CEBS RPA 2 CORRECT TEST PAPER QUESTIONS
AND ANSWERS RATED A+
✔✔Time weighted rate of return - ✔✔Computed by dividing the time interval under
study into subintervals whose boundaries are the dates of cash flows into and out of the
fund and by computing the internal rate of return for each subinterval. The geometric
average for the rates for these subintervals, with each rate having a weight proportional
to the length of time in its corresponding subinterval.
✔✔Capital Asset Pricing Model - ✔✔Uses standard statistical techniques simple linear
regression to analyze the relationship between the periodic returns of the portfolio and
those of the market.
✔✔Portfolio's Alpha Value - ✔✔the level of return contributed because of the skill of the
investment manager that is managing the portfolio
✔✔Portfolio's Beta Value - ✔✔the slope of the line measured as the change in vertical
movement per unit of change in the horizontal movement. This represents the average
return on the portfolio per 1% return on the market.
✔✔Risk adjusted rate of return in portfolio measurement - ✔✔can be used to measure
risk-adjusted performance and to compare portfolios with different risk levels developed
by actual portfolio decisions.
✔✔U.S. Treasury bills - ✔✔Treasury bills have maturities at issue ranging from 91 to
360 days. There is almost no default risk on these investments.
✔✔U.S. Treasury notes - ✔✔Treasury notes have initial maturities ranging from one to
five years. There is almost no default risk on these investments.
✔✔Federal agency issues - ✔✔Other agencies issue short-term obligations that range
in maturity from one month to over ten years. These instruments typically will yield
slightly more than Treasury obligations with a similar maturity.
, ✔✔Certificates of deposit - ✔✔Issued by commercial banks and have a fixed maturity,
generally in the range of 90 days to one year. The ability to sell a certificate of deposit
prior to maturity usually depends on its denomination. The default risk for these
certificates depends on the issuing bank, but it is usually quite small.
✔✔Commercial paper - ✔✔An unsecured short-term note of a large corporation. This
investment offers maturities that range up to 270 days, but the marketability is
somewhat limited if an early sale is required. The default risk depends on the credit
standing of the issuer, but commensurately higher yield is available.
✔✔Money market mutual funds - ✔✔Invest in U.S. Treasury bills, federal agency
issues, certificates of deposit, or commercial paper. Investors achieve a yield almost as
high as that paid by the direct investments and benefit from the diversification of any
default risk over a much larger pool of investments.
✔✔Bonds in pension porfolios - ✔✔For pension plans with fixed dollar obligations that
will be paid out several years in the future, purchase assets that will generate a cash
flow similar to the benefit payments.
The investment manager may purchase assets with a longer maturity than the money
market instruments described above.
✔✔Types of common stocks - ✔✔1. blue chip
2. growth
3. income
4. defensive
5. cyclical
6. speculative
✔✔Blue Chip Stock - ✔✔Issued by major companies with long and unbroken records of
earnings and dividend payments. They should appeal primarily to pension plans
seeking safety and stability.
✔✔growth stock - ✔✔Issued by companies whose sales, earnings and share of the
market are expanding faster than the general economy or the industry average. Higher
risk, but the prospects for capital appreciation produce a higher total return. Pay smaller
dividends, and may not be attractive to pension plans with cash flow needs.
✔✔Income stocks - ✔✔Stocks that pay higher-than-average dividend returns. They
have been attractive to pension plans that bought stock for current income.
✔✔Cyclical Stocks - ✔✔Stocks issued by companies whose earnings fluctuate with the
business cycle and are accentuated by it.
AND ANSWERS RATED A+
✔✔Time weighted rate of return - ✔✔Computed by dividing the time interval under
study into subintervals whose boundaries are the dates of cash flows into and out of the
fund and by computing the internal rate of return for each subinterval. The geometric
average for the rates for these subintervals, with each rate having a weight proportional
to the length of time in its corresponding subinterval.
✔✔Capital Asset Pricing Model - ✔✔Uses standard statistical techniques simple linear
regression to analyze the relationship between the periodic returns of the portfolio and
those of the market.
✔✔Portfolio's Alpha Value - ✔✔the level of return contributed because of the skill of the
investment manager that is managing the portfolio
✔✔Portfolio's Beta Value - ✔✔the slope of the line measured as the change in vertical
movement per unit of change in the horizontal movement. This represents the average
return on the portfolio per 1% return on the market.
✔✔Risk adjusted rate of return in portfolio measurement - ✔✔can be used to measure
risk-adjusted performance and to compare portfolios with different risk levels developed
by actual portfolio decisions.
✔✔U.S. Treasury bills - ✔✔Treasury bills have maturities at issue ranging from 91 to
360 days. There is almost no default risk on these investments.
✔✔U.S. Treasury notes - ✔✔Treasury notes have initial maturities ranging from one to
five years. There is almost no default risk on these investments.
✔✔Federal agency issues - ✔✔Other agencies issue short-term obligations that range
in maturity from one month to over ten years. These instruments typically will yield
slightly more than Treasury obligations with a similar maturity.
, ✔✔Certificates of deposit - ✔✔Issued by commercial banks and have a fixed maturity,
generally in the range of 90 days to one year. The ability to sell a certificate of deposit
prior to maturity usually depends on its denomination. The default risk for these
certificates depends on the issuing bank, but it is usually quite small.
✔✔Commercial paper - ✔✔An unsecured short-term note of a large corporation. This
investment offers maturities that range up to 270 days, but the marketability is
somewhat limited if an early sale is required. The default risk depends on the credit
standing of the issuer, but commensurately higher yield is available.
✔✔Money market mutual funds - ✔✔Invest in U.S. Treasury bills, federal agency
issues, certificates of deposit, or commercial paper. Investors achieve a yield almost as
high as that paid by the direct investments and benefit from the diversification of any
default risk over a much larger pool of investments.
✔✔Bonds in pension porfolios - ✔✔For pension plans with fixed dollar obligations that
will be paid out several years in the future, purchase assets that will generate a cash
flow similar to the benefit payments.
The investment manager may purchase assets with a longer maturity than the money
market instruments described above.
✔✔Types of common stocks - ✔✔1. blue chip
2. growth
3. income
4. defensive
5. cyclical
6. speculative
✔✔Blue Chip Stock - ✔✔Issued by major companies with long and unbroken records of
earnings and dividend payments. They should appeal primarily to pension plans
seeking safety and stability.
✔✔growth stock - ✔✔Issued by companies whose sales, earnings and share of the
market are expanding faster than the general economy or the industry average. Higher
risk, but the prospects for capital appreciation produce a higher total return. Pay smaller
dividends, and may not be attractive to pension plans with cash flow needs.
✔✔Income stocks - ✔✔Stocks that pay higher-than-average dividend returns. They
have been attractive to pension plans that bought stock for current income.
✔✔Cyclical Stocks - ✔✔Stocks issued by companies whose earnings fluctuate with the
business cycle and are accentuated by it.
