idx int32 | question_id string | context string | question string | options list | image_1 image | image_2 image | image_3 image | image_4 image | image_5 image | image_6 image | image_7 image | image_type string | answers string | explanation string | topic_difficulty string | question_type string | subfield string | language string | main_question_id string | sub_question_id string | is_arithmetic int32 | ans_image_1 image | ans_image_2 image | ans_image_3 image | ans_image_4 image | ans_image_5 image | ans_image_6 image | release string |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
500 | english_224_2_r1 | nan | Do Orion’s policies on asset valuation most likely comply with GIPS standards | [
"A. Yes",
"B. No, because valuations should be based on fair value",
"C. No, because settlement date accounting should be used for all transactions"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | B | Solution: B.
GIPS standards require the use of fair value for portfolio valuations | hard | multiple-choice | portfolio management | english | 224 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
501 | english_224_3_r1 | nan | Orion’s private equity disclosure least likely meets GIPS standards with respect to the | [
"A. Use of multiples",
"B. Timing of valuations",
"C. Construction of composites"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | C | Solution: C.
GIPS standards require the separation of composites by strategy as well as vintage year | hard | multiple-choice | portfolio management | english | 224 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
502 | english_224_4_r1 | nan | Does Lee’s proposed hierarchy of private equity valuation methodologies in Exhibit 1 most likely meet GIPS standards | [
"A. Yes",
"B. No, the correct order of methodologies is 2, 3, 1",
"C. No, the correct order of methodologies is 3, 2, 1"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | B | Solution: B.
According to GIPS standards, the correct order of valuation methodologies is:
1. Objective, observable quoted market prices for similar investments in active markets. (#2)
2. Quoted prices for identical or similar investments in markets that are not active. (#2)
3. Market-based inputs other than quoted pri... | hard | multiple-choice | portfolio management | english | 224 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
503 | english_224_5_r1 | nan | Lee is most likely correct with regard to which category of investments being subject to the real estate provisions of the GIPS standards | [
"A. Category 1",
"B. Category 3",
"C. Category 2"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | B | Solution: B.
B is correct. The GIPS standards specify the types of investments that are not considered real
estate, such as publicly traded REITs and private debt investments, both commercial and
residential.
A is incorrect because REITs are not subject to GIPs real estate provisions.
C is incorrect because commercial ... | hard | multiple-choice | portfolio management | english | 224 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
504 | english_224_6_r1 | nan | Which of the comments made by Lee is not consistent with GIPS verification standards | [
"A. Comment 1",
"B. Comment 2",
"C. Comment 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | C | Solution: C.
GIPS standards require that the firm being verified, and not the verification firm (i.e., Stowe),
maintain the data and information necessary for the calculations. | hard | multiple-choice | portfolio management | english | 224 | 6 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
505 | english_225_1_r1 | Laura Davidson is a financial advisory partner with Emerald Private Bank (Emerald). Emerald is
based in Dublin, Ireland, and manages money on behalf of high-net-worth individual investors,
foundations, and endowments. Davidson works in Emerald's private wealth group (PWG). This
group is tasked with meeting clients, dev... | Roche's observation regarding client education is least likely accurate for which client | [
"A. Kyra Conner",
"B. Alan O'Driscoll",
"C. Michael Donnelly"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | A | Solution: A.
Both Conner and Donnelly are exhibiting emotional biases. When advising emotionally biased investors, advisers should focus on explaining how the investment program being created affects such issues as financial security, retirement, or future generations rather than focusing on quantitative details. The r... | hard | multiple-choice | portfolio management | english | 225 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
506 | english_225_2_r1 | nan | Which behavioral investor type most likely describes Michael Donnelly | [
"A. Independent individualist",
"B. Active accumulator",
"C. Friendly follower"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | B | Solution: B.
Donnelly is entrepreneurial and created his own wealth. He lacks spending controls, does not
believe in the benefits of portfolio diversification, has a high-risk tolerance, and prefers high-risk
investments recommended by friends. These are all attributes of an active accumulator | hard | multiple-choice | portfolio management | english | 225 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
507 | english_225_3_r1 | nan | In Kelly's response to Davidson, she is most likely exhibiting | [
"A. illusion of control bias",
"B. gambler's fallacy",
"C. self-attribution bias"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | A | Solution: A.
