CFP Investment Planning EDMOND case
study
Because Julie considers herself to be a moderate risk investor, which of the
following stocks should she choose for her investment portfolio?
A)
GHI stock with a high standard deviation
B)
JEM stock with a beta of 0.98
C)
XYZ stock with a beta of 2.16
✅✅
D)
ABC stock exhibiting a platykurtic distribution - -The answer is JEM
stock with a beta of 0.98. Because she considers herself to be a moderate risk
investor, Julie would prefer a stock with a equal to or slightly less than the
market. Investments exhibiting a platykurtic distribution have more
observations dispersed further from the mean, resulting in a higher standard
deviation.
Calculate the weighted average yield to maturity (YTM) for Frank's bond
portfolio.
A)
8.83%
B)
8.75%
C)
8.66%
✅✅
D)
9.00% - -The answer is 8.66%. Referring to the yield curve, Treasuries
with 10-year terms are yielding 8.5%, and Treasuries with 20-year terms are
yielding 9.0%. Frank has $25,000 in 10-year-term bonds and $12,000 in
20-year-term bonds. Thus, Frank's bond portfolio has a weighted YTM of
8.66%, calculated as follows: [($25,000 × 8.5%) + ($12,000 × 9.0%)] ÷
$37,000 = 8.66%.
Choose the general observation that can be made about current market
interest rates after reviewing Julie's bond holdings in her brokerage account.
A)
Interest rates have increased since the purchase of the bonds.
, B)
Interest rates have decreased since the purchase of the bonds.
C)
Interest rates have not changed since the purchase of the bonds.
✅✅
D)
Not enough information is provided. - -The answer is interest rates have
generally increased since the purchase of the bonds. The fair market value
(FMV) of each bond has decreased since purchase, indicating market rates
are now higher than when the bonds were initially purchased. The FMV of
bonds tends to move in the opposite direction of changes in prevailing market
interest rates.
Frank has become very interested in the stock market and enjoys spending
his spare time researching companies in the medical field. He believes
studying and analyzing the industry, combined with his advanced exposure to
trends and new innovations in medicine, will give him an advantage in
achieving superior performance in medical stock investment opportunities.
Choose the form of the efficient market hypothesis (EMH), if any, that Frank is
considered subscribing to.
A)
Semistrong form
B)
Weak form
C)
Strong form
✅✅
D)
None of these - -The answer is weak form. Frank is subscribing to the
weak form of the EMH because he believes fundamental analysis and insider
information will yield superior performance.
Frank has discovered he is receiving a 10% stock dividend from Stock B in his
investment portfolio. Which of the following statements regarding the stock
dividend is CORRECT?
A)
As a result of the stock dividend, the fair market value (FMV) per share of
Stock B will be approximately $72.73.
B)
As a result of the stock dividend, Frank's basis per share in Stock B is $78.62.
C)
The stock dividend is taxable as ordinary income.
study
Because Julie considers herself to be a moderate risk investor, which of the
following stocks should she choose for her investment portfolio?
A)
GHI stock with a high standard deviation
B)
JEM stock with a beta of 0.98
C)
XYZ stock with a beta of 2.16
✅✅
D)
ABC stock exhibiting a platykurtic distribution - -The answer is JEM
stock with a beta of 0.98. Because she considers herself to be a moderate risk
investor, Julie would prefer a stock with a equal to or slightly less than the
market. Investments exhibiting a platykurtic distribution have more
observations dispersed further from the mean, resulting in a higher standard
deviation.
Calculate the weighted average yield to maturity (YTM) for Frank's bond
portfolio.
A)
8.83%
B)
8.75%
C)
8.66%
✅✅
D)
9.00% - -The answer is 8.66%. Referring to the yield curve, Treasuries
with 10-year terms are yielding 8.5%, and Treasuries with 20-year terms are
yielding 9.0%. Frank has $25,000 in 10-year-term bonds and $12,000 in
20-year-term bonds. Thus, Frank's bond portfolio has a weighted YTM of
8.66%, calculated as follows: [($25,000 × 8.5%) + ($12,000 × 9.0%)] ÷
$37,000 = 8.66%.
Choose the general observation that can be made about current market
interest rates after reviewing Julie's bond holdings in her brokerage account.
A)
Interest rates have increased since the purchase of the bonds.
, B)
Interest rates have decreased since the purchase of the bonds.
C)
Interest rates have not changed since the purchase of the bonds.
✅✅
D)
Not enough information is provided. - -The answer is interest rates have
generally increased since the purchase of the bonds. The fair market value
(FMV) of each bond has decreased since purchase, indicating market rates
are now higher than when the bonds were initially purchased. The FMV of
bonds tends to move in the opposite direction of changes in prevailing market
interest rates.
Frank has become very interested in the stock market and enjoys spending
his spare time researching companies in the medical field. He believes
studying and analyzing the industry, combined with his advanced exposure to
trends and new innovations in medicine, will give him an advantage in
achieving superior performance in medical stock investment opportunities.
Choose the form of the efficient market hypothesis (EMH), if any, that Frank is
considered subscribing to.
A)
Semistrong form
B)
Weak form
C)
Strong form
✅✅
D)
None of these - -The answer is weak form. Frank is subscribing to the
weak form of the EMH because he believes fundamental analysis and insider
information will yield superior performance.
Frank has discovered he is receiving a 10% stock dividend from Stock B in his
investment portfolio. Which of the following statements regarding the stock
dividend is CORRECT?
A)
As a result of the stock dividend, the fair market value (FMV) per share of
Stock B will be approximately $72.73.
B)
As a result of the stock dividend, Frank's basis per share in Stock B is $78.62.
C)
The stock dividend is taxable as ordinary income.
