# CACS Exam Questions: Quiz!

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Are you familiar with Khinloke CACS-Paper? Do you know what causes a nation’s currency to appreciate on the foreign market, what happens with bonds when they approach maturity, how to calculate the current yield of a bond, and how to do essential business calculations, and how to solve complex word problems. According to our calculations, you will pass this quiz with flying colors.

• 1.

### The client’s portfolio has a standard deviation of 18%.

• A.

The standard deviation is a figure that measures 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

A. The standard deviation is a figure that measures the absolute volatility of the fund
Explanation
The standard deviation is a figure that measures the absolute volatility of the fund. This means that it provides a measure of how much the returns of the portfolio fluctuate around its average return. A higher standard deviation indicates a higher level of volatility and risk, while a lower standard deviation indicates a lower level of volatility and risk. Therefore, a standard deviation of 18% suggests that the client's portfolio has a moderate level of volatility.

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• 2.

### Henry applied for 100,000 shares of XYZ Company during its IPO at \$0.50 per share. He was allocated 10,000 shares. On the first day of trading, he sold all his shares at \$0.63 each. What was his return?

• A.

30%

• B.

26%

• C.

23%

• D.

20%

B. 26%
Explanation
Henry bought 10,000 shares at \$0.50 per share, which cost him a total of \$5,000. He sold all his shares at \$0.63 each, earning a total of \$6,300. His return can be calculated by finding the percentage increase in his investment. The difference between the selling price and the buying price is \$0.63 - \$0.50 = \$0.13 per share. The total difference is \$0.13 * 10,000 = \$1,300. His return is then calculated as (\$1,300 / \$5,000) * 100 = 26%. Therefore, his return is 26%.

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• 3.

### Which one of the following factors is most likely to cause a nation’s currency to appreciate on the foreign exchange market?

• A.

An increase in exports relative to imports

• B.

An increase in real interest rates in other countries

• C.

An increase in the nation’s foreign investments (assets purchased from foreigners)

• D.

Rapid domestic inflation

A. An increase in exports relative to imports
Explanation
An increase in exports relative to imports is most likely to cause a nation's currency to appreciate on the foreign exchange market. When a country's exports exceed its imports, there is a higher demand for the nation's currency as foreign buyers need to exchange their currency for the country's currency to purchase its goods and services. This increased demand for the currency drives up its value, leading to an appreciation in the currency's exchange rate.

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• 4.

### According to the CAPM (Capital Asset Pricing Model):

• A.

In a perfect market, all systematic risk can be eliminated through diversification

• B.

Investors are not willing to pay for unsystematic risk

• C.

The beta of an individual security is affected by a number of factors such as economic growth rate and change in inflation rate

• D.

The beta of a market depends on the slope of Securities Market Line

C. The beta of an individual security is affected by a number of factors such as economic growth rate and change in inflation rate
Explanation
The correct answer is that the beta of an individual security is affected by a number of factors such as economic growth rate and change in inflation rate. This is because beta measures the sensitivity of a security's returns to the overall market returns. Therefore, any factors that affect the overall market, such as economic growth and inflation, will also impact the beta of an individual security.

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• 5.

### Assume that the beta for Stock A is 1.20. Given a risk-free rate of 3 percent and an expected market return of 8 percent, the required rate of return for Stock A is:

• A.

9.00%

• B.

9.60%

• C.

11.00%

• D.

11.60%

A. 9.00%
Explanation
The required rate of return for a stock can be calculated using the Capital Asset Pricing Model (CAPM), which takes into account the risk-free rate, the stock's beta, and the expected market return. In this case, the risk-free rate is 3 percent and the expected market return is 8 percent. The beta for Stock A is given as 1.20. Using the CAPM formula, the required rate of return for Stock A can be calculated as follows: Required rate of return = Risk-free rate + (Beta * (Expected market return - Risk-free rate)) = 3% + (1.20 * (8% - 3%)) = 3% + (1.20 * 5%) = 3% + 6% = 9%. Therefore, the correct answer is 9.00%.

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• 6.

### A major step in assets allocation is:

• A.

Assessing the investor’s risk tolerance

• B.

Analyzing the company’s financial statements

• C.

Estimating the security’s beta

• D.

Identifying market anomalies

A. Assessing the investor’s risk tolerance
Explanation
A major step in asset allocation is assessing the investor's risk tolerance. This is important because it helps determine the appropriate mix of assets that align with the investor's comfort level for risk. By understanding the investor's risk tolerance, financial advisors can recommend a diversified portfolio that balances risk and return based on the individual's preferences and goals. This step is crucial in designing an investment strategy that suits the investor's needs and helps them achieve their financial objectives.