The illusion of control bias can be encouraged by complex models. The illusion of control can lead
to analysts being overly confident when forecasting complex patterns, such as future interest rate movements. | hard | multiple-choice | portfolio management | english | 225 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
508 | english_225_4_r1 | nan | Which of the following biases least likely provides behavioral support for the factor being added to the stock selection model | [
"A. Framing",
"B. Availability",
"C. Hindsight"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | A | Solution: A.
Framing bias is a type of cognitive error in which a person answers a question differently based
on the way in which it is asked. This behavior is unlikely to explain the persistence of momentum.
Regret is a type of hindsight bias that can result in investors purchasing securities after a
significant run-u... | hard | multiple-choice | portfolio management | english | 225 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
509 | english_225_5_r1 | nan | Which of Kelly's recommendations is least likely to be effective | [
"A. Recommendation 1",
"B. Recommendation 2",
"C. Recommendation 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | screenshot | B | Solution: B.
It is recommended that investment committees be composed of people with differing skills and
experiences, not similar as Kelly has suggested. Decision makers are most likely to learn to control
harmful behavioral biases when they have repeated attempts at decision making and there is
good quality feedback ... | hard | multiple-choice | portfolio management | english | 225 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
510 | english_226_1_r1 | Brian O’Reilly is a capital markets consultant for the Tennessee Teachers’ Retirement System
(TTRS). O’Reilly is meeting with the TTRS board to present his capital market expectations for the
next year.
Board member Arnold Brown asks O’Reilly about the use of high-frequency (daily) data in
developing capital market exp... | With respect to his answer to Brown’s question, O’Reilly most likely is | [
"A. Correct",
"B. Incorrect, because high-frequency data are less sensitive to asynchronism",
"C. Incorrect, because high-frequency data tend to produce lower correlation estimates"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
O’Reilly’s answer is incorrect with respect to correlation estimates. High-frequency data are more sensitive to asynchronism across variables and, as a result, tend to produce lower correlation
estimates. | easy | multiple-choice | equity | english | 226 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
511 | english_226_2_r1 | nan | Is O’Reilly’s explanation of the anchoring trap most likely correct | [
"A. Yes",
"B. No, because the anchoring trap is the tendency to temper forecasts so that they do not appear extreme",
"C. No, because the anchoring trap is the tendency for the mind to give a disproportionate weight to the first information it receives on a topic"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
O’Reilly’s explanation of the anchoring trap is incorrect. The anchoring trap is the tendency of the mind to give disproportionate weight to the first information it receives on a topic. Initial
impressions, estimates, or data anchor subsequent thoughts and judgments. | easy | multiple-choice | equity | english | 226 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
512 | english_226_3_r1 | nan | Given the data in Exhibits 1 and 2, the covariance between Market 1 and Market 2 is closest to | [
"A. 0.0017",
"B. 0.0225",
"C. 0.0243"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The covariance between Market 1 and Market 2 is calculated as follows: M12 = (1.20 × 0.90 × 0.0225) + (0 × 0 × 0.0025) + [(1.20 × 0) + (0 × 0.90)] × 0.0022 = 0.0243. | hard | multiple-choice | equity | english | 226 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
513 | english_226_4_r1 | nan | Given O’Reilly’s forecasts for the European market, the expected long-term equity return using the Grinold-Kroner model is closest to | [
"A. 6.35%",
"B. 7.35%",
"C. 8.35%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
According to the Grinold-Kroner model, the expected long-term developed market equity return
is equal to the sum of the: 1) expected income return (dividend yield minus the percentage
change in the number of shares outstanding), 2) expected nominal earnings growth return
(long-term inflation rate plus long... | hard | multiple-choice | equity | english | 226 | 4 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
514 | english_227_1_r1 | Olli Nava is a junior economist for Globofunds Asset Management, a large investment
management company. She has been asked to produce capital market expectations for asset
classes in several different markets relevant to the Diversified Absolute Return Strategies Fund
(DARS), the company’s largest fund.
