CHAPTER 12 - STC SERIES 66 COMPLETE
QUESTIONS AND ANSWERS WITH
VERIFIED SOLUTIONS LATEST UPDATE
2025/2026
Active strategies - CORRECT ANSWER - Market aren't perfectly efficient
Tactical asset allocation
Sector rotation
Actual return - CORRECT ANSWER - = Market return x beta + alpha
After-tax yield - CORRECT ANSWER - = Taxable interest rate x (100%-Tax
bracket%)
Alpha - CORRECT ANSWER - Aka risk-adjusted return
= Actual return - expected return
Balance sheet - CORRECT ANSWER - Assets = liabilities + SE
Net worth
Behavioral finance - CORRECT ANSWER - Based on the idea that investors
aren't fully rational
Examples
Anchoring, Regret aversion, Confirmation bias, Herd behavior
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, Beta - CORRECT ANSWER - Measure of volatility (systematic risk) of a security
in comparison to the market
Bottom-up approach - CORRECT ANSWER - Based on fundamental analysis
Where investments are chosen based on evaluating a particular company
Business economic cycle - CORRECT ANSWER - Early recession, full recession
(contraction), early recovery, full recovery
Buy limit - CORRECT ANSWER - Buy a security at a price below the current
market price executable at a specified price or lower/better
Order may never be filled
Buy stop - CORRECT ANSWER - Buy a security at a price above the current
market price triggered only if the market price hits or passes through the stop price
Buy-and-hold - CORRECT ANSWER - Do nothing
Minimize tax consequences and transaction costs
Risk, reward and volatility become different than original asset allocation =
drawback
Capital asset pricing model (CAPM) - CORRECT ANSWER - Extension of MPT
Relationship between risk and expected return for securities
Correlation - CORRECT ANSWER - MPT suggests that an optimal portfolio is
diversified with assets not all correlated with one another
Positive = +1
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QUESTIONS AND ANSWERS WITH
VERIFIED SOLUTIONS LATEST UPDATE
2025/2026
Active strategies - CORRECT ANSWER - Market aren't perfectly efficient
Tactical asset allocation
Sector rotation
Actual return - CORRECT ANSWER - = Market return x beta + alpha
After-tax yield - CORRECT ANSWER - = Taxable interest rate x (100%-Tax
bracket%)
Alpha - CORRECT ANSWER - Aka risk-adjusted return
= Actual return - expected return
Balance sheet - CORRECT ANSWER - Assets = liabilities + SE
Net worth
Behavioral finance - CORRECT ANSWER - Based on the idea that investors
aren't fully rational
Examples
Anchoring, Regret aversion, Confirmation bias, Herd behavior
1|Page
, Beta - CORRECT ANSWER - Measure of volatility (systematic risk) of a security
in comparison to the market
Bottom-up approach - CORRECT ANSWER - Based on fundamental analysis
Where investments are chosen based on evaluating a particular company
Business economic cycle - CORRECT ANSWER - Early recession, full recession
(contraction), early recovery, full recovery
Buy limit - CORRECT ANSWER - Buy a security at a price below the current
market price executable at a specified price or lower/better
Order may never be filled
Buy stop - CORRECT ANSWER - Buy a security at a price above the current
market price triggered only if the market price hits or passes through the stop price
Buy-and-hold - CORRECT ANSWER - Do nothing
Minimize tax consequences and transaction costs
Risk, reward and volatility become different than original asset allocation =
drawback
Capital asset pricing model (CAPM) - CORRECT ANSWER - Extension of MPT
Relationship between risk and expected return for securities
Correlation - CORRECT ANSWER - MPT suggests that an optimal portfolio is
diversified with assets not all correlated with one another
Positive = +1
2|Page
