1.
The yield-to-maturity is greater than the current yield when:
A.
The bond is trading above par value
B.
The coupon rate is greater than the yield-to-maturity
C.
The coupon rate is less than the yield-to-maturity
D.
The bond is a zero coupon bond
2.
When measuring investment returns over several time periods, especially when used to compare the performance of more than one investment vehicle, investment performance is best represented by:
A.
The total return on investment
B.
The arithmetic average return per year
C.
The dollar-weighted rate of return
D.
The latest return, based on the annual return of the most recent year
3.
How does the Security Market Line (SML) differ from the Capital Market Line (CML) in explaining the expected return of his portfolio?
A.
The CML depicts the relationship between the expected returns of efficient portfolios and their total risk while the SML depicts the relationship between a security’s return and its beta
B.
The risk-free rate is relevant in the CML but not in the SML
C.
The SML only explains the expected return of an individual security but cannot be used to explain the expected return of a portfolio
D.
The SML is relevant only for an investor who does not have a diversified portfolio
4.
A client started to invest with $500,000. At the end of the tenure of this investment, value has increased to $550,000 and in the interim, the investor received distributions from the investment of $10,000. What is the return on this investment?
5.
Which of the following is not a reason why a portfolio underperforms its benchmark?
A.
B.
The portfolio deviates too much from the benchmark
C.
Wrong investment decisions of the portfolio manager
D.
Special investment constraints of the client
6.
Which of the following is not an advantage of investing in unit trusts?
7.
Given the following exchange rates, calculate the GBP/CNY cross rate:GBP/USD = 1.6824USD/CNY = 6.2518
8.
The client’s portfolio has a standard deviation of 20%.
A.
The standard deviation figure is a measure of the absolute volatility of the fund
B.
The standard deviation is a risk measure that measures only the downside volatility of the fund
C.
The standard deviation measures the extent to which the portfolio has deviated from its intended allocation
D.
The standard deviation measures the extent to which the portfolio has deviated from its benchmark
9.
CASE STUDYThe following case study is for question 9,10 and 11 The Civil Aviation Authority of Timbuktu (CAAT) announced that low-cost carrier Moose Airways Limited (LCMA) has violated its safety regulations and LCMA’s operations will be suspended until further notice. The stock of LCMA reacted immediately with a 40% plunge from $1.00 to $0.60, as flights based in Timbuktu accounts for 40% of LCMA’s revenue. The company is reported to be losing revenue of $7 mil a week for every week of suspension of business in Timbuktu. Given that required return is the summation of real interest rates, inflation and premium, which of these factors has gone up sharply in the short run given the above case scenario?
10.
CASE STUDYThe following case study is for question 9,10 and 11 The Civil Aviation Authority of Timbuktu (CAAT) announced that low-cost carrier Moose Airways Limited (LCMA) has violated its safety regulations and LCMA’s operations will be suspended until further notice. The stock of LCMA reacted immediately with a 40% plunge from $1.00 to $0.60, as flights based in Timbuktu accounts for 40% of LCMA’s revenue. The company is reported to be losing revenue of $7 mil a week for every week of suspension of business in Timbuktu. The controlling shareholder of LCMA, Premier Services Airlines Limited (PSAL) which is based in a neighboring country, need to take measures to assure investors that it is committed to operate in Timbuktu. Which of the following measures/actions are most likely to impact investor confidence in the short run?
A.
Increase spending on promoting the brand
B.
Diversify into non-aviation related business
C.
Increase spending in product and service innovation
D.
Order an immediate operational and safety review of all aircraft
11.
CASE STUDYThe following case study is for question 9,10 and 11 The Civil Aviation Authority of Timbuktu (CAAT) announced that low-cost carrier Moose Airways Limited (LCMA) has violated its safety regulations and LCMA’s operations will be suspended until further notice. The stock of LCMA reacted immediately with a 40% plunge from $1.00 to $0.60, as flights based in Timbuktu accounts for 40% of LCMA’s revenue. The company is reported to be losing revenue of $7 mil a week for every week of suspension of business in Timbuktu. Given the sudden disruption of its business in Timbuktu, which category of financial ratios should investors be most concerned with in assessing LCMA as a going-concern?
12.
An investor bought 10,000 shares of a stock three years ago at $9.50 a share and received the following dividends:Year 1: $3,800Year 2: $3,800Year 3: $3,800He has just sold it for $9.40. What is his annual holding period return on the stock?
13.
An investor enters into a position with a long call option and a long put option. Both the call and put option has the same exercise price of $36.00 and the same market price of $2.50. What is the investor’s expected maximum gain if the underlying share price is $12 at expiration?
14.
Which of the following statements about portfolio’s risk and return is not correct?
A.
The expected risk (as measured by standard deviation) of a portfolio is equal to the weighted average of the individual stock’s standard deviation
B.
The expected risk (as measured by standard deviation) of a portfolio is NOT equal to the weighted average of the individual stock’s standard deviation
C.
The standard deviation of the portfolio is the square root of the variance of the portfolio
D.
A portfolio’s expected return is the weighted average return of all the stocks in the portfolio. The client asks you further questions about the risk and return of the portfolio
15.
