Quiz-summary
0 of 10 questions completed
Questions:
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
Information
Free Practice Questions
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 10 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
- Not categorized 0%
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- Answered
- Review
-
Question 1 of 10
1. Question
What are the disadvantages of active investment account management?
I. Higher tax rates.
II. Trading and other fees that can be very high.
III. Not suitable for investors with short time horizons.
IV. Daily approach to market management.
Correct
Active investment account management is a hands-on, daily approach to market management. Active managers seek to time the market or buy and sell at the right time to gain returns. An example of this type of management is tactical asset allocation. The advantage to this type of management is that if properly done, the account can exceed normal market returns. Among the disadvantages of this type of account are higher tax rates (than passively managed accounts) due to short-term capital gains, and trading and other fees that can be very high.
Incorrect
Active investment account management is a hands-on, daily approach to market management. Active managers seek to time the market or buy and sell at the right time to gain returns. An example of this type of management is tactical asset allocation. The advantage to this type of management is that if properly done, the account can exceed normal market returns. Among the disadvantages of this type of account are higher tax rates (than passively managed accounts) due to short-term capital gains, and trading and other fees that can be very high.
-
Question 2 of 10
2. Question
What does not stand true for Passive account management?
Correct
Passive account management is a long-term management style in which the manager purchases securities and adopts a buy-and-hold strategy regardless of the market. The account may occasionally be rebalanced to maintain asset allocation, but the manager does not attempt to “pick stocks.” An example of this is strategic asset allocation. The underlying theory is that the equity markets will provide returns in the long run that could not be beat by active managers. This strategy has much lower fees and the tax advantage of long-term capital gains. It is not suitable, however, for investors with short time horizons.
Incorrect
Passive account management is a long-term management style in which the manager purchases securities and adopts a buy-and-hold strategy regardless of the market. The account may occasionally be rebalanced to maintain asset allocation, but the manager does not attempt to “pick stocks.” An example of this is strategic asset allocation. The underlying theory is that the equity markets will provide returns in the long run that could not be beat by active managers. This strategy has much lower fees and the tax advantage of long-term capital gains. It is not suitable, however, for investors with short time horizons.
-
Question 3 of 10
3. Question
What are the features of Income-producing securities?
I. They tend to be very stable investments that provide some sort of regular payment to the investor.
II. These types of securities range from bonds/debt instruments to preferred stocks.
III. These are conservative investments that provide income usually to retirees with short time horizons.
IV. Investors have a long time horizon to make up potential losses due to the volatility of the stocks.
Correct
Income-producing securities tend to be very stable investments that provide some sort of regular payment to the investor. These types of securities range from bonds/debt instruments to preferred stocks. Income-producing securities are conservative investments that provide income usually to retirees with short time horizons, but also to other investors with current income as an objective.
Incorrect
Income-producing securities tend to be very stable investments that provide some sort of regular payment to the investor. These types of securities range from bonds/debt instruments to preferred stocks. Income-producing securities are conservative investments that provide income usually to retirees with short time horizons, but also to other investors with current income as an objective.
-
Question 4 of 10
4. Question
What does not stand true for securities with potential for capital appreciation?
Correct
Securities with potential for capital appreciation are often young companies with volatile prices and no dividend. Bonds/debt instruments are almost never capital appreciation securities. Capital appreciation is usually sought after by young investors who are trying to grow their investment account balances. These investors do not need current income from their investments, and have a long time horizon to make up potential losses due to the volatility of the stocks.
Incorrect
Securities with potential for capital appreciation are often young companies with volatile prices and no dividend. Bonds/debt instruments are almost never capital appreciation securities. Capital appreciation is usually sought after by young investors who are trying to grow their investment account balances. These investors do not need current income from their investments, and have a long time horizon to make up potential losses due to the volatility of the stocks.
-
Question 5 of 10
5. Question
Why is diversification important?
I. An undiversified portfolio can lead to high rates of unnecessary risk.
II. Diversification can reduce market risk and increase returns.
III. The securities that make up a diversified portfolio tend to be negatively correlated.
IV. Diversified portfolio proves modern portfolio theory of the relationship of reduced risk/higher return.
Correct
Diversification is a very important concept to most investors. Most investors feel, and rightly so, that an undiversified portfolio can lead to high rates of unnecessary risk. Diversification is the practice of spreading one’s assets among a wide selection of investments from different asset classes. Most investors agree that diversification will reduce market risk and increase returns. This is an essential tenet of modern portfolio theory. The securities that make up a diversified portfolio tend to be negatively correlated; that is, the securities’ prices move in opposite directions to hedge against unfavorable market movement. This hedge will provide returns in one asset class as the other asset class moves downward, thereby still providing returns in a declining market and thus proving modern portfolio theory of the relationship of reduced risk/higher return in a diversified portfolio.
