AAMS Module Quizzes (1-10) 2025 Solution solved 100% Passed!!, Exams of Manufacturing Systems Design

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AAMS Module Quizzes (1-10)

What are the major steps in the asset management process Answer: 1. gather data

2. establish goals
3. analyze information
4. make and implement recommendations
5. monitor Stefan's business plan includes the following goal: "I will contact 50 prospective clients and document this activity in the CRM for tracking purposes." Which primary element of a good goal is missing? Answer: This goal is not time- framed. The acronym to remember for goal setting is SMART, which stands for Specific, Measurable, Achievable, Relevant, and Time-Framed. The primary flaw in this goal is that it is not time-framed. Because it is not time-framed, it is difficult to tell if this is achievable, but it is certainly measurable and very likely relevant. Which one of the following is not an invested asset? Answer: 180-day certificate of deposit A certificate of deposit is a cash equivalent and therefore should be listed under Cash and Cash Equivalents. Victoria Gregory's financial situation is as follows: Cash/cash EquivalentsL $15, Short Term debts: $23, LTDs: $140,

2024/ Taxes: $ Invested Assets: $45, Use Assets: $192, What is her net worth? Answer: $89, Assets = Cash/cash equivalents + Invested assets + Use assets ($15,000 + $45,

• $192,000 = $252,000). Liabilities = Short-term debts + Long-term debts ($23,
• $140,000 = $163,000). Assets - Liabilities = Net Worth, so $252,000 - $163,000 = $89,000. Which one of the following statements best describes the income statement and its major components? Answer: The income statement indicates, for a certain period of time, an individual's cash inflows and outflows. Its components include gross income, expenses, and surplus or deficit. The income statement describes cash flow for a period of time and contains the components of gross income, from which expenses are subtracted to determine the surplus or deficit. All of the following provide a clearer picture of the client's needs Answer: 1. anticipated retirement lifestyle

2. bad experiences w/ particular investments
3. succession planning in place, if any, for a client involved in ownership of small business Which one of the following is considered a "foundation" goal? Answer: emergency fund An emergency fund is a "foundation" goal because it is an essential goal for survival in the event of a dramatic life event.

2024/ Which one of the following is the better written financial goal? Answer: to accumulate $15,000 for a boat purchase in two years This goal is well written because it contains a specific dollar amount and a specific time frame. When analyzing information gathered from a client, which of the following are important factors to look for? Answer: 1. mismatches between the current investment position or resources and stated goals. This is an important factor in the analysis step. Any mismatches between the client's goals and the investment vehicles used to attain those goals should be highlighted.

2. the validity of the client's stated goals. This is an important factor in the analysis step. If the client's goals are unrealistic, this problem needs to be addressed immediately.
3. tax problems that might be ameliorated through investment planning. This is an important factor in the analysis step. Potential tax problems should be addressed as part of the investment strategy. Marcia Simpson has analyzed her client's situation and has concluded that her client will come short of attaining the amount of capital he would like to have by the time he plans to retire. The client is a low risk taker and will have limited funds for future periodic investments. Before making a recommendation, Marcia should do which one of the following? Answer: Discuss the problem and ask the client to clarify how he wishes to adjust his accumulation goal, risk level, or periodic investments. After being informed of the various constraints, implications of their decisions, and other options they have, the client can choose to make adjustments with which he is comfortable.

2024/ Which of the following is a matter that needs to be clarified before making investment recommendations? Answer: 1. client's goals

2. risk parameters of the client
3. time horizons of the goals Four main attributes of a good business plan Answer: 1. written and shared with someone who has an interest in your success
4. include realistic action steps and personal goals
5. professional development goals Which of the following is the more important factor in establishing trust with a client? Answer: demonstrating professionalism and honesty Demonstrating professionalism and honesty is the most important factor in establishing trust with a client. What are the three characteristics of a well-defined goal? Answer: 1. purpose
6. specific dollar amount
7. defined time frame Which one of the following is a mismatch between a client's time horizon and stated goal? Answer: A 55-year-old client with no current retirement savings says that saving for retirement is her top priority; she plans to retire at age 62. Seven years is not enough time for this client to amass the principal needed to support a retirement period of 15 to 20 years (or longer). Managing client expectations is best achieved through which of the following? Answer: educate the client

