HS 328 Final Practice Questions Exam With
Answers A+ Graded
Advisors with at least $100 million in assets under management must register with -
ANSWER The SEC
Advisors with less than $100 million in assets under management must register with -
ANSWER their respective state regulator
2 functions that broker-dealers serve - ANSWER 1. act as an intermediary in helping
clients buy and sell securities (broker)
2. generate profit on the trading of undervalued securities (dealer)
FINRA Responsibilities - ANSWER 1. Educating investors
2. Fostering market transparency
3. Writing and enforcing rules governing the activities of all registered broker-dealer
firms and registered brokers in the US
Who is responsible for regulation of registered investment advisors? - ANSWER The
SEC and state securities regulators
What is the least risky asset class with the lowest return? - ANSWER Money market
instruments
What risk/return profile do municipal and corporate bonds have? - ANSWER Moderate
risk and return
What risk/return profile do equities have? - ANSWER Highest return and highest risk
Criteria to meet the definition of an investment adviser by the SEC - ANSWER Individuals
or firms that issue reports or offer investment advice, including asset-allocation
decisions
What does Beta do? - ANSWER Measures ONLY systematic risk relative to 1, the
market's beta.
What is the Capital Market Line (CML)? - ANSWER a combination of the risk-free return
and the market portfolio...the portfolios on the new efficient frontier are some
combination of the risk free asset and the market portfolio
CML is tangent to the efficient portfolio
Slope of the CML is the Sharpe Ratio
, When risk capacity and risk tolerance are not aligned, how should a planning
recommendation be made? - ANSWER The more conservative of the two should
determine the plan
Tactical asset allocation - ANSWER responds to short-term market conditions
(perceived undervaluation of a certain sector of the market)
Security Market Line (SML) intersects with the y axis at the - ANSWER risk-free rate of
return
SML connects the y axis (risk free rate of return) to the - ANSWER Market portfolio
most variation in portfolio returns over an extended period of time is attributable to -
ANSWER asset allocation - this represents the largest impact to performance for
investors
T-Bill yields compared to commercial paper - ANSWER T-Bill yields are typically lower
since there is less risk
Negotiable CDs - ANSWER Have very large balances and are tradeable in the secondary
market
Is commercial paper considered default risk-free? - ANSWER No
Interest income from treasury securities are exempt from - ANSWER state and local
taxes
Treasuries with longer maturities tend to have higher or lower yields? - ANSWER higher
yields
Do treasury bills pay interest? - ANSWER No, they are pure discount instruments
Interest income from treasury securities tax status at state versus federal level -
ANSWER tax-free at state level, but not at the federal level
Which type of treasury security is considered a money market security? - ANSWER
treasury bills, but not treasury bonds of notes
Treasury Inflation Protected Securities (TIPS) - ANSWER a low-risk, low reward
investment that only pays well in periods of high inflation
Interest paid on TIPS changes based on inflation
Answers A+ Graded
Advisors with at least $100 million in assets under management must register with -
ANSWER The SEC
Advisors with less than $100 million in assets under management must register with -
ANSWER their respective state regulator
2 functions that broker-dealers serve - ANSWER 1. act as an intermediary in helping
clients buy and sell securities (broker)
2. generate profit on the trading of undervalued securities (dealer)
FINRA Responsibilities - ANSWER 1. Educating investors
2. Fostering market transparency
3. Writing and enforcing rules governing the activities of all registered broker-dealer
firms and registered brokers in the US
Who is responsible for regulation of registered investment advisors? - ANSWER The
SEC and state securities regulators
What is the least risky asset class with the lowest return? - ANSWER Money market
instruments
What risk/return profile do municipal and corporate bonds have? - ANSWER Moderate
risk and return
What risk/return profile do equities have? - ANSWER Highest return and highest risk
Criteria to meet the definition of an investment adviser by the SEC - ANSWER Individuals
or firms that issue reports or offer investment advice, including asset-allocation
decisions
What does Beta do? - ANSWER Measures ONLY systematic risk relative to 1, the
market's beta.
What is the Capital Market Line (CML)? - ANSWER a combination of the risk-free return
and the market portfolio...the portfolios on the new efficient frontier are some
combination of the risk free asset and the market portfolio
CML is tangent to the efficient portfolio
Slope of the CML is the Sharpe Ratio
, When risk capacity and risk tolerance are not aligned, how should a planning
recommendation be made? - ANSWER The more conservative of the two should
determine the plan
Tactical asset allocation - ANSWER responds to short-term market conditions
(perceived undervaluation of a certain sector of the market)
Security Market Line (SML) intersects with the y axis at the - ANSWER risk-free rate of
return
SML connects the y axis (risk free rate of return) to the - ANSWER Market portfolio
most variation in portfolio returns over an extended period of time is attributable to -
ANSWER asset allocation - this represents the largest impact to performance for
investors
T-Bill yields compared to commercial paper - ANSWER T-Bill yields are typically lower
since there is less risk
Negotiable CDs - ANSWER Have very large balances and are tradeable in the secondary
market
Is commercial paper considered default risk-free? - ANSWER No
Interest income from treasury securities are exempt from - ANSWER state and local
taxes
Treasuries with longer maturities tend to have higher or lower yields? - ANSWER higher
yields
Do treasury bills pay interest? - ANSWER No, they are pure discount instruments
Interest income from treasury securities tax status at state versus federal level -
ANSWER tax-free at state level, but not at the federal level
Which type of treasury security is considered a money market security? - ANSWER
treasury bills, but not treasury bonds of notes
Treasury Inflation Protected Securities (TIPS) - ANSWER a low-risk, low reward
investment that only pays well in periods of high inflation
Interest paid on TIPS changes based on inflation