Incorrect
Diversification is a very important concept to most investors. Most investors feel, and rightly so, that an undiversified portfolio can lead to high rates of unnecessary risk. Diversification is the practice of spreading one’s assets among a wide selection of investments from different asset classes. Most investors agree that diversification will reduce market risk and increase returns. This is an essential tenet of modern portfolio theory. The securities that make up a diversified portfolio tend to be negatively correlated; that is, the securities’ prices move in opposite directions to hedge against unfavorable market movement. This hedge will provide returns in one asset class as the other asset class moves downward, thereby still providing returns in a declining market and thus proving modern portfolio theory of the relationship of reduced risk/higher return in a diversified portfolio.
-
Question 6 of 10
6. Question
What are the features of dollar cost averaging?
I. It involves investing a set amount of money in some security at regular time intervals.
II. It is most commonly demonstrated bimonthly in 401(k) contributions withheld from employees’ paychecks.
III. It serves to lower the overall price the investor pays for securities by buying less of a security when the price is high and being able to obtain more for the same amount of investment when the price is low.
IV. The general purpose of dollar cost averaging can be described as reducing the cost to buy a security over a given period compared to its average price.
Correct
Dollar cost averaging involves investing a set amount of money in some security at regular time intervals. This is most commonly demonstrated bimonthly in 401(k) contributions withheld from employees’ paychecks. Dollar cost averaging serves to lower the overall price the investor pays for securities by buying less of a security when the price is high and being able to obtain more for the same amount of investment when the price is low. This helps the investor combat timing risk, or the risk that all of one’s capital will be invested at the peak of a market and thus not benefit from any upside.
Incorrect
Dollar cost averaging involves investing a set amount of money in some security at regular time intervals. This is most commonly demonstrated bimonthly in 401(k) contributions withheld from employees’ paychecks. Dollar cost averaging serves to lower the overall price the investor pays for securities by buying less of a security when the price is high and being able to obtain more for the same amount of investment when the price is low. This helps the investor combat timing risk, or the risk that all of one’s capital will be invested at the peak of a market and thus not benefit from any upside.
-
Question 7 of 10
7. Question
How can you best define Put?
Correct
A put is an options contract between two parties in which the seller guarantees the buyer the right to sell a security to the seller of the put at a set price, regardless of the current price of the security.
Incorrect
A put is an options contract between two parties in which the seller guarantees the buyer the right to sell a security to the seller of the put at a set price, regardless of the current price of the security.
-
Question 8 of 10
8. Question
What does not stand true for Put?
Correct
A put is an options contract between two parties in which the seller guarantees the buyer the right to sell a security to the seller of the put at a set price, regardless of the current price of the security. Put options may be traded as derivative securities, and as demonstrated in the prior sentence, a lowering of the value of the underlying security makes the value of the put higher. Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
Incorrect
A put is an options contract between two parties in which the seller guarantees the buyer the right to sell a security to the seller of the put at a set price, regardless of the current price of the security. Put options may be traded as derivative securities, and as demonstrated in the prior sentence, a lowering of the value of the underlying security makes the value of the put higher. Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
-
Question 9 of 10
9. Question
What term is used for a call contract in which the seller owns the underlying security of the call which he or she is selling?
Correct
A call is an options contract between two parties in which the seller guarantees the buyer the right to buy the underlying security of the call at a set price, regardless of the current price of the security. A “covered call” is a call contract in which the seller owns the underlying security of the call which he or she is selling.
Incorrect
A call is an options contract between two parties in which the seller guarantees the buyer the right to buy the underlying security of the call at a set price, regardless of the current price of the security. A “covered call” is a call contract in which the seller owns the underlying security of the call which he or she is selling.
-
Question 10 of 10
10. Question
What are the features of leverage?
I. Leverage greatly increases the risk associated with a portfolio.
II. Leverage indeed brings a greater degree of risk, the reward is commensurate with the risk involved.
III. Leverage can amplify losses.
IV. Managers who use leverage in their management techniques are effectively borrowing money to amplify the eventual result of their investment.
Correct
Managers who use leverage in their management techniques are effectively borrowing money to amplify the eventual result of their investment. Without question, leverage greatly increases the risk associated with a portfolio. While this strategy may be appropriate for an investor seeking income, a young and sophisticated investor may be ideally suited to leveraged portfolios and securities. While leverage indeed brings a greater degree of risk, the reward is commensurate with the risk involved. When managers decide to leverage a position, a greater return can be had than would be possible if using only the unleveraged capital available to them. By the same token, leverage can amplify losses, making the losses taken on a security greater than those incurred had they used their own capital.
Incorrect
Managers who use leverage in their management techniques are effectively borrowing money to amplify the eventual result of their investment. Without question, leverage greatly increases the risk associated with a portfolio. While this strategy may be appropriate for an investor seeking income, a young and sophisticated investor may be ideally suited to leveraged portfolios and securities. While leverage indeed brings a greater degree of risk, the reward is commensurate with the risk involved. When managers decide to leverage a position, a greater return can be had than would be possible if using only the unleveraged capital available to them. By the same token, leverage can amplify losses, making the losses taken on a security greater than those incurred had they used their own capital.