1.Which of the following statements accurately describes a reason for the suitability of an asset class in a qualified retirement plan portfolio? (Points : 3)

Question

Mutual funds provide diversification and offer a competitive rate of return.
Money market investments provide liquidity and a high real rate of return.
Common stocks offer capital appreciation and are relatively low risk.
Bonds are useful for funding future fixed obligations and offer protection against inflationary pressures.

2.Joe (age 52) has just started a consulting company. He currently employs 6 people, who range in age from 22 to 31 years old. Joe estimates that the average employment period for his employees will be approximately 3 years and would like to implement a retirement plan that will favor older participants while including an appropriate vesting schedule. In addition, Joe would like the employees to bear the risk of investment performance within the plan. Which of the following plans is most appropriate for Joe's company? (Points : 3)

SEP plan
SIMPLE 401(k) plan
Target benefit plan
Cash balance plan

1. Which of the following statements accurately describes a reason for the suitability of an asset class in a qualified retirement plan portfolio? (Points : 3) Mutual funds provide diversification and offer a competitive rate of return. Money market investments provide liquidity and a high real rate of return. Common stocks offer capital appreciation and are relatively low risk. Bonds are useful for funding future fixed obligations and offer protection against inflationary pressures. 2. Joe (age 52) has just started a consulting company. He currently employs 6 people, who range in age from 22 to 31 years old. Joe estimates that the average employment period for his employees will be approximately 3 years and would like to implement a retirement plan that will favor older participants while including an appropriate vesting schedule. In addition, Joe would like the employees to bear the risk of investment performance within the plan. Which of the following plans is most appropriate for Joe's company? (Points : 3) SEP plan SIMPLE 401(k) plan Target benefit plan Cash balance plan 3. Which of the following retirement plans, maintained by an eligible employer, would also permit the employer to establish a SIMPLE IRA plan? (Points : 3) Traditional Section 401(k) plan Section 403(b) plan Money purchase pension plan Section 457 plan 4. Which of the following retirement plan alternatives would allow Tom the greatest deductible contribution while providing him with only a small cash flow commitment each year based on 2011 plan contribution limits? (Points : 3) Defined benefit plan Section 401(k) plan SEP Profit-sharing plan 5. Tom is interested in adopting a retirement plan for his business. His primary goals are to increase his tax deferred savings and to minimize the expense and paperwork associated with the plan. Which of the following retirement plans would you recommend for Tom's business? (Points : 3) Defined benefit plan Profit-sharing plan SIMPLE IRA Simplified employee pension (SEP) 6. Assume the Holts made a $12,000 contribution ($6,000 each) to their traditional IRA accounts for 2011. What is the maximum amount of their deductible IRA contributions for 2011? (Points : 3) $12,000 $10,000 $6,000 $5,000 7. In 2011, Martha's Uncle Stirling dies and leaves her $1 million in an IRA as the named beneficiary. She is a little overwhelmed at the amount and wants to ensure she uses these funds wisely for her and Tom's retirement. Which of the following is an option for Martha? (Points : 3) She can elect 10-year forward averaging because Uncle Stirling was eligible to use it. She can roll it over into an IRA and defer any minimum distributions until she is age 70½. She can roll it over into an inherited IRA but must begin to take distributions over her remaining life expectancy. She can roll it over into an IRA but may not begin taking distributions without a penalty until she is age 59½. 8. Martha has been impressed with the appreciation of the coin collection she received as a gift from her mother and would like to take advantage of this by using coins as an investment in the IRAs. Which of the following statements regarding coins as investments in IRAs is CORRECT? (Points : 3) Martha should approach her coin dealer and ask that a collection similar to the one her mother gave her be created as an investment for the IRAs. No more than 25% of Martha's IRA assets may be invested in coins. American Eagle gold coins are permitted IRA assets. Any government-issued gold coin, such as Krugerrands and American Eagles, are appropriate for IRA investment.

