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Question 1 of 10
1. Question
What is markup?
Correct
Markups are fees that broker-dealers collect when they act as a principal and sell securities from their inventory to clients. In order to make money, they charge a small premium per share when selling from inventory. This is called the markup.
Incorrect
Markups are fees that broker-dealers collect when they act as a principal and sell securities from their inventory to clients. In order to make money, they charge a small premium per share when selling from inventory. This is called the markup.
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Question 2 of 10
2. Question
What does the risk-adjusted concept includes?
I. Alpha (Return)
II. Beta (risk)
III. R-Squared (correlation)
IV. Standard Deviation (volatility)
Correct
The risk-adjusted concept applies concepts of modern portfolio theory when determining risk-adjusted returns. These concepts include Alpha (return),Beta (risk), R-Squared (correlation), Standard Deviation (volatility), and the Sharpe ratio (excessive risk). These measurements are applied to the return of the investment to obtain a more valid metric of return.
Incorrect
The risk-adjusted concept applies concepts of modern portfolio theory when determining risk-adjusted returns. These concepts include Alpha (return),Beta (risk), R-Squared (correlation), Standard Deviation (volatility), and the Sharpe ratio (excessive risk). These measurements are applied to the return of the investment to obtain a more valid metric of return.
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Question 3 of 10
3. Question
What are the features Time-weighted returns?
I. They are measurements of performance that allow the investor to measure the performance of the account without considering deposits into and withdrawals from the accounts.
II. They provide a more accurate representation of the return of an investment or portfolio.
III. The assumptions in the calculation of time-weighted returns are that cash distributions are reinvested.
IV. It is also sometimes referred to as the geometric mean return.
Correct
Time-weighted returns are measurements of performance that allow the investor to measure the performance of the account without considering deposits into and withdrawals from the accounts. Since deposits and withdrawals affect the ending balance of the account, time-weighted returns provide a more accurate representation of the return of an investment or portfolio. The assumptions in the calculation of time-weighted returns are that cash distributions are reinvested, and inflows into the account are negated by assuming one investment into the account, and then measuring the increase or decrease in the value of the securities at the end of the measurement period.
Incorrect
Time-weighted returns are measurements of performance that allow the investor to measure the performance of the account without considering deposits into and withdrawals from the accounts. Since deposits and withdrawals affect the ending balance of the account, time-weighted returns provide a more accurate representation of the return of an investment or portfolio. The assumptions in the calculation of time-weighted returns are that cash distributions are reinvested, and inflows into the account are negated by assuming one investment into the account, and then measuring the increase or decrease in the value of the securities at the end of the measurement period.
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Question 4 of 10
4. Question
What is the formula for calculating Annualized return?
Correct
Annualized return is calculated by finding an annualization factor and multiplying by the return. This is accomplished by comparing the length of the period for which the return was calculated to the length of the year. The annualization factor for one month would be twelve, while the annualization factor for a day would be 365. An annualized return equation would appear as follows: annualized return = rate of return x annualization factor.
Incorrect
Annualized return is calculated by finding an annualization factor and multiplying by the return. This is accomplished by comparing the length of the period for which the return was calculated to the length of the year. The annualization factor for one month would be twelve, while the annualization factor for a day would be 365. An annualized return equation would appear as follows: annualized return = rate of return x annualization factor.
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Question 5 of 10
5. Question
How can you calculate the total return of a security?
Correct
The total return of a security is made up of the income the investor receives from a security in addition to the growth of the principal invested. This is usually applied to a one-year holding period. In equation form, this would be total return = income from the security + principal growth. It is a more accurate portrayal of the return of a security than just measuring principal growth, since the income may be reinvested in the security, or invested in another investment.
Incorrect
The total return of a security is made up of the income the investor receives from a security in addition to the growth of the principal invested. This is usually applied to a one-year holding period. In equation form, this would be total return = income from the security + principal growth. It is a more accurate portrayal of the return of a security than just measuring principal growth, since the income may be reinvested in the security, or invested in another investment.
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Question 6 of 10
6. Question
What stands true for Holding period return?
I. It is the return of a given security over the period which it is held.
II. The holding period is not set and may be any period of time measurable in days or years.
III. Holding period return refers to interest and dividends received as well as return of principal.
IV. Holding period return is useful in helping an investor determine the validity of an investment.
Correct
Holding period return is the return of a given security over the period which it is held, thus the moniker holding period return. The holding period is not set and may be any period of time measurable in days or years. Holding period return refers to interest and dividends received as well as return of principal. In this way, it most closely resembles total return, but total return is usually expressed in terms of annual return, whereas holding period return may refer to any period of time.
Incorrect
Holding period return is the return of a given security over the period which it is held, thus the moniker holding period return. The holding period is not set and may be any period of time measurable in days or years. Holding period return refers to interest and dividends received as well as return of principal. In this way, it most closely resembles total return, but total return is usually expressed in terms of annual return, whereas holding period return may refer to any period of time.
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Question 7 of 10
7. Question
What can be best described as a discount rate that causes the future value of an investment to be equal to its present value?
Correct
Internal rate of return, or IRR, can best be described as a discount rate that causes the future value of an investment to be equal to its present value. When calculating the present and future values of investments, the IRR is the r value in the equation. In summary, IRR is the percentage used to equate the future cash flows of an investment to its present value. If the IRR of a security is higher than the required rate of return, it is viewed as an attractive investment.
Incorrect
Internal rate of return, or IRR, can best be described as a discount rate that causes the future value of an investment to be equal to its present value. When calculating the present and future values of investments, the IRR is the r value in the equation. In summary, IRR is the percentage used to equate the future cash flows of an investment to its present value. If the IRR of a security is higher than the required rate of return, it is viewed as an attractive investment.
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Question 8 of 10
8. Question
What are expected returns?
I. They are an estimate of probable returns.
II. These are not actual or historical rates of return.
III. They are actually a calculable hypothesis of the return of the investment.
IV. it requires the investor to set a probability to a possible return for the investment for two different possibilities.
Correct
Expected returns are an estimate of probable returns. These are not actual or historical rates of return, but are actually a calculable hypothesis of the return of the investment. Expected return is a subjective metric because it requires the investor to set a probability
to a possible return for the investment for two different possibilities.Incorrect
Expected returns are an estimate of probable returns. These are not actual or historical rates of return, but are actually a calculable hypothesis of the return of the investment. Expected return is a subjective metric because it requires the investor to set a probability
to a possible return for the investment for two different possibilities. -
Question 9 of 10
9. Question
How are expected returns calculated?
Correct
Expected return is a subjective metric because it requires the investor to set a probability to a possible return for the investment for two different possibilities. It is calculated as follows: expected returns = (probability of 1st estimated return x 1st estimated return) + (probability of 2nd estimated return x 2nd estimated return).
Incorrect
Expected return is a subjective metric because it requires the investor to set a probability to a possible return for the investment for two different possibilities. It is calculated as follows: expected returns = (probability of 1st estimated return x 1st estimated return) + (probability of 2nd estimated return x 2nd estimated return).
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Question 10 of 10
10. Question
Which term is used to refer to the fact that inflation does not always immediately reflect market events?
Correct
Inflation inertia is the term used to refer to the fact that inflation does not always immediately reflect market events. The cost of consumer goods dropping while prices of those goods stayed high is an example of inflation inertia.
Incorrect
Inflation inertia is the term used to refer to the fact that inflation does not always immediately reflect market events. The cost of consumer goods dropping while prices of those goods stayed high is an example of inflation inertia.