Nava is aware t... | How many of the statements made by Wiggins are accurate | [
"A. Zero",
"B. One",
"C. Two"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B
Statement 1 is correct. There is theoretical and empirical evidence that average long-term
government bond yields are directly linked to the trend rate of growth in an economy.
Statement 2 is incorrect. Over the long run, the capital gains component of equity returns is
directly linked to GDP. However, this... | hard | multiple-choice | economics | english | 227 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||||
515 | english_227_2_r1 | nan | Based on the data in Figure 1, the projected long-term domestic market equity return is closest to | [
"A. 4.5%",
"B. 5.0%",
"C. 7.5%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Real GDP growth = labor input growth + labor productivity growth = 0.8% + 1.2% = 2.0%
Nominal GDP growth = real GDP growth + inflation = 2.0% + 2.5% =4.5%
Long-term capital gains in equity markets = %Δ nominal GDP + %Δ profits/GDP + %Δ PE = 4.5% + 0%
+ 0% = 4.5%
Long-term total domestic market equity retur... | hard | multiple-choice | economics | english | 227 | 2 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
516 | english_227_3_r1 | nan | Based on the information in Figure 3, the market that is least likely to be able to pursue an independent monetary policy is developing | [
"A. Market A",
"B. Market B",
"C. Market C"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
A country cannot simultaneously have unrestricted capital flows, a fixed exchange rate, and an independent monetary policy because changes in monetary policy (e.g., interest rates) will likely cause capital flows, which will impact on the currency exchange rate. Hence, developing Market B is least likely t... | hard | multiple-choice | economics | english | 227 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
517 | english_227_4_r1 | nan | Based in the data in Figure 4, the forecast one year DOM/FOR foreign exchange rate, based on capital flows using the Dornbusch overshooting, is closest to | [
"A. 1.2825",
"B. 1.2889",
"C. 1.3215"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The Dornbusch overshooting mechanism states that immediate capital flows will strengthen the
currencies of countries with high expected returns to the point where the high return currency
will be expected to depreciate going forward by the return differential.
This is captured by the relation:
E(%ΔSVAR/FIX... | hard | multiple-choice | economics | english | 227 | 4 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
518 | english_227_5_r1 | nan | Based on purchasing power parity, Nava should forecast that, relative to the current spot rate, the DOM/FOR exchange rate is forecast to | [
"A. fall",
"B. rise",
"C. remain unchanged"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Purchasing power parity states that high inflation currencies are expected to weaken. If the
domestic country inflation is expected to be higher than inflation in Country X, then the domestic currency is expected to weaken. This means the DOM/FOR quote will rise as there will be more DOM units per FOR unit... | hard | multiple-choice | economics | english | 227 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
519 | english_228_1_r1 | Earl Warren is an investment strategist who develops capital market expectations for an
investment firm that invests across asset classes and global markets. Warren’s approach to
economic forecasting utilizes a structural model in conjunction with a diffusion index to
determine the current phase of a country’s business... | Warren is most likely to make significant adjustments to her estimate of the future growth trend for which of the following countries | [
"A. Country B only",
"B. Country C only",
"C. Countries B and C"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Country C is a developing market. Less-developed markets are likely to be undergoing more rapid structural changes, which may require the analyst to make more significant adjustments relative to past trends. | easy | multiple-choice | economics | english | 228 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||||
520 | english_228_2_r1 | nan | Based on Exhibit 1, what capital market effect is Country C most likely to experience in the short-term | [
"A. Unemployment starts to fall but the output gap remains negative",
"B. Monetary policy becomes restrictive",
"C. The output gap is large"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Warren’s model predicts that Country C’s business cycle is currently in the late upswing phase. In
the late expansion phase, interest rates are typically rising as monetary policy becomes more
restrictive. | easy | multiple-choice | economics | english | 228 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
521 | english_228_3_r1 | nan | What is the likely short-term impact of capital flows on the exchange rate? The exchange rate 𝑆 𝑑/𝑓(INR is the domestic currency) will mos likely | [
"A. rise",
"B. fall",
"C. remain unchanged"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The exchange rate Sd/f (INR is the domestic currency) will most likely rise because the Indian