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• 7.

### As bonds approach maturity, call premium will tend to:

• A.

Increase

• B.

Decrease

• C.

Remain constant

• D.

Vary depending on market interest rate

B. Decrease
Explanation
As bonds approach maturity, the call premium, which is the amount paid to call or redeem the bond before its maturity date, tends to decrease. This is because as the bond gets closer to its maturity date, the issuer is less likely to call or redeem the bond early. Therefore, the premium paid for the option to call the bond decreases as the likelihood of the call decreases.

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• 8.

### An investment in a coupon bond will provide the investor with a return equal to the bond’s Yield to maturity at the time of purchase if:

• A.

The bond is not call for redemption at a price that exceeds its par value

• B.

All sinking funds payment are met in a prompt and timely fashion over the life of the issue

• C.

The reinvestment rate is the same as the bonds Yield to maturities

• D.

None of the above

C. The reinvestment rate is the same as the bonds Yield to maturities
Explanation
If the reinvestment rate is the same as the bond's yield to maturity, it means that any interest or coupon payments received from the bond can be reinvested at the same rate as the yield to maturity. This ensures that the investor can earn the same return as the bond's yield to maturity. If the reinvestment rate is lower than the yield to maturity, the investor may not be able to earn the same return. Therefore, if the reinvestment rate is the same as the bond's yield to maturity, an investment in a coupon bond will provide the investor with a return equal to the bond's yield to maturity at the time of purchase.

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• 9.

### A semiannual bond with a par value of \$1,000 bears a coupon rate of 5% and is currently selling at \$950. What is its current yield?

• A.

3.26%

• B.

2.63%

• C.

5.26%

• D.

6.23%

C. 5.26%
Explanation
The current yield is calculated by dividing the annual interest payment by the current market price of the bond. In this case, the annual interest payment is 5% of the par value, which is \$1,000, so it is \$50. The current market price of the bond is \$950. Dividing \$50 by \$950 and multiplying by 100 gives a current yield of 5.26%.

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• 10.

### The ________ of the call option has the right to _______ the underlying securities at the strike price.

• A.

• B.

• C.

• D.

Writer, sell

Explanation
The correct answer is "Buyer, buy." In a call option, the buyer has the right, but not the obligation, to buy the underlying securities at the strike price. The buyer pays a premium for this right, and if the market price of the underlying securities is higher than the strike price, the buyer can exercise the option and buy the securities at a lower price, thus making a profit.

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• 11.

### Which futures contracts are more likely to be cash-settled at maturity?

• A.

Oil and Gas futures

• B.

Gold futures

• C.

S&P Index futures

• D.

Corn futures

C. S&P Index futures
Explanation
S&P Index futures are more likely to be cash-settled at maturity because they are based on the performance of a stock market index rather than a physical commodity like oil, gas, gold, or corn. Cash settlement means that the contract is settled in cash rather than through the physical delivery of the underlying asset. Since stock market indices do not have a physical form, it is more practical to settle S&P Index futures contracts in cash.

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• 12.

### The spot AUD/USD is quoted with 1.0970/80 and the 3 months forward is 1.1150/70. What are the forward points?

• A.

18/19

• B.

180/190

• C.

190/200

• D.

200/210

B. 180/190
Explanation
The forward points can be calculated by subtracting the spot rate from the forward rate. In this case, the spot rate is 1.0970/80 and the forward rate is 1.1150/70. By subtracting the spot rate from the forward rate, we get 0.0180/0.0190. Therefore, the forward points are 180/190.

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• 13.

### An investor invests \$850,000 in a “Worst of” Equity Linked Note (ELN) in Company A, B, and C at a discounted price of 85.  At maturity, you are given the following information: Company A share closed at 20% above its strike price, Company B's share closed at 15% above its strike price and Company C's share closed at 10% below its strike price. The note is cash-settled. If the note is not converted then the investor should receive \$1,000,000 cash at maturity. Calculate the Profit/loss of the investor.

• A.

\$150,000

• B.

\$100,000

• C.

\$50,000

• D.

-\$100,000

C. \$50,000
Explanation
The investor invested \$850,000 in the ELN and the note is cash-settled. If the investor receives \$1,000,000 cash at maturity, it means there is a profit of \$150,000. However, since the note is not converted, the investor should receive \$1,000,000 minus the discounted price of \$850,000, which is \$150,000. Therefore, the profit/loss of the investor is \$150,000 minus the initial investment of \$850,000, which equals -\$700,000. However, the question asks for the profit/loss, so the answer is the absolute value of -\$700,000, which is \$700,000.