2024/ Educating your clients is the best way to help set and manage their expectations. Who ultimately makes the investment decision in the asset management process? Answer: the client Which one of the following is not included in an investment policy statement? Answer: which securities to include in the portfolio While an investment policy statement determines which types of securities may be included in a portfolio, it does NOT make recommendations as to specific securities to purchase. Which one of the following types of investors is concerned with losing what he or she has accumulated in the past? Answer: a risk-averse investor A risk-averse investor is concerned with losing what he or she has accumulated in the past. Which one of the following best describes the purpose of an investment policy statement (IPS)? Answer: to provide a foundation on which the client's portfolio is constructed, and to provide a basis for review and adaptation to changing conditions An investment policy statement's primary purpose is to provide broad guidelines with which to establish a foundation for portfolio construction, and to provide a basis for periodic review. Of the following, which one describes a key attribute of an investment policy statement? Answer: long-term perspective—to take advantage of the positive bias in the markets

2024/ A key attribute of an investment policy statement is that it should be created with a long-term perspective to use the positive bias in the markets that occurs with the passage of time. Time is of critical importance in an investment policy statement because Answer: it determines the feasibility of the investment professional making recommendations that meet the client's goals. The amount of time available for a financial goal determines if the investment professional can make recommendations that will achieve that goal. Which of the following is a key element that all investment policy statements should contain? Answer: An investment policy statement should include statements regarding acceptable investment vehicles, the portfolio's asset allocation, and the client's risk tolerance level. The asset management process can be used to adjust to changes in a client's financial situation by Answer: helping the client to ignore market "noise." The asset management process is designed to help the client ignore market noise and respond only to significant events (major changes in personal situations and discontinuous changes in the markets). Sara White bought a stock that has subsequently dropped 50%. She plans to hold on to the stock in the hopes of getting back to even. What investor mistake is Sara most likely making? Answer: loss aversion Loss aversion is the reluctance to take losses and is associated with a "get-even- itis" mentality. The investment policy statement would most likely need to be changed if which of the following occurred? Answer: The investment policy statement would

2024/ most likely need to be changed if a client experienced a major event in his or her life. Examples of such changes would include inheriting a large amount of money, divorcing a spouse, and taking an early retirement from his or her company. Who bears the main responsibility for decision making in an investment policy statement? Answer: the client Which behavioral mistake is defined as a misunderstanding that an investor has in relating nominal rates of return to real (inflation-adjusted) rates of return? Answer: money illusion Money illusion is a misunderstanding that an investor has in relating nominal rates of return to real (inflation-adjusted) rates of return. Which of the following is not an example of a discontinuous change? Answer: receiving a 10% raise at work Discontinuous changes represent a significant departure from a trend or pattern. Bonds fell in price on news of higher interest rates. To which one of the following risks are the bonds most likely to be subject? Answer: interest rate risk Interest rate risk centers on the inverse relationship of interest rate changes and bond prices, so, in this situation, if interest rates go up, the price of George's bonds go down. If international stocks were added to a portfolio of U.S. stocks, which one of the following risks would specifically be added to the portfolio? Answer: exchange rate risk International stocks specifically add exchange rate risk to a portfolio since their value is affected by changes in the values of foreign currencies relative to that of the U.S. dollar.

