1|Page
AFM 121 FINAL EXAMS WITH ACTUAL
CORRECT QUESTIONS AND VERIFIED
DETAILED ANSWERS 2024(NEWEST)
ALREADY GRADED A+
what type of deals are SFPDs used for
bought deals
is interest entirely taxed
yes
procedure for finding the after tax income from dividends
1) gross up the dividend amt by 38%
2) tax the dividend by the appropriate tax level
3) multiply the grossed up amt by 25%
4) subtract the tax credit from the amt of tax we have to pay
5) subtract the value from the original dividend amt
what percentage of capital gains are taxed?
50%
how to calculate amt of tax paid on capital gain
1) capital gain x 50%
2) amt x tax bracket
difference between RPP and RRSP
employees and employers contribute to RPP and individuals contribute to RRSP
which investment has a tax credit
dividends
are withdrawals from a TFSA taxed?
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no
are withdrawals from a RRSP taxed?
yes
how to calculate effective tax rate
Income Tax Expense / Pretax Income
what investment option has the least risk
t-bill
what investment option has the most risk
derivatives
how to calculate % return
c/f + (end.val - beg.val)/ beg.val
what is the real rate of return
nominal rate - inflation rate
inflation risk
The danger that money won't be worth as much in the future as it is today
business risk
risk to a particular business or industry
political risk
risk of doing business in a specific country
liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss
interest rate risk
the possible reduction in returns associated with changes in interest rates
foreign exchange risk
The risk that changes in exchange rates will hurt the profitability of a business deal
default risk
The risk that a company will be unable to pay the bond's face amount or interest payments as it
becomes due.
systematic risk
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risk relating to the overall market or economy
can we diversify a systematic risk
no
non-systematic risk
risk relating to a specific firm
what does beta do
measures security returns relative to overall market
what does correlation measure
how connected the returns of 2 securities are
3 primary investment objectives
1) safety
2) income
3) capital growth
2 secondary investment objectives
1) liquidity
2) tax minimization
what does a higher beta mean
higher beta means a riskier security
which 3 categories can an investor's money be distributed amongst
1) cash
2) fixed income
3) equities
active asset allocation
Refers to active "stock picking" and market timing to obtain a desired return
passive asset allocation
Is a form of asset allocation where the portfolio is set and is re-balanced at pre-determined intervals
(e.g., semi-annually, annually).
high level asset allocation
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generally fixed but may change depending on characteristics of an investor
dynamic asset allocation
shift asset allocation based on the short-term expectations for different asset classes
what are the 3 equity manager styles
1) growth
2) value
3) sector rotation
what are the 4 bond manager styles
1) interest rate anticipators
2) term to maturity
3) credit quality
4) spread traders
sharpe ratio formula
(portfolio return - risk-free return) / standard deviation of portfolio returns
what does the sharpe ratio tell us
the return per unit of risk
what is the vital function of financial markets
helping facilitate the trade of capital
what are the 3 components of the wealth transfer process?
1) financial instruments
2) financial markets
3) financial intermediaries
what are financial instruments
the mechanisms by which wealth/capital is transferred
what are the 3 terms that define an efficient market
1) fast
AFM 121 FINAL EXAMS WITH ACTUAL
CORRECT QUESTIONS AND VERIFIED
DETAILED ANSWERS 2024(NEWEST)
ALREADY GRADED A+
what type of deals are SFPDs used for
bought deals
is interest entirely taxed
yes
procedure for finding the after tax income from dividends
1) gross up the dividend amt by 38%
2) tax the dividend by the appropriate tax level
3) multiply the grossed up amt by 25%
4) subtract the tax credit from the amt of tax we have to pay
5) subtract the value from the original dividend amt
what percentage of capital gains are taxed?
50%
how to calculate amt of tax paid on capital gain
1) capital gain x 50%
2) amt x tax bracket
difference between RPP and RRSP
employees and employers contribute to RPP and individuals contribute to RRSP
which investment has a tax credit
dividends
are withdrawals from a TFSA taxed?
,2|Page
no
are withdrawals from a RRSP taxed?
yes
how to calculate effective tax rate
Income Tax Expense / Pretax Income
what investment option has the least risk
t-bill
what investment option has the most risk
derivatives
how to calculate % return
c/f + (end.val - beg.val)/ beg.val
what is the real rate of return
nominal rate - inflation rate
inflation risk
The danger that money won't be worth as much in the future as it is today
business risk
risk to a particular business or industry
political risk
risk of doing business in a specific country
liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss
interest rate risk
the possible reduction in returns associated with changes in interest rates
foreign exchange risk
The risk that changes in exchange rates will hurt the profitability of a business deal
default risk
The risk that a company will be unable to pay the bond's face amount or interest payments as it
becomes due.
systematic risk
,3|Page
risk relating to the overall market or economy
can we diversify a systematic risk
no
non-systematic risk
risk relating to a specific firm
what does beta do
measures security returns relative to overall market
what does correlation measure
how connected the returns of 2 securities are
3 primary investment objectives
1) safety
2) income
3) capital growth
2 secondary investment objectives
1) liquidity
2) tax minimization
what does a higher beta mean
higher beta means a riskier security
which 3 categories can an investor's money be distributed amongst
1) cash
2) fixed income
3) equities
active asset allocation
Refers to active "stock picking" and market timing to obtain a desired return
passive asset allocation
Is a form of asset allocation where the portfolio is set and is re-balanced at pre-determined intervals
(e.g., semi-annually, annually).
high level asset allocation
, 4|Page
generally fixed but may change depending on characteristics of an investor
dynamic asset allocation
shift asset allocation based on the short-term expectations for different asset classes
what are the 3 equity manager styles
1) growth
2) value
3) sector rotation
what are the 4 bond manager styles
1) interest rate anticipators
2) term to maturity
3) credit quality
4) spread traders
sharpe ratio formula
(portfolio return - risk-free return) / standard deviation of portfolio returns
what does the sharpe ratio tell us
the return per unit of risk
what is the vital function of financial markets
helping facilitate the trade of capital
what are the 3 components of the wealth transfer process?
1) financial instruments
2) financial markets
3) financial intermediaries
what are financial instruments
the mechanisms by which wealth/capital is transferred
what are the 3 terms that define an efficient market
1) fast