The private banker should disclose which of the following fees to the client?
16.
What does the tracking error of a portfolio measure?
A.
The percentage of returns that is not attributable to movements in the benchmark index
B.
The volatility of a portfolio’s return
C.
The volatility of the difference between the portfolio’s return and the benchmark return
D.
The relative volatility of the portfolio compared to the benchmark
17.
The concept of Capital Asset Pricing Model (CAPM) helps us to understand the factors that will affect the expected return of the portfolio. Which of the following statement is true?
A.
It is the expected return of the market that explains the expected performance of a portfolio and not the risk-free rate
B.
Both the risk-free rate and the expected market return explains the returns a portfolio is expected to earn
C.
The portfolio’s beta will determine how much the portfolio is expected to earn
D.
The client can apply the concepts of CAPM and borrow at the risk-free rate to finance his investments
18.
What is one of the common risks in using swaps?
19.
Some factors could negatively affect the profitability of companies. The following are early warning signs of potential negative earnings surprise, EXCEPT:
A.
Insignificant non-audit services performed by external auditors
B.
High percentage of compensation tied to short term profitability
C.
Late filings of financial and regulatory information
D.
Limited discussion on negative factors or bad news
20.
CASE STUDYThe following case study is for question 20, 21 and 22Tim, a relationship manager with ABC Bank, has been approached by a high net worth client in his early 60s for advice on basic investment products. Tim’s client is optimistic on the German stock market and wishes to seek his advice on how to gain a diversified exposure to the German stock market and yet at the same time be able to take advantage of intra-day movements.His client also informs him that he wishes to set aside funds for a donation to a domestic education foundation in three months’ time. Lastly as he is nearing retirement, he wishes to have some of his funds in a form which provides him a continuing source of income To gain a diversified exposure to the German stock market while allowing intra-day trading, which of the following investments should Tim recommend to his client?
A.
Mutual fund that are indexed to the German stock market
B.
Exchange-traded funds that are indexed to the German stock market
C.
Closed-end funds that make active sector bets in the German stock market
D.
Mutual funds that invest in small cap stocks in the German stock market
21.
CASE STUDYThe following case study is for question 20, 21 and 22Tim, a relationship manager with ABC Bank, has been approached by a high net worth client in his early 60s for advice on basic investment products. Tim’s client is optimistic on the German stock market and wishes to seek his advice on how to gain a diversified exposure to the German stock market and yet at the same time be able to take advantage of intra-day movements.His client also informs him that he wishes to set aside funds for a donation to a domestic education foundation in three months’ time. Lastly as he is nearing retirement, he wishes to have some of his funds in a form which provides him a continuing source of income The funds earmarked for the welfare donation should be invested in which of the following vehicles
A.
B.
A 3-month US$ Certificate of Deposit
C.
Any liquid stock trading on the Singapore Stock Exchange
D.
A 3-month SGS Treasury bill
22.
CASE STUDYThe following case study is for question 20, 21 and 22Tim, a relationship manager with ABC Bank, has been approached by a high net worth client in his early 60s for advice on basic investment products. Tim’s client is optimistic on the German stock market and wishes to seek his advice on how to gain a diversified exposure to the German stock market and yet at the same time be able to take advantage of intra-day movements.His client also informs him that he wishes to set aside funds for a donation to a domestic education foundation in three months’ time. Lastly as he is nearing retirement, he wishes to have some of his funds in a form which provides him a continuing source of income Which of the following investments best satisfies his desire for a continuing source of income?
A.
A bond issued by a blue-chip company in Singapore which provides semi-annual coupon payments
B.
A publicly-listed growth company trading in the Singapore stock market
C.
A low-dividend yielding company with good growth prospects
D.
Non-cumulative preferred stock issued by a company which has many potential projects in the pipeline.
23.
CASE STUDYThe following case study is for questions 23, 24 and 25 A client, Mrs. Cheng, has asked for your assistance to evaluate the performance of one of the funds which she bought 2 years ago based on your recommendation. Background information is as follows: Mrs. Cheng bought the equity fund at $1.60 on the 31 March 2009. Assuming that you only have the price on 31 March 2011 and it is $1.70. She paid the full sales charge of 5% when she bought into the fund. You also found out that the volatility of the fund is 5% p.a. A quick check on your computer also provided you the bank deposit rate of 0.5626% (assume this to be the risk free rate). The factsheet showed the following information Returns1 month3 months6 months1 year2 year (Ann)Bid-to-bid0.50%1.00%1.50%3.50%5.45%Offer-to-bid-4.53%-4.05%-3.58%-1.68%0.47% Offer-to-bid prices takes into consideration the 5% sales charge, information as of 31 March 2011You suspected that the 2 year annualized bid-to-bid performance figure in the factsheet may be wrong. You do the calculations and realize the correct figure should be:
24.