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• 14.

### A structured note with the Constant Proportion Portfolio Insurance technics allocates between a commodity fund and 5 years US treasury. Given that on day 1, the cushioning value of the note is 15% and the crush size of the commodity fund in one allocation period is 33.3%. Calculate the percentage allocation to the 5 years US treasury on day 1

• A.

55%

• B.

100%

• C.

75%

• D.

33.3%

A. 55%
Explanation
The percentage allocation to the 5 years US treasury on day 1 can be calculated by subtracting the cushioning value from 100% and then subtracting the crush size of the commodity fund. In this case, the calculation would be: 100% - 15% - 33.3% = 51.7%. However, since the options provided are in multiples of 25%, the closest option is 55%.

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• 15.

### Which of the following product is suitable for a conservative investor who does not want to risk his principal investment?

• A.

• B.

Dual Currency Investment (DCI)

• C.

Range accrual note

• D.

Accumulators

C. Range accrual note
Explanation
A range accrual note is suitable for a conservative investor who does not want to risk his principal investment because it offers a fixed interest rate within a specified range. This means that as long as the underlying asset stays within the predetermined range, the investor will receive the fixed interest rate. This provides a level of stability and protection for the principal investment, making it a suitable choice for conservative investors.

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• 16.

### Which of the following sentence describe the expense ratio?

• A.

It is an expression of the total operating expenses charged to the fund expressed as a percentage of the fund’s average asset for the year

• B.

It is the measurement of the invested return over the expenses charged to the fund for the accounting year

• C.

It is an expression of the ex-cost of the fund over total expense charge to the fund of the whole year

• D.

It is the ratio of the sale charge and performance fees over the total expenses charged to the fund for the year

A. It is an expression of the total operating expenses charged to the fund expressed as a percentage of the fund’s average asset for the year
Explanation
The expense ratio refers to the total operating expenses charged to a fund, expressed as a percentage of the fund's average assets for the year. This means that it measures the proportion of a fund's assets that are used to cover operating expenses. A higher expense ratio indicates higher costs for investors, as a larger portion of their investment is being used to cover expenses rather than generating returns.

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• 17.

### What does the tracking error of portfolio measures?

• A.

The percentage of return that is not attributable to movements in the bench mark index

• B.

The volatility of a portfolio’s return

• C.

The volatility of the difference between the portfolio return and the bench mark return

• D.

The relative volatility of a portfolio compare to the bench mark

A. The percentage of return that is not attributable to movements in the bench mark index
Explanation
The tracking error of a portfolio measures the percentage of return that is not attributable to movements in the benchmark index. This means that it quantifies the deviation between the portfolio's return and the benchmark return. A higher tracking error indicates a larger divergence from the benchmark, while a lower tracking error suggests a closer alignment with the benchmark.

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• 18.

### Which of the following is a responsibility of the trustee?

• A.

Ensuring that the fund manager manages the fund in accordance with the investment objective and restrictions states in the trust deed

• B.

Manage the fund on behalf of the unit holders

• C.

Creates factsheets and marketing material of the fund

• D.

Ensure that the fund manager takes legal ownership of the fund

A. Ensuring that the fund manager manages the fund in accordance with the investment objective and restrictions states in the trust deed
Explanation
The responsibility of the trustee is to ensure that the fund manager manages the fund in accordance with the investment objective and restrictions stated in the trust deed. This means that the trustee is responsible for overseeing the actions of the fund manager and ensuring that they are aligned with the goals and limitations set out in the trust deed. The trustee acts as a fiduciary, safeguarding the interests of the unit holders and ensuring that the fund is managed in their best interests. This involves monitoring the fund's performance, reviewing investment decisions, and ensuring compliance with legal and regulatory requirements.

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• 19.

### The main objective of REIT investment is to enable investors to achieve returns from:

• A.

Capital preservation of the properties

• B.

Recurring rental income

• C.

Leverage efficiency

• D.

Cost efficient

B. Recurring rental income
Explanation
The main objective of REIT (Real Estate Investment Trust) investment is to enable investors to achieve returns from recurring rental income. REITs are investment vehicles that own, operate, or finance income-generating real estate properties. By investing in REITs, investors can earn regular income through rental payments from tenants. This recurring rental income is a key source of returns for REIT investors, along with the potential for capital appreciation of the underlying properties. REITs provide a way for investors to access the real estate market and benefit from the steady cash flow generated by rental properties.

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• 20.

### An investor does not wish to top up any cash during the investment phase. Which of the following products is likely to be unsuitable then?

• A.

Private equity

• B.

Hedge funds

• C.

Oil futures

• D.