2024/ Which of the following are characteristics of the Sharpe ratio? Answer: It adjusts the return for variability by using standard deviation as the measure of risk Jensen's Alpha Answer: 1. it assumes that the portfolio being evaluated is well diversified

2. both alpha and beta appear in the formula for the ratio
3. it indicates by how much the realized return differs from the return required by the capital asset pricing model (CAPM) Treynor Ratio Answer: it assumes that the portfolio being evaluated is well diversified A measure of a security's systematic risk is Answer: beta. Beta measures the degree to which a security moves with the market or systematic risk. Measurement of total risk Answer: standard deviation Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would expect this mutual fund to Answer: increase by 11.7%. You would expect any fund with a beta of 1.3 to increase by 11.7% (1.3 × 9%). The risk-free rate is 1.25%, the market rate of return is 8%, the standard deviation of XYZ stock is 20, and the beta of XYZ stock is 1.10. Using the capital asset pricing

2024/ model in conjunction with this information, what is the expected return of XYZ stock? Answer: 8.68% CAPM is the risk-free rate plus beta times excess return, or Rs = 1.25% + (8% - 1.25%) 1.1 = 8.68%. Which one of the following lists the investments in order of least risk to most risk? Answer: Treasury securities, high-grade convertibles, REITs, collectibles Ranked from least risk to most risk in the investment pyramid are Treasury securities, high-grade convertibles, REITs, and collectibles. Which one of the following statements is correct? Answer: Jensen's alpha may be used by itself to judge an investment. Beta is the risk measure for the Jensen's alpha, but the Sharpe ratio uses standard deviation as its risk measure. Therefore, the reliability of beta is relevant for Jensen's alpha. Jensen's alpha can be used by itself to judge an investment; the Sharpe ratio must be used in comparison with another Sharpe ratio in judging an investment. A negative reading for Jensen's alpha indicates the investment did not perform as well as expected given the risk taken. For example, an alpha reading of -1 means the investment underperformed by 1% compared to what it was expected to return. Accordingly, a negative alpha does not necessarily mean the investment lost money. The Treynor ratio uses beta as its measure of risk. negative alpha means Answer: the fund underperformed the benchmark (does NOT mean that it's a negative return, it's just LOWER than the benchmark) Assume each of the asset classes below has the following correlation to long-term government bonds:

2024/ Treasury bills: 0. Corporate bonds: 0. Large stocks: 0. Small stocks: 0. Which one of the following correctly states the impact of diversification on a portfolio of long-term government bonds? Answer: Small stocks provide more diversification than large stocks. Because the correlations of small stocks to long-term government bonds are less than that of large stocks (even though both are positive), small stocks provide more diversification than large stocks. Gary Stevens would like to know the weighted beta coefficient for his portfolio. He owns 100 shares of ACE common stock with a beta of 1.1 and total current market value of $5,000; 400 shares of BDF common stock with a beta of .70 and total current market value of $8,000; and 200 shares of GIK common stock with a beta of 1.5 and total current market value of $10,000.What is the overall weighted beta coefficient for Gary's portfolio? Answer: This can be done long-hand, using the following steps:$5,000 + $8,000 + $10,000 = $23,000 total value of the portfolio([$5,000/$23,000] x 1.1) + ([$8,000/$23,000] x 0.7) + ([$10,000/$23,000] x 1.5) = 1.13478 = 1. The higher the standard deviation of an investment in relation to its rate of return, Answer: the greater the level of risk for a given rate of return. The greater the dispersion of returns around an average rate of return, the greater will be the standard deviation and, consequently, the higher the level of risk for a given rate of return.

2024/ During the past year, the portfolio of your largest client had a return of 10% and a beta of 1.1. During the same year, the average T-bill rate was 1.25%. What is the Treynor ratio for the performance of this portfolio? Answer:. The Treynor ratio divides the excess return (return - risk-free rate) by the beta—in this case, (.10 - .0125) ÷ 1.1 = .0796. The risk-adjusted ratio that can be used by itself (without comparison to something else) is the Answer: Jensen's alpha. The Jensen ("alpha") compares a portfolio's actual return with the return that could be expected based on the risk incurred in managing that portfolio, and therefore can be used by itself. Portfolio X had a Sharpe ratio of 1.10, while Portfolio Y had a Sharpe ratio of .55. Based on this information, which one of the following statements is correct? Answer: Portfolio X had better performance than Portfolio Y on a risk-adjusted basis. A higher Sharpe ratio does indicate better performance based on the risk taken, as measured by standard deviation. Which one of the following is a type of systematic risk? It is the "R" in the acronym "P.R.I.M.E." Answer: reinvestment risk Reinvestment risk is a type of systematic risk. P.R.I.M.E Systematic Risks Answer: 1. Purchasing Power Risk

