Asset Management Practice Questions
Course Introduction
Asset Management is a comprehensive course that explores the principles and practices involved in managing financial assets to maximize returns and minimize risks. The course covers essential topics such as portfolio theory, asset allocation, investment strategies, risk management, and performance evaluation. Students will gain insights into the roles and responsibilities of asset managers, the regulatory environment, and the impact of global financial markets on asset management decisions. Through case studies and practical applications, students will learn how to construct and manage diversified investment portfolios tailored to different client objectives, time horizons, and risk tolerances.
Recommended Textbook
Modern Portfolio Theory and Investment Analysis 9th Edition by Edwin J. Elton
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5 Chapters
231 Verified Questions
231 Flashcards
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Page 2
Chapter 1: Introduction
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) Which of the following security's value is contingent on the performance of an underlying security?
A) Treasury Bill
B) Option
C) Corporate Bond
D) Equity
Answer: B
Q2) Julia earns $60,000 each year for two consecutive years.She has an option to invest in treasury funds to earn a 5% interest today,and consume the entire amount in the second year.Alternatively,she can choose to borrow money at 5% against the second period's income.Assume that the optimum decision for her is to invest money at 5%.Determine the maximum amount she could consume in period 2.
A) $60,000
B) $0
C) $123,000
D) $117,143
Answer: C
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Page 3
Chapter 2: Portfolio Analysis
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) With the help of a diagram show,how would you identify a ray with the greatest slope as an efficient frontier where riskless lending and borrowing is present?
Answer: We understand that the existence of riskless lending and borrowing implies that there is a single portfolio of risky assets that is preferred to all other portfolios.In the return standard deviation space,this portfolio plots on the ray connecting the riskless asset and the risky portfolio that lies farthest in the counter clockwise direction.We can judge from the below given graph that the ray \(R _ { F } - B\) is preferred by the investors to any other portfolio or rays like \(R _ { F } - A\) .The efficient frontier is the entire length of the ray extending through \(R _ { F }\) and \(B\) . 11ea83f1_e7e6_5462_b5a5_43cf20badcfc_TB6527_00 The slope of the line connecting a riskless asset and a risky portfolio is the expected return on the portfolio minus the risk-free rate divided by the standard deviation of the return on the portfolio.Thus,the efficient set is determined by finding a portfolio with the greatest ratio of excess return to standard deviation that satisfies the constraint that the sum of the proportions invested in the assets equals 1.
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Chapter 3: Models of Equilibrium in the Capital Markets
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) The CAPM implies that:
A) investors may invest in assets with expected returns lower than the riskless interest rate.
B) no investor should invest in the risk-free asset.
C) the only relevant measure of risk is standard deviation.
D) the expected return on an efficient portfolio may be lower than the riskless interest rate.
Answer: A
Q2) Which of A and B has the least total risk? Which of A and B has the least systematic risk?
Answer: A has least total risk; B has least systematic risk
Q3) Discuss whether the following statement is true or false: If there were no riskless assets in the economy,then there would be no security market line.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Security Analysis and Portfolio Theory
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) You have been given the following historical data on XYZ Corporation: \(\begin{array} { c c c } \text { year } & X Y Z \text { return } & \text { market return } \\ \hline1986 & 20 \% & 30 \% \\
1987 & - 15 \% & - 10 \% \\ 1988 & 25 \% & 10 \% \\ 1989 & - 20 \% & - 10 \% \\ 1990 & 40 \% & 20 \% \end{array}\)
a. Estimate the beta for XYZ.
b. The price of XYZ stock was $50 a year ago, and today it is $55. The dividends paid by XYZ over the last twelve months amount to $3. The T-bill rate a year ago was 6%, and the NYSE index has risen 10% over the past year. Assume that the average dividend yield on all stocks is 3% and evaluate the performance of XYZ stock over the past year.
c. If the T-bill rate today is 5.5%, what would you project the price of XYZ stock to be a year from today? (Assume that XYZ will continue to pay an annual dividend of $1.)
Q2) Consider a forecast of the next period's earnings.How much information is in past earnings?
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Chapter 5: Evaluating the Investment Process
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) The tremendous growth in assets under management of open-end funds was fuelled by two sources: a high rate of return in the capital markets and huge inflows of new capital due in large part to the growth in the private pension market in the U.S.
A)True
B)False
Q2) Explain the steps involved in evaluating the valuation process of an output.
Q3) List the methods that are employed to determine the "I's" in the literature of performance measurement,where the "I's" represent influences that systematically affect returns.
Q4) An active strategy utilized for common stocks
A) involves less diversifiable risk than an index fund.
B) involves a lower cost of paying the forecasters either in form of salaries or in the management fees than a passive strategy.
C) requires higher turnover as opposed to the very low turnover of the buy and hold strategies of an index fund.
D) requires lower transaction cost as compared to passive management.
Q5) Explain how Betas of Index funds result below one under a passive strategy.
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Page 7