currency versus the foreign currency will depreciate. Both the decrease in short-term rates and the likely decrease in the equity premium are likely to induce short-term capital outflows. This
should put signific... | easy | multiple-choice | economics | english | 228 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
522 | english_228_4_r1 | nan | Which of Warren’s statements with respect to the impact of monetary and fiscal policies on the yield curve is least likely correct | [
"A. Statement 1",
"B. Statement 2",
"C. Statement 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
If monetary policy is restrictive and fiscal policy is expansionary, the yield curve is flat and the
economic implications are less clear. | hard | multiple-choice | economics | english | 228 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
523 | english_228_5_r1 | nan | Based on the Exhibit 3, using the risk premium approach to calculate the expected return of 10-year BBB rated corporate bond | [
"A. 2.5%",
"B. 3.5%",
"C. 5.0%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The expected return of 10-year BBB rated corporate bond at issue is
2.5%+1%+0.85%+0.65%=5.0%. | hard | multiple-choice | economics | english | 228 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
524 | english_228_6_r1 | nan | Based on the Exhibit 4, estimate the expected return from the industrial sector properties | [
"A. 4.6%",
"B. 7.1%",
"C. 10.36%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The expected change in the cap rate is 4.45%−4.6%
4.6% = −3.26%;
E(R) = Cap Rate + NOI growth rate − %ΔCap Rate = 4.6% + 2.5%− (−3.26%) = 10.36%. | hard | multiple-choice | economics | english | 228 | 6 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
525 | english_229_1_r1 | Eunice Fox is head of Strategic Asset Allocation at Windsong Wealth Management, Inc. (WWM).
WWM’s clients include pension funds, foundations, sovereign funds, high-net-worth individuals,
and family trusts. Fox is in the process of hiring an asset allocation analyst and has just completed
interviewing two candidates, Am... | Based on the information in Exhibit 1, Lennon’s economic net worth (in $ millions) is closest to | [
"A. 4.75",
"B. 5.75",
"C. 1.25"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
B is correct. | easy | multiple-choice | portfolio management | english | 229 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
526 | english_229_2_r1 | nan | Which of the sub-portfolios dedicated to Lennon’s aspirational goals is in the best position to tolerate the greatest risk exposure? The one dedicated to | [
"A. Everett’s education",
"B. Marshall’s trust",
"C. University endowment"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
A is correct. Both of the funds planned for the trust and university endowment represent an
imminent need (immediate for the trust and within two years for the endowment). The funding
needed for education, however, extends over the longest time horizon, possibly as long as 8 to 10
years. Thus, its sub-port... | hard | multiple-choice | portfolio management | english | 229 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
527 | english_229_3_r1 | nan | The behavioral bias that Lennon’s past investment experience illustrates is best described as | [
"A. self-control bias",
"B. mental accounting bias",
"C. loss-aversion bias"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
C is correct. The behavioral bias illustrated in Lennon’s past investment experience was loss-aversion bias: Losses are perceived as more painful than the satisfaction of equivalent gains,
and assets that have incurred losses but have little chance of recovery are retained because the
pain of recognizing t... | easy | multiple-choice | portfolio management | english | 229 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
528 | english_229_4_r1 | nan | The most appropriate statement in regards to approaches to asset allocation by institutions is made by | [
"A. Kelly, regarding their goals-based allocations",
"B. Trainor",
"C. Kelly, regarding the Sharpe ratio and modeling of liabilities"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
A is correct. Kelly’s second comment regarding institutions’ goals-based allocations is correct.
Some institutions (e.g., insurance companies) segment their general account assets into
sub-portfolios associated with specific lines of business or blocks of liabilities, with each
sub-portfolio having its own... | easy | multiple-choice | portfolio management | english | 229 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
529 | english_229_5_r1 | nan | In the candidates’ responses to Fox regarding the relevant characteristics of asset classes, the statement that is least accurate is | [
"A. Kelly’s regarding correlations",
"B. Trainor’s",
"C. Kelly’s regarding rebalancing"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
B is correct. Although Trainor is correct that asset classes should be diversifying, low pairwise
correlations with other asset classes is not sufficient. An asset class may be highly correlated with
some linear combination of the other asset classes even when pairwise correlations are not high.