2. Reinvestment Risk
3. Interest Rate Risk
4. Market Risk
5. Exchange Rate Risk

2024/ Which of the following types of risk can be reduced through diversification? Answer: unsystematic risk Which one of the following betas indicate a stock that is more volatile than the market? Answer: 1. Beta is a relative measure of volatility, so anything greater than 1.0 indicates more volatility than the market. Several individual investments each have high standard deviations. Which of the following are true about the standard deviation for a portfolio of these same investments? I. has to be high since the standard deviations are high II. has to be low since the standard deviations are highI II. can be low if there is a low correlation of returns between the investments IV. can be high if there is a high correlation of returns between the investments Answer: III and IV only If the investments have a low correlation coefficient between them, they will reduce investment risk, which can result in a portfolio with a low standard deviation. If the investments have a high correlation of returns between them, then they will not reduce investment risk, and the portfolio will continue to have high systematic risk, hence a high standard deviation for the portfolio. Which one of the following has a direct bearing on which investments are appropriate for achieving a goal? Answer: the investor's time horizon The time horizon has a direct bearing; net worth does not, and beta and alpha are measures of volatility and performance, respectively.

2024/ If an investor were looking to add another investment to his or her portfolio, which of the following correlation coefficients would provide the greatest risk reduction? Answer: a managed futures fund with a correlation of -0. The scale for correlation coefficients goes from -1.0 (perfectly negatively correlated) to 1.0 (perfectly positively correlated). The further to the left you go on the scale, the lower the correlation and the greater the risk reduction. With respect to the investment pyramid discussed in the module text, which one of the following would provide the greatest potential for capital appreciation? Answer: futures contracts As you move up the investment pyramid, you increase potential for capital gain, and futures contracts are at the top of the pyramid, largely due to the high degree of leverage used in trading futures contracts. Stock ABC has an average return of 9.0% with a standard deviation of 7.0%. What is the range of expected returns for ABC 68% of the time? Answer: +2.0% to 16.0% 68% of the time the returns will fall with one standard deviation of the average return. One standard deviation below the mean is 9% - 7% = 2% while one standard deviation above the mean is 9% + 7% = 16%. If an investor contributes $5,000 to her IRA at the beginning of each year for 20 years, and earns 8% annually, how much will she have accumulated? Answer: $247,114. Using the HP 10bII+, set the calculator to begin mode and one compounding period per year. Then 5,000 +/- PMT, 8 I/YR, 20 SHIFT N, FV = $247,114.61.

2024/ Cindy Dawson just paid $9,750 for a 7%, $10,000 par value bond with 15 years to maturity. What is the yield to maturity (YTM) of this bond? Using the time value of money functions on the financial calculator, use the following assumptions on a semiannual basis: FV = 10, PV = -9, N = 15 (x2) PMT = 3507.28% Answer: 7.28% (USE ONLINE CALCULATOR) HP 10bII+: Set calculator to end mode and two compounding periods per year. Then 9,750 +/- PV, 10,000 FV, 350 PMT, 15 SHIFT N, I/YR = 7.28%. Carol Taylor has $10,000 to invest at the end of each year for five years, and she can earn a fixed rate of 8%. "How much," she asks, "will my money be worth in five years?" Answer: $58, This is an ordinary annuity problem with n = 5, i = 8, and PMT = 10,000, then FVOA = $58,666. Assume that the standard deviation of a stock is 30, the standard deviation of the market index is 18, and that the correlation coefficient between the stock and the market is .68. What is the beta of the stock? Answer: 1. Beta = (30 / 18) x 0.68 = 1. Which one of the following is a better measure of a mutual fund portfolio manager's performance? Answer: Time weighted returns because cash flows are not taken into consideration Time weighted returns negate the effects of contributions and withdrawals made by investors and are therefore a better measure of a manager's performance.

