CANNON POST TEST STUDY GUIDE 1-5 EXAM QUESTIONS AND ANSWERS
The real value of prepaid forward contracts is that they ___________________. - CORRECT
ANSWER✅✅Can be used as collateral for a loan
If interest rates are expected to fall, what should an investor do? - CORRECT ANSWER✅✅Buy bonds
Recent surveys of HNW clients reveal which of the following attitudes regarding their feelings and
decisions on investing? - CORRECT ANSWER✅✅Clients are likely to be more focused today than in the
past on real life goals than arbitrary investment goals
Which term below represents the mathematical estimate of the return on a security when the return on
the market as a whole is zero? - CORRECT ANSWER✅✅Alpha coefficient
Which of the following is also the market price for an option? - CORRECT ANSWER✅✅premium
Ten years ago, Bob purchased 500 shares of stock in a company for $20 per share. Five years ago, the
stock rose to $100 per share and split 2-for-1. This year, the stock again rose to $100 per share and had
another 2-for-1 stock split. How many shares of the company stock does Bob own after the second stock
split? - CORRECT ANSWER✅✅2,000
What is a major distinction between mutual funds and managed accounts? - CORRECT
ANSWER✅✅With a mutual fund, investors own shares of a pool of securities; with a managed account,
investors own the underlying portfolio of securities
Richard wants to measure portfolio performance by utilizing a risk-adjusted measure. Which of the
following are examples of approaches his advisor might use?
Sharpe's Ratio
Cannon's Beta
Jensen's Alpha - CORRECT ANSWER✅✅I and III only
Which of the following is NOT an advantage to investing in Exchange Traded Funds (ETFs)? - CORRECT
ANSWER✅✅Active management
,If you thought a stock price is too high and is likely to go down, which action below would be most
appropriate? - CORRECT ANSWER✅✅Buy a put
An option contract normally represents how many shares of stock? - CORRECT ANSWER✅✅100
Corporate bonds are securities representing corporate ___________. - CORRECT ANSWER✅✅Debt
Which of the following best describes a convertible bond? - CORRECT ANSWER✅✅A bond that can be
converted into stock in the company
The major goal of the Investment Policy Statement is to ___________________. - CORRECT
ANSWER✅✅Coordinate the development of a client's investment strategy and monitor it on an
ongoing basis
If a stock has a Beta of 1.14, it is expected to have a return that is _________ greater than the market in
an up market. - CORRECT ANSWER✅✅14%
Diversification helps protect against which of the following? - CORRECT ANSWER✅✅Unsystematic risk
Modern Portfolio Theory supports which of the following? - CORRECT ANSWER✅✅A collection of
investment assets with a collectively lower risk than any individual asset can generate the same or
higher yield than the individual asset
Under what circumstances are Real Estate Investment Trusts (REITs) free of federal income tax at the
corporate level? - CORRECT ANSWER✅✅At least 90 percent of the net annual earnings are distributed
to shareholders
Normally, an investor expects the most price volatility from a bond with a _______. - CORRECT
ANSWER✅✅Long maturity
, The client wishes to remain invested 60 percent in stocks and 40 percent invested in bonds. Recently,
stocks experienced a 15 percent gain, while bond prices remained flat. What should the advisor do? -
CORRECT ANSWER✅✅Rebalance the portfolio by selling stocks and purchasing bonds to return to
original allocation
Stocks of companies with earnings that grow at a faster annual rate than the earnings of companies in
general are known as _______ stocks. - CORRECT ANSWER✅✅Growth
Dan bought a call option in Stock A. Which of the following is true concerning this transaction? -
CORRECT ANSWER✅✅Dan's profit potential is unlimited
Which of the following is true regarding Exchange Traded Funds (ETFs)? - CORRECT ANSWER✅✅ETFs
may be bought and sold on an exchange anytime throughout the trading day
When interest rates rise, existing bond prices ____________. - CORRECT ANSWER✅✅Normally fall
Which of the following is an advantage of investing in Treasury notes? - CORRECT ANSWER✅✅They are
essentially default proof
A combination of investments offering the highest possible yield at a given risk or the minimal possible
risk at a given yield level is referred to as ______________________. - CORRECT ANSWER✅✅The
Efficient Frontier
Which of the following is correct concerning taxation and managed accounts? - CORRECT
ANSWER✅✅Investors can direct the sale of specific securities in order to harvest tax losses
Five years ago, John bought a $1,000 10-year Treasury note at face value for par. Assume the current
market value is $1,060. If John sells the Treasury note now, what is the tax implication? - CORRECT
ANSWER✅✅$60 capital gain
Which of the following are examples of systematic risk?