Both of Ke... | hard | multiple-choice | portfolio management | english | 229 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
530 | english_229_6_r1 | nan | In the general comments about asset classes that Fox noted, the most accurate comment is the one regarding | [
"A. the overlap of sources of risk",
"B. emerging markets",
"C. the return premiums from asset classes"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
C is correct. Asset classes should have a return premium based on an underlying market risk
factor (e.g., beta) and not any underlying skill of the investor. Strategies, on the other hand,
involve combinations of asset classes with the objective of earning a return based on investment skill. | hard | multiple-choice | portfolio management | english | 229 | 6 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
531 | english_230_1_r1 | The Azur fund is a sovereign wealth fund valued at USD792 billion located in the country of
Azurbikan. Azurbikan is a member of OPEC petroleum exporting countries with the main funding
source of the fund being oil exports.
Noir Rashwan, is the managing director ofthe fund and is currently meeting with the
board of dire... | Which of the following statements regarding the proposed change in strategic asset allocation for the Azur fund is least accurate | [
"A. Due to the large size of the fund, it may not be possible to find enough alternative investments to meet the proposed strategic asset allocation.",
"B. The percent allocated to alternative investments is acceptable given the low liquidity needs, long time horizon, and desire for increased return.",
"C. The ... | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
For institutional investors like a large sovereign wealth fund with a long-time horizon and little
liquidity needs, a portfolio comprised largely of non-traditional investments where manager skill
and an illiquidity premium can be earned is acceptable.
The problem large institutional investors may run into... | easy | multiple-choice | portfolio management | english | 230 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
532 | english_230_2_r1 | nan | The behavioral bias displayed by Minkara, the president of the pharmaceutical company, is most likely described as | [
"A. recency bias",
"B. loss aversion",
"C. mental accounting"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Minkara is displaying recency bias (also referred to as representative bias) when investors attach
more importance to more recent data. In this case, he is placing more emphasis on the recent
run up in real estate prices and equating that with similar events that led to the last global
recession. Loss aver... | hard | multiple-choice | portfolio management | english | 230 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
533 | english_230_3_r1 | nan | The after-tax standard deviation on the sale of the USD 100 million stake in the hotel is closest to | [
"A. 10.4%",
"B. 13.6%",
"C. 16.3%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The after-tax standard deviation = pre-tax standard deviation (1 - t) = 13% (1- 0.2)= 10.4%.
After-tax risk and return can signifìcantly impact the efficient frontier; therefore, the post-tax
standard deviation should be used as an input into the asset allocation process. | hard | multiple-choice | portfolio management | english | 230 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
534 | english_230_4_r1 | nan | After implementing the new strategic asset allocation, the pre-tax rebalancing range for real estate is now 5% to 15%. The after-tax rebalancing range for the sovereign wealth fund's allocation to real estate is closest to | [
"A. 7.25% to 12.75%",
"B. 5.00% to 15.00%",
"C. 3.75% to 16.25%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Pre-tax allowable deviation is 15% - 10% = 5% or 10% - 5% = 5%.
Post-tax deviation = 5% / (1 - t) = 5% / (1 -0.2) = 6.25% for a range of 3.75% to 16.25% | hard | multiple-choice | portfolio management | english | 230 | 4 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
535 | english_230_5_r1 | nan | The statements made by the Sultan regarding reducing the supply of oil reflect which behavioral bias | [
"A. Framing",
"B. Home bias",
"C. Illusion of control"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
He is exhibiting illusion of control in that he believes OPEC can control the world supply of oil.
Changes in the economic environment can lead to major changes for optimization of asset
allocation as changes in oil and gas production have significantly changed over the last decades.