2024/ Dollar weighted returns take cash flows into consideration but are a better measure of performance for a client. One implication of the Brinson study is that investors should Answer: concentrate on asset allocation with less attention given to securities selection and market timing. The implication from the Brinson study is to give considerable attention to asset allocation and less attention 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 Answer: Eurodollar certificate of deposit. A Eurodollar CD is a U.S. dollar-denominated CD issued by foreign branches of major U.S. and foreign commercial banks. Yankee Certificate of Deposit Answer: A Yankee CD is a U.S. dollar- denominated CD issued by foreign banks from their U.S. branches. Banker's Acceptance Answer: A BA is a time draft that, when accepted by the bank, has the promise of payment from that bank. 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? Answer: 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.

2024/ According to Ibbotson data, which one of the following had the smallest standard deviation since 1926? Answer: T-bills T-bills had a standard deviation significantly lower than that of long-term corporate bonds, government bonds, or common stocks. 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? Answer: 5.3% This correct calculation is: (.6 × 8%) + (.4 × 1.25%) = 5.3% Tactical asset allocation attempts to Answer: move assets from those that appear overvalued to those that appear undervalued. Tactical asset allocation uses securities 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? Answer: currency risk Currency risk is unique to international bonds (and stock) because of the possibility of some loss in converting a foreign currency into U.S. dollars. Money market mutual funds invest in all of the following except Answer: corporate bonds Corporate bonds will generally have high marketability, but are not necessarily safe from default, and they will carry high market risk.

2024/ A mutual fund sales load that is assessed on a descending scale if the fund is sold within the first five or six years of purchase is called a Answer: contingent deferred sales charge. A contingent deferred sales charge is a sales load assessed on a descending scale if the fund is sold within the first five or six years of purchase. If the market rate on coupon bonds similar to Bond A increases, Bond A's duration will Answer: decrease. There is an inverse relationship between a bond's duration and changes in market interest rates. Company XYZ has earnings this year of $1.80 per share, expects earnings next year to increase by 15%, and generally trades at a 10% premium to the S&P 500 index. Currently, the P/E of the S&P 500 index is 20. What is the expected value of XYZ next year? Answer: $45. The P/E is correct [20 × 1.10 = 22] and is multiplied, correctly, by next year's earnings ($1.80 × 1.15 = $2.07) to get $45.54. A U.S. investor owns a bond denominated in Mexican pesos. If the bond earned 8% while the value of the peso increased against the U.S. dollar by 4%, the investor's total return was Answer: increased by the strengthening peso. When the investor converts the Mexican bond into American dollars, the investor can buy more dollars with fewer pesos; therefore the investor's total return was increased by the strengthening peso. In general, when a foreign currency is strengthening (the U.S. dollar is weakening), that will increase the return for a U.S. investor.

2024/ Which one of the following rates is most directly affected by the Federal Reserve Board? Answer: federal funds rate The Fed directly affects the federal funds rate through open market operations. One assumption of technical analysis is that Answer: stock prices move in trends. Technical analysis assumes that stock prices move in trends. Which one of the following is an activity ratio? Answer: inventory turnover Inventory turnover, which is determined by dividing sales by average inventory, is an activity ratio. Which one is a liquidity ratio? Answer: current ratio Which one is a profitability ratio? Answer: return on assets Which one is a debt ratio? Answer: debt-to-equity ratio A correlation of 0.0 between two securities means that the returns of the two move Answer: independently—there is no relationship between the two. A correlation of 0.0 means there is no relationship between the returns of the two securities. Perfectly positively correlated securities (1.0) move in the same direction and perfectly negatively correlated securities (-1.0) move in opposite directions.

