incorrect. The correct answer was A) unsystematic risk. Systematic risk reflects factors that have a general effect on the security markets as a whole, and cannot be diversified away. Macroeconomic risk comes in many forms, and it is usually considered systematic risk. Unsystematic risk can be reduced through diversification. This question tested from Session 18, Reading 71, LOS a. -------------------------------------------------------------------------------- Question 17 - #100888 Your answer: C was correct! The accrual equivalent after-tax return = 4.81% = ($84,500 / $33,000)(1/20) − 1. The current marginal tax rate is not relevant to solving the problem. This question tested from Session 18, Reading 70, LOS c. -------------------------------------------------------------------------------- Question 18 - #88933 Your answer: C was correct! The CAPM is an equilibrium model: its predictions result from market forces acting to return the market to equilibrium. If the expected return on an asset is temporarily too low given its beta according to the SML (which means the market price is too high), investors will sell the stock until the price falls to the point where the expected return is again equal to that predicted by the SML This question tested from Session 18, Reading 66, LOS e. -------------------------------------------------------------------------------- Question 19 - #89366 Your answer: B was incorrect. The correct answer was A) the portion of the individual asset’s return that is not explained by the systematic factors. The mean-zero error term represents the unsystematic, firm-specific, diversifiable risks that are not explained by the systematic factors. This question tested from Session 18, Reading 66, LOS j. -------------------------------------------------------------------------------- Question 20 - #88884 Your answer: A was correct! Mogdans has expertise on different asset classes, suggesting she is also knowledgeable about the market¡¯s risk characteristics. The rebalancing strategy will be developed at the same time as the asset allocation, or perhaps afterward. It won¡¯t help create the allocation. And while Howell¡¯s return target is important, it must be considered in the context of his risk tolerance, portfolio constraints, etc. The IPS contains data needed for a knowledgeable manager to structure a portfolio suitable for an individual investor. This question tested from Session 18, Reading 71, LOS e.
I didn’t do bad. But these questions were very easy and not identical to real one. It gives false confidence
nuked 4… thanks for the fulfilling the request today DD, appreicate it.
MrGrey Wrote: ------------------------------------------------------- > On question 11 why do you not add + 1 to the LC > sensitivity of 1.2? If they are a Korean > investors investing in a US stock and the US stock > has a LC sensitivity of 1.2 dont you add 1? > LC+1?? > > I hate ICAPM… yeah, does anyone have insight into this question, I did the same thing…add 1 to 1.2
http://www.analystforum.com/phorums/read.php?12,910192,911576#msg-911576 agreed this was a crappy question and needed more clarity. here assumption is it is WON denominated returns have a 1.2 sensitivity to the US Dollar. So you have been given GAMMA(LC) directly. If it has been Dollar denominated returns have a 1.2 sensitivity to the US Dollar - you would need to add +1 to get the WON (LC) denominated sensitivity to the US Dollar.
crappy question, as are a good portion of these in Qbank. I did a similar question, worded identical and you had to add +1 to get LC sensitivity.
Dont mean to be pushy with my question, but for #5… "Gil Tabor, CFA and Jan Sills, CFA are discussing how the choice of account type affects investment risk and the amount of that risk borne by the government via taxes. Tabor says that the government bears some of the tax risk in a tax-exempt account. Sills says the government bears some of the risk in a tax-deferred account. With respect to these assertions: " Here is my take on it. If the account is tax exempt, the government has no stake in it, so i can see this being incorrect. For a tax deferred account, the govt get its money in 40 yrs, when i retire (like on my 401k). They tax my capital gains then. So why do they not have some investment risk, if my investments will eventually pay them? This struck me as funny when i read it in the book, and i will get it wrong on test day if i dont understand why…
At the time of withdrawal the taxes at that point in time is applied. If there had been variations in between - that variation is not accounted for. It is a bulk application of the current applicable tax rate. So no reinvestment risk is borne by the govt.