Home bias has to do wi... | hard | multiple-choice | portfolio management | english | 230 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
536 | english_230_6_r1 | nan | Based on the short-term capital market expectations, which of the following tactical asset allocations would least likely be implemented | [
"A. Increase high yield bonds and reduce real estate",
"B. Decrease long-term bonds and reduce real estate",
"C. Increase equities and increase corporate bonds"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Since long-term rates are not projected to increase, there would be no need to decrease the
allocation to long-term bonds. The increase in short-term rates will make cash instruments like
money market funds more attractive; high yield spreads mean corporate bond prices are
undervalued, allowing for opportu... | hard | multiple-choice | portfolio management | english | 230 | 6 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
537 | english_231_1_r1 | Angelica Mukasa was recently hired as the CFO of Channel, a leading property and casualty
insurer based in a developed European country. Channel is financially strong, and the industry
outlook is stable. Channel’s profitability is high, primarily driven by robust underwriting results
and favorable investment returns on... | Which allocation in Exhibit 1 is most appropriate for Channel’s insurance reserve assets | [
"A. Allocation 1",
"B. Allocation 2",
"C. Allocation 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
P&C insurers such as Channel are primarily focused on matching assets to the projected,
probabilistic cash flows of the risks they are underwriting. Therefore, fixed-income assets are
likely the largest component of their asset base. An allocation to higher risk assets, such as equity,
is likely much small... | hard | multiple-choice | alternative investments | english | 231 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
538 | english_231_2_r1 | nan | Which approach is least relevant to a strategic allocation for Channel’s pension plan | [
"A. Shortfall risk",
"B. Heuristic approach",
"C. Surplus optimization"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
A heuristic approach is least relevant. Heuristics refers to rules that provide a reasonable but not
necessarily optimal solution. Some investors may skip the various optimization techniques and
simply adopt an asset allocation mix (such as the “120 minus your age” rule or a 60/40
stock/bond mix).
Shortfal... | hard | multiple-choice | alternative investments | english | 231 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
539 | english_231_3_r1 | nan | Which asset class in Exhibit 2 is most likely to be considered for inclusion by Channel’s pension plan | [
"A. Global real estate (REITs)",
"B. Emerging markets equities",
"C. Global high-yield corporate bonds"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A. Global real estate is most likely to be considered for inclusion by Channel’s pension plan for any of the following reasons:
• Asset classes should be mutually exclusive for the purpose of asset allocation. Overlapping asset classes will reduce the effectiveness of asset allocation in controlling risk. Thu... | hard | multiple-choice | alternative investments | english | 231 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
540 | english_231_4_r1 | nan | Which of Pai’s statements is most appropriate for the pension plan, given Channel’s current market circumstances | [
"A. Statement 1",
"B. Statement 2",
"C. Statement 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A. The change to the expected cash contributions to the pension fund, if adopted, would materially affect the fund’s asset allocation strategy. The odds of that happening, however, appear low at present according to Mukasa. At this point, this indicates a need for the pension plan to increase sensitivity to l... | hard | multiple-choice | alternative investments | english | 231 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
541 | english_232_1_r1 | Preston Remington is the managing partner of Remington Wealth Partners. The firm manages
high-net-worth private client investment portfolios using various asset allocation strategies.
Analyst Hannah Montgomery assists Remington.
Remington and Montgomery’s first meeting of the day are with a new client, Spencer
Shipman,... | Which of the portfolios provided in Exhibit 1 has the highest probability of enabling Shipman to meet his goal for the vacation home | [
"A. Portfolio 1",
"B. Portfolio 2",
"C. Portfolio 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Portfolio 2 has the highest probability of enabling Shipman to meet his goal for the vacation
home. All three of the portfolios’ expected returns over the next year exceed the 6.0% (see
calculations below) required return threshold to avoid reducing the portfolio. However, on a
risk-adjusted basis, Portfol... | hard | multiple-choice | portfolio management | english | 232 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
542 | english_232_2_r1 | nan | When discussing asset allocation corridors with Shipman, which of Remington’s and Montgomery’s statements is the least accurate? The one regarding: | [
"A. volatility",
"B. correlation",
"C. transaction costs"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The statement regarding volatility is the least accurate. The higher the volatility of the rest of the
portfolio, excluding the asset class being considered, the more likely a large divergence from the
strategic asset allocation becomes, which should point to a narrower optimal corridor, all else
being equ... | hard | multiple-choice | portfolio management | english | 232 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
543 | english_232_3_r1 | nan | The model on which Winfield’s current asset allocation is based is best characterized as | [