Interest rate risk
The real value of prepaid forward contracts is that they ___________________. - CORRECT
ANSWER✅✅Can be used as collateral for a loan
If interest rates are expected to fall, what should an investor do? - CORRECT ANSWER✅✅Buy bonds
Recent surveys of HNW clients reveal which of the following attitudes regarding their feelings and
decisions on investing? - CORRECT ANSWER✅✅Clients are likely to be more focused today than in the
past on real life goals than arbitrary investment goals
Which term below represents the mathematical estimate of the return on a security when the return on
the market as a whole is zero? - CORRECT ANSWER✅✅Alpha coefficient
Which of the following is also the market price for an option? - CORRECT ANSWER✅✅premium
Ten years ago, Bob purchased 500 shares of stock in a company for $20 per share. Five years ago, the
stock rose to $100 per share and split 2-for-1. This year, the stock again rose to $100 per share and had
another 2-for-1 stock split. How many shares of the company stock does Bob own after the second stock
split? - CORRECT ANSWER✅✅2,000
What is a major distinction between mutual funds and managed accounts? - CORRECT
ANSWER✅✅With a mutual fund, investors own shares of a pool of securities; with a managed account,
investors own the underlying portfolio of securities
Richard wants to measure portfolio performance by utilizing a risk-adjusted measure. Which of the
following are examples of approaches his advisor might use?
Sharpe's Ratio
Cannon's Beta
Jensen's Alpha - CORRECT ANSWER✅✅I and III only
Which of the following is NOT an advantage to investing in Exchange Traded Funds (ETFs)? - CORRECT
ANSWER✅✅Active management
,If you thought a stock price is too high and is likely to go down, which action below would be most
appropriate? - CORRECT ANSWER✅✅Buy a put
An option contract normally represents how many shares of stock? - CORRECT ANSWER✅✅100
Corporate bonds are securities representing corporate ___________. - CORRECT ANSWER✅✅Debt
Which of the following best describes a convertible bond? - CORRECT ANSWER✅✅A bond that can be
converted into stock in the company
The major goal of the Investment Policy Statement is to ___________________. - CORRECT
ANSWER✅✅Coordinate the development of a client's investment strategy and monitor it on an
ongoing basis
If a stock has a Beta of 1.14, it is expected to have a return that is _________ greater than the market in
an up market. - CORRECT ANSWER✅✅14%
Diversification helps protect against which of the following? - CORRECT ANSWER✅✅Unsystematic risk
Modern Portfolio Theory supports which of the following? - CORRECT ANSWER✅✅A collection of
investment assets with a collectively lower risk than any individual asset can generate the same or
higher yield than the individual asset
Under what circumstances are Real Estate Investment Trusts (REITs) free of federal income tax at the
corporate level? - CORRECT ANSWER✅✅At least 90 percent of the net annual earnings are distributed
to shareholders
Normally, an investor expects the most price volatility from a bond with a _______. - CORRECT
ANSWER✅✅Long maturity
, The client wishes to remain invested 60 percent in stocks and 40 percent invested in bonds. Recently,
stocks experienced a 15 percent gain, while bond prices remained flat. What should the advisor do? -
CORRECT ANSWER✅✅Rebalance the portfolio by selling stocks and purchasing bonds to return to
original allocation
Stocks of companies with earnings that grow at a faster annual rate than the earnings of companies in
general are known as _______ stocks. - CORRECT ANSWER✅✅Growth
Dan bought a call option in Stock A. Which of the following is true concerning this transaction? -
CORRECT ANSWER✅✅Dan's profit potential is unlimited
Which of the following is true regarding Exchange Traded Funds (ETFs)? - CORRECT ANSWER✅✅ETFs
may be bought and sold on an exchange anytime throughout the trading day
When interest rates rise, existing bond prices ____________. - CORRECT ANSWER✅✅Normally fall
Which of the following is an advantage of investing in Treasury notes? - CORRECT ANSWER✅✅They are
essentially default proof
A combination of investments offering the highest possible yield at a given risk or the minimal possible
risk at a given yield level is referred to as ______________________. - CORRECT ANSWER✅✅The
Efficient Frontier
Which of the following is correct concerning taxation and managed accounts? - CORRECT
ANSWER✅✅Investors can direct the sale of specific securities in order to harvest tax losses
Five years ago, John bought a $1,000 10-year Treasury note at face value for par. Assume the current
market value is $1,060. If John sells the Treasury note now, what is the tax implication? - CORRECT
ANSWER✅✅$60 capital gain
Which of the following are examples of systematic risk?
Interest rate risk