CASE STUDYThe following case study is for questions 23, 24 and 25 A client, Mrs. Cheng, has asked for your assistance to evaluate the performance of one of the funds which she bought 2 years ago based on your recommendation. Background information is as follows: Mrs. Cheng bought the equity fund at $1.60 on the 31 March 2009. Assuming that you only have the price on 31 March 2011 and it is $1.70. She paid the full sales charge of 5% when she bought into the fund. You also found out that the volatility of the fund is 5% p.a. A quick check on your computer also provided you the bank deposit rate of 0.5626% (assume this to be the risk free rate). The factsheet showed the following information Returns1 month3 months6 months1 year2 year (Ann)Bid-to-bid0.50%1.00%1.50%3.50%5.45%Offer-to-bid-4.53%-4.05%-3.58%-1.68%0.47% Offer-to-bid prices takes into consideration the 5% sales charge, information as of 31 March 2011What is the Sharpe ratio of the fund for one year on an offer-to-bid basis, given that the return of the portfolio is -1.68%, the risk free rate of return is 0.5626% and the volatility is 5% p.a?
25.
![CASE STUDYThe following case study is for questions 23, 24 and 25 A client, Mrs. Cheng, has asked for your assistance to evaluate the performance of one of the funds which she bought 2 years ago based on your recommendation. Background information is as follows: Mrs. Cheng bought the equity fund at $1.60 on the 31 March 2009. Assuming that you only have the price on 31 March 2011 and it is $1.70. She paid the full sales charge of 5% when she bought into the fund. You also found out that the volatility of the fund is 5% p.a. A quick check on your computer also provided you the bank deposit rate of 0.5626% (assume this to be the risk free rate). The factsheet showed the following information Returns1 month3 months6 months1 year2 year (Ann)Bid-to-bid0.50%1.00%1.50%3.50%5.45%Offer-to-bid-4.53%-4.05%-3.58%-1.68%0.47% Offer-to-bid prices takes into consideration the 5% sales charge, information as of 31 March 2011Mrs. Cheong brought along a factsheet which she downloaded from the website of a fund management company. Upon looking at the factsheet, you noted that the factsheet is of a bond fund. She pointed to this section of the factsheet (refer to figure 1 below) and said if she is only comfortable to buy into the fund if a fund contain more than 70% in investment grades bonds. Based on the information below, is the fund worth her consideration? Though there may be other considerations, assume for this question that this is the only criteria. - ProProfs]( "CASE STUDYThe following case study is for questions 23, 24 and 25 A client, Mrs. Cheng, has asked for your assistance to evaluate the performance of one of the funds which she bought 2 years ago based on your recommendation. Background information is as follows: Mrs. Cheng bought the equity fund at $1.60 on the 31 March 2009. Assuming that you only have the price on 31 March 2011 and it is $1.70. She paid the full sales charge of 5% when she bought into the fund. You also found out that the volatility of the fund is 5% p.a. A quick check on your computer also provided you the bank deposit rate of 0.5626% (assume this to be the risk free rate). The factsheet showed the following information Returns1 month3 months6 months1 year2 year (Ann)Bid-to-bid0.50%1.00%1.50%3.50%5.45%Offer-to-bid-4.53%-4.05%-3.58%-1.68%0.47% Offer-to-bid prices takes into consideration the 5% sales charge, information as of 31 March 2011Mrs. Cheong brought along a factsheet which she downloaded from the website of a fund management company. Upon looking at the factsheet, you noted that the factsheet is of a bond fund. She pointed to this section of the factsheet (refer to figure 1 below) and said if she is only comfortable to buy into the fund if a fund contain more than 70% in investment grades bonds. Based on the information below, is the fund worth her consideration? Though there may be other considerations, assume for this question that this is the only criteria.")
CASE STUDYThe following case study is for questions 23, 24 and 25 A client, Mrs. Cheng, has asked for your assistance to evaluate the performance of one of the funds which she bought 2 years ago based on your recommendation. Background information is as follows: Mrs. Cheng bought the equity fund at $1.60 on the 31 March 2009. Assuming that you only have the price on 31 March 2011 and it is $1.70. She paid the full sales charge of 5% when she bought into the fund. You also found out that the volatility of the fund is 5% p.a. A quick check on your computer also provided you the bank deposit rate of 0.5626% (assume this to be the risk free rate). The factsheet showed the following information Returns1 month3 months6 months1 year2 year (Ann)Bid-to-bid0.50%1.00%1.50%3.50%5.45%Offer-to-bid-4.53%-4.05%-3.58%-1.68%0.47% Offer-to-bid prices takes into consideration the 5% sales charge, information as of 31 March 2011Mrs. Cheong brought along a factsheet which she downloaded from the website of a fund management company. Upon looking at the factsheet, you noted that the factsheet is of a bond fund. She pointed to this section of the factsheet (refer to figure 1 below) and said if she is only comfortable to buy into the fund if a fund contain more than 70% in investment grades bonds. Based on the information below, is the fund worth her consideration? Though there may be other considerations, assume for this question that this is the only criteria.
A.
Yes, because the total allocation to investment grade bonds is 82.3%
B.
Yes, because the total allocation to investment grade bonds is 84.2%
C.
No, because the total allocation to investment grade bonds is only 69%
D.
No, because the total allocation to investment grade bonds is only 44%
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