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David · Accepted Answer

1.Benchmark risk (Points : 2)
	       is inevitable and is never a significant issue in practice.
       is inevitable and is always a significant issue in practice.
       cannot be constrained to keep a Treynor-Black portfolio within reasonable weights.
       can be constrained to keep a Treynor-Black portfolio within reasonable weights.
       None of these is true.
	2. As the number of securities in a portfolio is increased, what happens to the average portfolio standard deviation? (Points : 2)
       It increases at an increasing rate.
       It increases at a decreasing rate.
       It decreases at an increasing rate.
       It decreases at a decreasing rate.
       It first decreases, then starts to increase as more securities are added.
3. Which one of the following portfolios cannot lie on the efficient frontier as described by Markowitz? (Points : 2)
       Only portfolio A cannot lie on the efficient frontier.
       Only portfolio B cannot lie on the efficient frontier.
       Only portfolio C cannot lie on the efficient frontier.
       Only portfolio D cannot lie on the efficient frontier.
       Cannot tell from the information given.
4. The beta of Apple stock has been estimated as 2.3 using regression analysis on a sample of historical returns. A commonly used adjustment technique would provide an adjusted beta of ___________. (Points : 2)
       2.20
       1.87
       2.13
       1.66
       1.93
Adjusted beta = 2/3 sample beta + 1/3(1); = 2/3(2.3) + 1/3 = 1.867.
5. The index model for stock B has been estimated with the following result:  RB= 0.01 + 1.1RM+ eB
If σM= 0.20 and R2B= 0.50, the standard deviation of the return on stock B is _________. (Points : 2)
       0.1111
       0.2111
       0.3111
       0.4111
       0.1311
6. Suppose the following equation best describes the evolution of β over time: βt= 0.4 + 0.6βt-1
If a stock had a β of 0.9 last year, you would forecast the β to be _______ in the coming year.
(Points : 2)
       0.45
       0.60
       0.70
       0.94
       1.02
0.4 + 0.6 (0.9) = 0.94
7. The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to. (Points : 2)
       0.06.
       0.144.
       0.12.
       0.132.
       0.18.
E(R) = 6% + 1.2(12 - 6) = 13.2%.
8. The expected return - beta relationship of the CAPM is graphically represented by (Points : 2)
       the security market line.
       the capital market line.
       the capital allocation line.
       the efficient frontier with a risk-free asset.
       the efficient frontier without a risk-free asset.
9. In a multi-factor APT model, the coefficients on the macro factors are often called ______. (Points : 2)
       systemic risk
       firm-specific risk
       idiosyncratic risk
       factor betas
       unique risk
The coefficients are called factor betas, factor sensitivities, or factor loadings.
10. Which of the following is false about the security market line (SML) derived from the APT? (Points : 2)
       The SML has a downward slope.
       The SML for the APT shows expected return in relation to portfolio standard deviation.
       The SML for the APT has an intercept equal to the expected return on the market portfolio.
       The benchmark portfolio for the SML may be any well-diversified portfolio.
       The SML has a downward slope, the SML for the APT shows expected return in relation to portfolio standard deviation, and the SML for the APT has an intercept equal to the expected return on the market portfolio are all false.
The benchmark portfolio does not need to be the (unobservable) market portfolio under the APT, but can be any well-diversified portfolio. The intercept still equals the risk-free rate.
11. To take advantage of an arbitrage opportunity, an investor would 
I) construct a zero investment portfolio that will yield a sure profit.
II) construct a zero beta investment portfolio that will yield a sure profit.
III) make simultaneous trades in two markets without any net investment.
IV) short sell the asset in the low-priced market and buy it in the high-priced market. (Points : 2)
       I and IV
       I and III
       II and III
       I, III, and IV
       II, III, and IV
 To take advantage of an arbitrage opportunity, an investor would construct a zero investment portfolio that will yield a sure profit, or make simultaneous trades in two markets without any net investment.
12. Google has a beta of 1.0. The annualized market return yesterday was 11%, and the risk-free rate is currently 5%. You observe that Google had an annualized return yesterday of 14%. Assuming that markets are efficient, this suggests that (Points : 2)
       bad news about Google was announced yesterday.
       good news about Google was announced yesterday.
       no news about Google was announced yesterday.
       interest rates rose yesterday.
       interest rates fell yesterday.
With a beta of one, Google should have produced a return equal to the market return. Since the realized return was significantly higher than it should have been, one might surmise that good news about Google was announced yesterday.
13. When Maurice Kendall first examined stock price patterns in 1953, he found that (Points : 2)
       certain patterns tended to repeat within the business cycle.
       there were no predictable patterns in stock prices.

1. Which of the following statements accurately describes a reason for the suitability of an asset class in a qualified retirement plan portfolio? (Points : 3) Mutual funds provide diversification and...

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