2024/ Which one of the following approaches to asset allocation tries to identify the asset mix that provides an optimal balance of risk and return for a long investment horizon? Answer: strategic asset allocation Strategic asset allocation tries to identify the asset mix that provides an optimal balance of risk and return for a long investment horizon. The quick ratio subtracts __________ in its numerator. Answer: inventory The formula for the quick ratio is (current assets - inventory) / current liabilities and is a measure of liquidity. Which one of the following risks does not apply to preferred stock? Answer: default risk While preferred stock is a hybrid security that acts like a bond, there is no indenture (like a bond has) that legally requires preferred stock to pay dividends. If a company was to go under, bonds would default, whereas preferred stock would go through bankruptcy liquidation. How frequently do mortgage pass-through bonds make payments? Answer: monthly Pass-through bonds make monthly payments of principal and interest as they pass through mortgage payments, which are made monthly, to investors. How are dividends from REITs taxed? Answer: ordinary income tax rates Dividends from REITs are not "qualified dividends" and are taxed at ordinary income tax rates. Lily has several accounts with Progress Bank, which is FDIC insured. She has the following balances:

2024/ $300,000 in a single account $280,000 in a joint account with her son $280,000 in a joint account with her daughter $225,000 in an IRA Lily is concerned about the safety of her funds and has asked you how much FDIC coverage she has personally.You would advise her that the total amount of her coverage is Answer: $725,000. Lily receives personal coverage of $250,000 for her single account, $225,000 for her IRA, and is then limited to a total of $250,000 of the $560,000 combined value in the joint accounts (due to the like registration). The principal of a Treasury inflation protected security (TIPS) is tied to Answer: CPI. TIPS adjustments are tied to the consumer price index (CPI), which is useful in measuring inflation. All other factors being equal, which of the following bonds have the greatest duration? Answer: a zero-coupon bond Duration is inversely related to the coupon rate. The zero-coupon bond would have the longest duration, all other factors being equal. Acme GNMA fund must have at least what percentage of its assets in GNMAs? Answer: 80% A fund that has a security in its name must have at least 80% of its assets in that type of security. In which way is an ETF (exchange-traded fund) different from a mutual fund? Answer: they can be sold short

2024/2025 Unlike mutual funds, ETFs can be sold short. An exchange-traded note is a(n) Answer: unsecured debt. An exchange-traded note is an unsecured debt obligation, usually of an investment bank or commercial bank that trades like a stock and represents promises by the issuers to match the returns of an index or commodity, minus fees. If a stock pays a dividend of $1.60 per share, the growth rate of that dividend is 6%, and the required return is 10%, what is the intrinsic value of the stock according to the dividend discount model? Answer: $42.40 The dividend discount model is D1/r-g where D1 is the dividend value at the end of the first year, r is the required return, and g is the dividend growth rate:(1.60 × 1.06) / (.10 - .06) = $1.696 / .04 = $42.40 Using the P/E ratio as a valuation tool, which type of earnings can be used? Answer: both The P/E (price-to-earnings) ratio can be calculated using either historical or projected earnings. Your client has a 7% coupon bond with a duration of 7.5 and a maturity of 12 years. Your client is concerned that rates may go up 0.50% in the coming months, and wants to know what impact this would have on her bond. You tell her that the approximate price movement would be Answer: -3.75%. The correct answer is -3.75%, calculated as follows: -7.5 × .50 = -3.75. Remember to use the minus sign in front of the duration figure, as that will automatically account for the inverse relationship between the direction of the interest rate movement and the value of the bond.

