Deck 24: Portfolio Planning and Management in an Efficient Market Context

Question 1

One of the first steps an investor should take is to establish the goals of the portfolio.

Answer 1

True

Question 2

In a well-diversified portfolio,the risk associated with fluctuations in securities prices is reduced.

Answer 2

False

Question 3

Since virtually all investments involve risk,the individual should develop a diversified portfolio.

Answer 3

True

Question 4

The individual seeking the help of a professional financial planner must be willing to reveal personal financial information (e.g.,salary and outstanding debts).

Question 5

If financial markets are efficient,that negates the importance of financial planning.

Question 6

A financial life cycle suggests that investors follow a period of accumulation by a period drawing down their financial assets.

Question 7

In an efficient securities market,the investor should earn,over a period of years,a return comparable to the amount of risk the individual bears.

Question 8

If an investor believes that financial markets are inefficient,that argues for the individual to pursue a more active portfolio strategy.

Question 9

The amount in a Keogh account appears on the investor's estimate of cash receipts and disbursements.

Question 10

While the investor is able to reduce asset-specific risk,other sources of risk remain.

Question 11

The process of financial planning requires the individual to 1.establish financial goals
2)identify and quantify the value of his or her assets
3)hire professional financial advisors

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 12

Interest earned and received appears on the individual's balance sheet.

Question 13

An enumeration of an individual's receipts and disbursements is called an income statement.

Question 14

Asset allocation is important to help diversify a portfolio but has little impact on the portfolio's return.

Question 15

An individual's net worth is determined by subtracting liabilities from assets.

Question 16

Long-term bonds subject the investor to interest rate risk,purchasing power risk,and the possibility of default.

Question 17

If an investor earns a return that exceeds the return on the S&P 500 stock index,that investor outperformed the market on a risk-adjusted basis.

Question 18

The amount of an outstanding mortgage appears on the individual's balance sheet.

Question 19

Contributions to an IRA appear on the individual's estimate of cash receipts and disbursements.

Question 20

One passive investment strategy suggests that the individual construct a portfolio consisting of index funds.

Question 21

Diversification is an important concept in finance and investments because it

A) reduces the risk associated with market price fluctuations
B) increases the investor's return
C) decreases the need for investment planning
D) decreases the variability of returns

Question 22

Which of the following short-term securities is inappropriate for an individual desiring funds for financial emergencies?

A) Treasury bills
B) certificates of deposit
C) financial futures
D) savings accounts

Question 23

An active portfolio strategy is premised on

A) the stock market being efficient
B) the stock market being inefficient
C) the investor's being able to obtain public information
D) the portfolio manager's access to corporate management

Question 24

Investors seeking to avoid actively managing their portfolios will prefer which of the following assets?

A) common stock
B) index funds
C) financial futures
D) real estate

Question 25

An individual's cash budget differs from a firm's balance sheet because the cash budget 1.is for a period of time
2)enumerates assets and equity
3)is concerned with receipts and disbursements

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 26

Which of the following is included in an individual's cash budget?

A) stock
B) social security payments
C) home mortgage owed
D) credit card balances

Question 27

An investor who wants to make passive investments would prefer

A) long-term federal corporate bonds
B) exchange traded funds
C) stocks in the Dow Jones industrial average
D) closed-end investment companies

Question 28

An individual's cash budget differs from a firm's income statement because

A) it includes common stocks the investor owns
B) it excludes retirement contributions
C) it determines the generation of cash
D) it is constructed for a moment in time

Question 29

Possible investment objectives may include 1.capacity to meet financial emergencies
2)preservation of capital
3)desire to finance retirement

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 30

Which of the following is excluded from an individual's cash budget?

A) wages and salary
B) retirement account
C) social security tax payments
D) alimony