INVESTMENT MANAGEMENT EXAM #2 UPDATED ACTUAL QUESTIONS AND CORRECT ANSWERS

INVESTMENT MANAGEMENT EXAM #2 UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS

Question:
1. Compared to investing in a single security diversification provides investors a way to:
Answer:
decrease the volatility of returns

Question:
2. What kind of losses is portfolio diversification least likely to prevent against
Answer:
severe market turmoil

Question:
3. In a defined contribution pension plan:
a) employee accepts the investment risk
b)the plan sponsor promises a predetermined retirement income to participants
c) plan manager attempts to match fund's assets to liabilities
Answer:
A

Question:
4. Low risk tolerance and high liquidity requirements best describe the typical investment needs of a:
a)defined-benefit pension plan
b) foundation
c) insurance company
Answer:
C)

Question:
5. A long time horizon and low liquidity requirements best describe the investment needs of an
a) endowment
b) insurance company
c) bank
Answer:
A

Question:
6. How does a top-down security analysis begin?
Answer:
examining economic conditions

Question:
7. Compared to ETFs, open-end mutual funds are typically associated w/ lower

, Answer:
brokerage costs

Question:
8. Hedge funds most likely
a) have stricter reporting requirements than a typical investment firm
b) hold equal values of long and short securities
c) are not offered for sale to the gen. public
Answer:
C

Question:
9. VS traditional investments what are managers of alternative investments most likely to have fewer
restrictions on and why?
A. holding cash
B. Buying stocks
C. Using Derivatives
Answer:
C, Using derivatives, traditional managers can hold cash and buy stocks but may be restricted from using
derivatives

Question:
10. Compared to alternative investments, traditional investments tend to:
A. Be less liquid
B. Be less regulated
C. Require lower fees
Answer:
C, Trad. investments require lower fees are more regulated and more liquid

Question:
11. An investor who chooses a fund of funds as an alternative to a single hedge fund is most likely to
benefit from which of the following,
A. lower fees
B. Higher returns
C. more due diligence
Answer:
C

Question:
12. Which of the following asset classes has historically had the highest returns and std. dev.?
A. small-cap stocks
B. Large Cap Stocks
C. Long-term corporate bonds
Answer:
A. small-cap stocks have had the highest annual return and std. dev of return over time