2024/2025 Which one of the following best describes the requirements of an investment strategy? Answer: competencies, resources, goal, method All of these elements—competencies, resources, goal, and method—are requirements of an investment strategy. Which one of the following statements is correct regarding dollar-cost averaging? Answer: The time period between investments is fixed. One characteristic of dollar-cost averaging is that investments are made at fixed intervals, such as the first of each month. Value averaging Answer: can require a sale of the securities being averaged. If, between periods, the account value increases more than the target increase in value, value averaging would require the sale of shares to decrease the account's value to the target value. The failure of highly skilled institutional investors to outperform on a regular basis "unmanaged" benchmarks, like the S&P 500 stock index, strengthens the argument of which one of the following investment strategies? Answer: buy- and-hold Unmanaged benchmarks, like the S&P 500 index, are based on the efficient market hypothesis; a buy-and-hold strategy supports the efficient market hypothesis. Which one of the following industries would be expected to perform well in the early stage of an economic expansion? Answer: consumer credit Consumer credit is one industry that would be expected to perform well in the early stage of an economic expansion.

2024/2025 Which one of the following indicators would a contrarian investor interpret as a bearish indicator? Answer: a decreased short-interest ratio A decreased short-interest ratio indicates the consensus view that the market will rise, so contrarians would view this as a bearish indicator. According to David Dreman, which set of characteristics should the contrarian investor look for in a stock? Answer: medium-to-large listed companies; strong financial positions, low P/Es Dreman's advice is to invest in medium-to-large listed companies (large companies on the Amex or Nasdaq) with low P/E ratios and solid financial positions. When mutual fund cash positions rise above 10% or more, this is an indication for contrarian investors to Answer: become more bullish When mutual funds have large cash positions, 10% and more, and when investment advisers are all doom and gloom, contrarians grow bullish. Which one of the following is a bearish contrarian signal? Answer: a low put- call ratio A low put-call ratio is typically seen at market tops as investors buy calls (expecting prices to rise) and do not buy puts (which would be done when expecting prices to fall). Since the put-call ratio is a contrary indicator, a low ratio is a bearish sign Which set of characteristics is typically associated with growth stocks? Answer: distinctive products or services; high price-to-book ratios Growth stocks typically have distinctive products or services and high price-to- book ratios.

2024/2025 As described by Gerald Perritt, which one of the following best describes a sound small-cap stock investment strategy? Answer: sell when 40% of the company's shares become owned by institutional investors; own 20?30 issues; three- to five-year holding period Perritt suggests owning 20?30 issues, having a three-to five-year holding period, and sell when 40% of the company's shares become owned by institutional investors. One reason to use active investment management is the potential for downside protection. Answer: the potential for downside protection. The potential for downside protection, where the active manager moves to cash to cushion a bear market, is one possible reason to use active investment management. When using a tax swap strategy, an investor would Answer: sell one bond at a capital loss and buy another different bond issue. A tax swap involves selling one bond at a loss and buying a different bond to maintain the investor's overall position. Keep in mind, however, that if a security is sold at a loss, and that security or a "substantially identical" security is bought within 30 days of the sale (either before or after the sale date) the loss is disallowed (called a wash sale). An enemy of effective strategy is Answer: inadequate time horizons. One enemy of effective strategy is inadequate time horizons. Investors who strongly believe in the efficient market hypothesis would select which one of the following types of mutual funds? Answer: an index fund An index fund (which operates on the assumption of market efficiency) is an appropriate choice for a supporter of the efficient market hypothesis.

2024/2025 Which one of the following industries tends to do well in the late stage of an economic expansion? Answer: capital goods Capital goods (companies manufacturing machinery used to produce finished goods) tend to do well in the late stage of an economic expansion. David Dreman's advice to the investor centers on three rules. Which of the following is not one of those rules? Answer: select only industry average P/E stocks Dreman's three rules were select only low P/E stock, diversify with 20?30 stocks in 15+ industries, and invest only in medium or larger companies listed on the NYSE. Which one of the following is not an indicator utilized by contrarian investors? Answer: open interest Open interest simply shows how many open positions exist in a given option contract. Benjamin Graham's style of investing can be described as which of the following? Answer: bottom-up Graham's style of investment was "bottom-up," looking first to the financial dynamics of an individual company and then considering the larger economic environment. All of the following are indicators that a contrarian investor would use as cues for their own buying and selling of stocks, except Answer: average daily trading volume