PRSA APR CHEAT SHEET EXAM SCRIPT
COMPREHENSIVE STUDY GUIDE
●● How does active management differ from passive management?
Answer: Active management takes a tactical approach, while passive
management is more strategic.
●● What is rebalancing in the context of portfolio management?
Answer: A passive strategy carried out periodically to align a portfolio
with target allocation percentages.
●● What characteristics define growth stocks?
Answer: Growth stocks typically have higher price-to-earnings and
price-to-book ratios, requiring a higher tolerance for risk due to their
volatility.
●● What is the focus of value investing?
Answer: To find stocks that trade at lower price-to-earnings and price-to-
book multiples, indicating they are cheaper and often pay higher
dividend yields.
●● What is a contrarian investment strategy?
,Answer: An approach where the portfolio manager does the opposite of
what most other managers are doing, believing their approach is
incorrect.
●● How do tangible assets help in portfolio management?
Answer: They reduce inflation risk when included in a portfolio.
●● What does the efficient market hypothesis (EMH) state?
Answer: It holds that security prices quickly adjust to new information,
making markets efficiently priced.
●● What is modern portfolio theory?
Answer: It posits that an efficient portfolio provides the highest return
for a given level of risk.
●● What is the efficient frontier in portfolio management?
Answer: A collection of efficient portfolios that maximize return for a
given risk level.
●● What is dollar cost averaging?
Answer: A strategy where fixed dollar amounts are invested regularly,
resulting in purchases at varying prices.
●● How can a call option be used in hedging?
, Answer: To protect a short stock position.
●● How can a put option be used in hedging?
Answer: To protect a long stock position.
●● What is distributable net income (DNI) in the context of trusts?
Answer: It includes interest, dividends, and rent, but excludes reinvested
capital gains.
●● What distinguishes a simple trust from a complex trust?
Answer: A simple trust must distribute all income each year, while a
complex trust can retain income but must report it.
●● What is the taxation basis for gifted stock?
Answer: The donee receives it at the donor's basis.
●● What is the taxation basis for inherited stock?
Answer: It receives a stepped-up cost basis for the beneficiary.
●● What is the deadline for paying estate taxes after death?
Answer: Estate taxes are due within nine months after death.
●● What is leverage in the context of securities trading?
COMPREHENSIVE STUDY GUIDE
●● How does active management differ from passive management?
Answer: Active management takes a tactical approach, while passive
management is more strategic.
●● What is rebalancing in the context of portfolio management?
Answer: A passive strategy carried out periodically to align a portfolio
with target allocation percentages.
●● What characteristics define growth stocks?
Answer: Growth stocks typically have higher price-to-earnings and
price-to-book ratios, requiring a higher tolerance for risk due to their
volatility.
●● What is the focus of value investing?
Answer: To find stocks that trade at lower price-to-earnings and price-to-
book multiples, indicating they are cheaper and often pay higher
dividend yields.
●● What is a contrarian investment strategy?
,Answer: An approach where the portfolio manager does the opposite of
what most other managers are doing, believing their approach is
incorrect.
●● How do tangible assets help in portfolio management?
Answer: They reduce inflation risk when included in a portfolio.
●● What does the efficient market hypothesis (EMH) state?
Answer: It holds that security prices quickly adjust to new information,
making markets efficiently priced.
●● What is modern portfolio theory?
Answer: It posits that an efficient portfolio provides the highest return
for a given level of risk.
●● What is the efficient frontier in portfolio management?
Answer: A collection of efficient portfolios that maximize return for a
given risk level.
●● What is dollar cost averaging?
Answer: A strategy where fixed dollar amounts are invested regularly,
resulting in purchases at varying prices.
●● How can a call option be used in hedging?
, Answer: To protect a short stock position.
●● How can a put option be used in hedging?
Answer: To protect a long stock position.
●● What is distributable net income (DNI) in the context of trusts?
Answer: It includes interest, dividends, and rent, but excludes reinvested
capital gains.
●● What distinguishes a simple trust from a complex trust?
Answer: A simple trust must distribute all income each year, while a
complex trust can retain income but must report it.
●● What is the taxation basis for gifted stock?
Answer: The donee receives it at the donor's basis.
●● What is the taxation basis for inherited stock?
Answer: It receives a stepped-up cost basis for the beneficiary.
●● What is the deadline for paying estate taxes after death?
Answer: Estate taxes are due within nine months after death.
●● What is leverage in the context of securities trading?