Stocks

C. Oil futures
Explanation
Oil futures can be a risky investment as they involve speculating on the future price of oil. If an investor does not want to top up any cash during the investment phase, it means they do not want to add more money to their investment if the value decreases. Oil futures can be highly volatile, and if the price of oil falls significantly, the investor may be required to add more cash to cover potential losses. Therefore, oil futures would likely be unsuitable for an investor who does not want to top up any cash during the investment phase.

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• 21.

### Your client has never invested overseas and is seeking your help on how he can dedicate part of his portfolio to international investments. He has no immediate liquidity needs for this dedicated portion of his portfolio. However, he would like to remain in SGD as his investment currency of denomination. He would like to know which of the following investments/combination of investments are suitable for him.   ETFs listed on SGX that mimic foreign broad markets indices e.g. S&P500 & FT100 Stocks listed on SGX with significant foreign exposure Foreign stocks with dual listing in SGX ADRs trading on SGX

• A.

He can invest in a combination of I and II

• B.

He can invest in a combination of II and III

• C.

He can invest in a combination of II and III

• D.

He can invest in a combination of I, II, III and IV

A. He can invest in a combination of I and II
Explanation
The client can invest in a combination of ETFs listed on SGX that mimic foreign broad market indices and stocks listed on SGX with significant foreign exposure. This allows the client to diversify his portfolio internationally while still remaining in SGD as his investment currency of denomination. The ETFs provide exposure to foreign markets, while the stocks listed on SGX with foreign exposure allow the client to invest in companies that have operations or significant exposure to foreign markets. By combining these two investment options, the client can achieve a balanced and diversified international portfolio.

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• 22.

### Covered Persons can encourage sophisticated HNW individual to use lending and credit facility by:

• A.

Providing the lowest interest rate available or even zero financing charges so as to ensure that client increase the amount invested

• B.

Offering capital protection, or guaranty or a derivative investment, which will lower the risk of financing

• C.

Highlighting the potential of using financing for incremental funding to make a healthy spread over borrowing cost, to invest in products which are optimistic about return even after factoring in the borrowing costs

• D.

Providing clean financing, that is allowing client to borrow without having any collateral to secured the loan extended

C. Highlighting the potential of using financing for incremental funding to make a healthy spread over borrowing cost, to invest in products which are optimistic about return even after factoring in the borrowing costs
Explanation
By highlighting the potential of using financing for incremental funding, the Covered Persons can show the HNW individual how they can make a healthy spread over borrowing costs. This means that even after factoring in the borrowing costs, the client can still expect a positive return on investment. This explanation suggests that the Covered Persons are emphasizing the benefits of using financing to invest in products that have an optimistic outlook for returns.

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• 23.

### The following criteria limit specifically the valuation of the collateral used in financing investment. For assets to be used as collateral for investment in Singapore, it must be:

• A.

Of higher in value than the value of the investment which it secured

• B.

Be liquid, unencumbered, assessable and of good credit quality

• C.

Denominated in a major international currencies (USD, EUR, GBP, CHF and JPY)

• D.

Back by guarantees of other financial institutions

B. Be liquid, unencumbered, assessable and of good credit quality
Explanation
The collateral used in financing investment in Singapore must meet several criteria. Firstly, it must have a higher value than the investment it is securing. This ensures that there is sufficient value to cover any potential losses. Secondly, the collateral must be liquid, meaning it can be easily converted into cash. This allows for quick and efficient resolution in case of default. Additionally, the collateral must be unencumbered, meaning it is not tied to any other debts or obligations. This ensures that the collateral can be solely used to secure the investment. The collateral must also be assessable, meaning its value can be accurately determined. Lastly, the collateral must have good credit quality, indicating that it is reliable and trustworthy. These criteria help to mitigate risk and protect the lender's interests.

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• 24.

### To establishing the size of the lending facility for an existing client, it is absolutely critical to establish:

• A.

The client’s personal net worth and personal objective to investing

• B.

The health and exposure of the client current businesses

• C.

The amount of excess, idle cash that is held by the client

• D.

The amount and quality of the collateral the client is willing to place

D. The amount and quality of the collateral the client is willing to place
Explanation
To establish the size of the lending facility for an existing client, it is crucial to consider the amount and quality of the collateral the client is willing to place. Collateral serves as security for the loan and can help mitigate the lender's risk. By assessing the value and quality of the collateral, the lender can determine the maximum amount they are willing to lend. This information is essential in establishing the appropriate size of the lending facility for the client.

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• Current Version
• Mar 19, 2023
Quiz Edited by
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• Mar 22, 2015
Quiz Created by
Jeremy Low

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