©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
FNCE 2820 Final Exam Questions and
Answers
Risk tolerance - Answers✓✓a measure of an investor's
willingness to hold a higher level of risk, given
the expectation of a higher rate of return.
Asset Allocation - Answers✓✓Positioning investment dollars in different
asset categories
(e.g., stocks, bonds, real
estate and cash equivalents)
Security Diversification - Answers✓✓Diversifying securities held within each of
the asset categories
Five Principles of Investing - Answers✓✓1. Invest for value
2. Invest with a professional
3. Diversify
4. Continually invest
5. Have patience
How we can apply five principles - Answers✓✓1. Seek knowledge (become the professional)
2. Value is linked to risk-adjusted return
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
3. Focus on long-term portfolio performance
(not short-term volatility)
4. Commit to systematic savings plan
5. Apply two key concepts:
asset allocation
diversification
Long term wealth accumulation - Answers✓✓asset allocation decision
Equities - Answers✓✓• Large companies (>$10 billion)
• Mid-cap ($2-10 billion)
• Small-cap (below $2 billion)
• Domestic or foreign shares
Fixed Income (maturities over one year) - Answers✓✓• U.S. Government Notes and Bonds
• Municipal debt (state and local)
• Corporate coupon bonds (investment grade, below
investment grade, "junk" bonds)
• Corporate zero-coupon bonds
• Mortgage-backed bonds
• Treasury Inflation Protected Securities (TIPS)
• Foreign bonds
Cash Equivalents (maturities one year and less) - Answers✓✓• U.S. Treasury Bills
• Savings bonds
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
• Certificates of deposit (CDs)
• Money market accounts
Real Estate - Answers✓✓• Individual residential property
• Real estate investment trust (REITs)
• Commercial real estate
Life Cycle Investment Strategy - Answers✓✓Wealth = financial wealth + human capital wealth
Initial: low financial wealth, high human capital wealth = greater focus on income investments
later: high financial wealth, low human capital wealth = more focus on income producing
investments
Age strategy - Answers✓✓110 - age
• Individual, age 20
90% invested in equities and alternatives*
10% invested in bonds and cash equivalents*
• Individual, age 40
70% invested in equities and alternatives
30% invested in bonds and cash equivalents
• Individual, age 60
50% invested in equities and alternatives
50% invested in bonds and cash equivalents
60/40 approach - Answers✓✓Start from 60% growth versus 40% income mix
Adjust to 70/30 or 80/20, if individual factors warrant
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
Adjust to 50/50 or 40/60, if individual factors warrant
Mutual Funds - Answers✓✓• Professional management
• Diversification with only a small $ investment
• Wide range of asset categories
• High liquidity
• Easy to buy (typically low minimum investment)
Types of investors - Answers✓✓Conservative investor (50/50, 40/60 or 30/70)
Moderate investor (60/40)
Assertive investor (70/30)
Aggressive investor (80/20)
Open-ended mutual fund - Answers✓✓• Unlimited shares
• Investors buy and sell shares directly from the
investment advisor company
• Transactions clear at end of day, based on net asset value (NAV)
• NAV = total value of securities owed (less liabilities)
divided by the number of mutual fund shares
Money market funds - Answers✓✓• U.S. Treasury Bills
• U.S. Government
• Corporate
• Tax exempt
22/11/2024 12:41PM
FNCE 2820 Final Exam Questions and
Answers
Risk tolerance - Answers✓✓a measure of an investor's
willingness to hold a higher level of risk, given
the expectation of a higher rate of return.
Asset Allocation - Answers✓✓Positioning investment dollars in different
asset categories
(e.g., stocks, bonds, real
estate and cash equivalents)
Security Diversification - Answers✓✓Diversifying securities held within each of
the asset categories
Five Principles of Investing - Answers✓✓1. Invest for value
2. Invest with a professional
3. Diversify
4. Continually invest
5. Have patience
How we can apply five principles - Answers✓✓1. Seek knowledge (become the professional)
2. Value is linked to risk-adjusted return
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
3. Focus on long-term portfolio performance
(not short-term volatility)
4. Commit to systematic savings plan
5. Apply two key concepts:
asset allocation
diversification
Long term wealth accumulation - Answers✓✓asset allocation decision
Equities - Answers✓✓• Large companies (>$10 billion)
• Mid-cap ($2-10 billion)
• Small-cap (below $2 billion)
• Domestic or foreign shares
Fixed Income (maturities over one year) - Answers✓✓• U.S. Government Notes and Bonds
• Municipal debt (state and local)
• Corporate coupon bonds (investment grade, below
investment grade, "junk" bonds)
• Corporate zero-coupon bonds
• Mortgage-backed bonds
• Treasury Inflation Protected Securities (TIPS)
• Foreign bonds
Cash Equivalents (maturities one year and less) - Answers✓✓• U.S. Treasury Bills
• Savings bonds
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
• Certificates of deposit (CDs)
• Money market accounts
Real Estate - Answers✓✓• Individual residential property
• Real estate investment trust (REITs)
• Commercial real estate
Life Cycle Investment Strategy - Answers✓✓Wealth = financial wealth + human capital wealth
Initial: low financial wealth, high human capital wealth = greater focus on income investments
later: high financial wealth, low human capital wealth = more focus on income producing
investments
Age strategy - Answers✓✓110 - age
• Individual, age 20
90% invested in equities and alternatives*
10% invested in bonds and cash equivalents*
• Individual, age 40
70% invested in equities and alternatives
30% invested in bonds and cash equivalents
• Individual, age 60
50% invested in equities and alternatives
50% invested in bonds and cash equivalents
60/40 approach - Answers✓✓Start from 60% growth versus 40% income mix
Adjust to 70/30 or 80/20, if individual factors warrant
, ©Themoon EXAM SOLUTIONS
22/11/2024 12:41PM
Adjust to 50/50 or 40/60, if individual factors warrant
Mutual Funds - Answers✓✓• Professional management
• Diversification with only a small $ investment
• Wide range of asset categories
• High liquidity
• Easy to buy (typically low minimum investment)
Types of investors - Answers✓✓Conservative investor (50/50, 40/60 or 30/70)
Moderate investor (60/40)
Assertive investor (70/30)
Aggressive investor (80/20)
Open-ended mutual fund - Answers✓✓• Unlimited shares
• Investors buy and sell shares directly from the
investment advisor company
• Transactions clear at end of day, based on net asset value (NAV)
• NAV = total value of securities owed (less liabilities)
divided by the number of mutual fund shares
Money market funds - Answers✓✓• U.S. Treasury Bills
• U.S. Government
• Corporate
• Tax exempt
