CTFA STUDY QUESTIONS WITH COMPLETE ANSWERS 2023

CTFA STUDY QUESTIONS WITH COMPLETE ANSWERS 2023 What is a J curve The return pattern of private equity funds. The cumulative return is negative in the early life of a bond before turning positive. This is because in the early life of a private equity fund there are expenses incurred in the search for attractive investments but there are not any investments to generate returns. True or false? Private equity investing is an excellent source of liquidity. False. Since private equity is not traded on any market, and investor should be prepared to have no access to their money for an extended period of time example term of 10 to 12 years. How often are hedge fund incentive fees paid? Annually How often are private equity fund incentive fees paid? When the investments are actually sold at a profit. What is a closely held corporation? A corporation for which more than 50% of the value of its outstanding stock is owned by five or fewer individuals. There are generally no public investors in a closely held corporation. What are the primary components of the A-B estate plan? The marital deduction. Credit shelter trust. What are the two trust commonly used under the A - B estate plan called? The credit shelter trust. The marital deduction trust. Why are the assets in a marital deduction trust tax deferred? Because the assets utilize the unlimited marital deduction. True or false. While the assets of the marital deduction trust utilize the unlimited marital deduction, the assets remaining in the marital trust at the surviving spouse's death are not included in and taxed as part of the surviving spouse's estate. False. They are included in the surviving spouse's estate. What is the primary purpose of the credit shelter trust? It is designed to pass family wealth, ultimately to one's descendants, while also making trust property available to the descendants surviving spouse during the spouses lifetime. True or false? During the life of the surviving spouse, the credit shelter trust may provide for mandatory distributions of income, or it may give the trustee discretion when determining how much, if any, of the trust income and principal is to be disturbed. True. What is a spray or sprinkling trust? I spray provision generally gives the trustee the right to retain income in the trust what you divide income among the settlers spouse and descendants as the trustee determines advisable for their health support and reasonable comfort and education. The Bretton Woods system led to the creation of what to entities? The Bretton Woods system led the creation of the international monetary fund (IMF) and the international Bank for Reconstruction and Development now known as the World Bank. What was the original purpose of the international monetary fund? The international monetary fund was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits. What was the purpose of the World Bank? To provide underdeveloped nations with needed capital. The equation VO=D1 (K-G) assumes which of the following? A. No dividend growth. B. Constant dividends. C. Variable dividend growth. D. Constant dividend growth. D. Constant dividend growth. According to the CAPM, A stock with a beta of 1 should have an expected return of this: A. Equal to zero. B. Equal to the expected market return. C. Greater than the expected market return. D. Less than the expected return. B. Equal to the expected return of the market. Neutral... Not zero. If an investor was uncertain about the future direction of interest-rate movements, the investor most likely would: A. Letter bond to rations. B. Increase bond maturities . C. Increase the portfolios duration. D. Lower the portfolios duration. D. Ladder bond durations. Hey bondholder is most worried about interest rate risk when: A:Rates Rise B:Rates Fall C:Rates remain flat D:The bondholder is equally concerned under all three conditions A. Rates rise Hey mutual fund traded on a stock exchange is an: A: Open end fund B: Closed end fund C: Money market mutual fund D: Front end load fund B: closed end fund These types of assets are used by investment professionals to describe investments that have patterns of expected risk and return that are believed to be different than those of traditional, long only, market traded securities (stocks and bonds). Alternative assets How many partners can a limited partnership accept? (including the general partner) 100 Concerning hedge funds, what is a qualified purchaser? Test 1:natural person Test 2:has investable worse of 5 million or more There is no income test A limited partnership that accepts only qualified purchasers may have a total of how many partners including the general partner? 500 Concerning private equity funds, what is buyout investing? Investing in more mature companies that may have been public as independent companies or as divisions of a larger company True or false? Often company subject to buy else have been underperforming and need financial or operations restructuring True What are the three stages of venture-capital? 1:seed capital funds research and development 2:early-stage capital funds the initiation of commercial manufacturing 3:expansion capital finances expansion In the Brettonwoods system,The member states agreed to fix their exchange rates by tying their currencies to what? The US dollar When did the Brettonwoods system collapse? 1971. When Pres. Richard Nixon severed the link between the dollar and gold. By 1973, most major world economies hand allowed their currencies to float freely against the dollar. The money market is the market for: A:short-term debt B:long-term debt C:corporate bonds D:treasury notes A:short-term debt (typically matures less than 12 months) (Assuming the bonds are callable) A company will most likely call bonds it had previously issued if: A:interest rates rise B:interest rates fall C:interest rates remain consistent D:The company experiences difficult financial conditions B:when interest rates fall: companies are most likely to call bonds if interest rates fall so they can refinance at the now lower rate If the market anticipates a firm's earnings growth to be 10%, but the firm reports earnings growth of 9%: A:The stock prices probably will increase B:The stock prices will probably decline C:beta equals zero D:The stock will get the same return as the overall market B: The stock price probably will decline over time because of the lower than expected earnings If the stock market is efficient: A:stock prices adjust slowly to new information B:stock prices adjust quickly to new information C:investors can beat the market D:analysts are not needed B:stock prices adjust quickly to the new information. Asset prices adjust quickly to reflect all available information. What are four categories of alternative assets? 1:hedge funds 2:private equity 3:Real estate 4:commodities What are commodities? Physical items such as gold bars, corn, wheat. What is the difference between an alternative instrument and an alternative format? An alternative instrument is an option, forward, future or other derivative. An alternative format is a common trust fund, limited partnerships, ETFs and ADRs. Truer faults? Hedge funds are subject to anti-fraud and insider trading rules and regulations True What is the fee structure typical of hedge funds? Incentive fee 20% of profits, asset management fee 1 to 2% of assets Concerning hedge funds, what does it mean to use the strategy entitled, long and short equity funds strategy? Purchase stocks that they deemed to be undervalued and sell short stocks that are overvalued. They may be generalists or may be specialized by sector or geography. The underlying investment style may be growth. What is the difference between a private and a public investor? Private investors must create value whereas public investors must recognize value. How long is the life cycle of a private equity fund? 12 years Concerning private equity funds, what are the two stages of the life cycle? 1. Pre-closing or fund raising. 2. Closing date. Buying and selling stocks and bonds to keep asset allocation within a specified ranged is called: A:constant mix strategy B:constant proportions portfolio insurance C:passive management D:laddering A: constant mix strategy In terms of the CAPM, which of the following is true? A: Beta less than 1.0 is an aggressive stock B: Beta greater tan 1 is a defensive stock C: Beta equal to 0 is market neutral D: Beta greater than 1 is an aggressive stock D: Beta greater than 1 is an aggressive stock. If it exceeds 1 it is more risky than the market. For two otherwise identical bonds, it generally holds true that: A: Corporate bond yields are less than treasury bond yields. B: Treasury bond yields are less than corporate bond yields. C: Corporate bond yields equal treasury bond yields. D: Corporate bond yields may be higher or lower than treasury bond yields. B: Treasury bond yields are less than corporate bond yields because t-bills are risk free and state income tax free.