"A. mean–variance optimization",
"B. Black–Litterman",
"C. reverse optimization"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Winfield’s current asset allocation is most likely based on the Black–Litterman model. Black–
Litterman starts with the excess returns produced from reverse optimization, which commonly
uses the observed market-capitalization value of the assets or asset classes of the global
opportunity set. It then alter... | hard | multiple-choice | portfolio management | english | 232 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
544 | english_232_4_r1 | nan | In Remington and Montgomery’s discussion with Winfield on resampling, Montgomery’s comment is most likely | [
"A. correct",
"B. incorrect regarding estimation errors",
"C. incorrect regarding diversification of asset allocations"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Montgomery’s comment about the criticisms of resampling is incorrect regarding diversification
of asset allocations. Risker asset allocations are over-diversified, not under-diversified. The
comment is correct with regard to estimation errors because the asset allocations do inherit the
estimation errors i... | hard | multiple-choice | portfolio management | english | 232 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
545 | english_232_5_r1 | nan | In describing heuristics and other modeling techniques, Montgomery is most accurate with respect to | [
"A. Comment 1",
"B. Comment 2",
"C. Comment 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The 1/N rule asset allocation heuristic involves equally weighting allocations to assets; 1/N of
wealth is allocated to each of N assets available for investment at each rebalancing date. All
assets are treated as indistinguishable in terms of mean returns, volatility, and correlations | hard | multiple-choice | portfolio management | english | 232 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
546 | english_233_1_r1 | Teddy Brealer is the president of Vitting University (VU). VU just successfully completed a
fundraising campaign of $300 million that significantly increased the funds in the endowment
(Exhibit 1).
<image_1>
At a meeting with VU’s board of regents, Brealer proposes that the endowment should fund
a new capital improveme... | Which asset allocation approach best describes the asset allocation choice suggested by Black to the board | [
"A. Mean–variance optimization",
"B. Black-Litterman",
"C. Liability-relative"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Investment in fixed-income securities specifically to generate cash distributions to offset the cash
disbursements necessary for maintaining university costs in excess of tuition revenue is a
liability-relative approach.
A is incorrect because a mean–variance approach is an asset-only approach that does no... | easy | multiple-choice | portfolio management | english | 233 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
547 | english_233_2_r1 | nan | Black’s suggestion to the board in regard to the asset weightings in the endowment portfolio is best described as allowing for an asset allocation that is | [
"A. dynamic",
"B. tactical",
"C. indexed"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The ability to deviate from target portfolio weightings for short-term market opportunities is an example of tactical asset allocation, which is an active strategy. Dynamic asset allocation is a
long-term active strategy, and indexing is a passive strategy | easy | multiple-choice | portfolio management | english | 233 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
548 | english_233_3_r1 | nan | The process for creating and implementing the investment policy statement (IPS) by the University Planning and Priorities Committee (UPPC) most likely follows best governance practices in regard to | [
"A. transparency of decision rights for approving a proposed asset allocation",
"B. expertise for developing the asset allocation",
"C. governance audit reporting"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The UPPC must seek the board of regents’ approval for any asset allocation the committee
proposes to implement. Consequently, the decision rights in regard to the asset allocation
process are very transparent, which is consistent with best governance practices. Governance
audits being on an “as requested” ... | easy | multiple-choice | portfolio management | english | 233 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
549 | english_233_4_r1 | nan | When addressing the University Planning and Priorities Committee, Black’s preferred approach for dealing with the additional allocation issues is most likely | [
"A. correct",
"B. incorrect because it is unable to address rebalancing costs",
"C. incorrect because it is unable to address distributions that are dependent on parameters other than expected return and volatility"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Black’s preferred approach for dealing with the additional asset allocation issues is the use of
Monte Carlo simulation. Monte Carlo simulation can accommodate many future possible
scenarios, such as portfolio rebalancing costs and non-normal distributions (i.e., distributions that require more than expect... | hard | multiple-choice | portfolio management | english | 233 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
550 | english_234_1_r1 | Olivinia is an oil-rich state in the country of Puerto Rinaldo, which uses the US dollar as its official
currency of exchange. In 1981, the state’s legislature created the Olivinia Heritage Fund (OHF) to
collect a portion of the state’s non-renewable resource revenue and invest it on behalf of future
generations. James... | During Phase 1, the most significant constraint on OHF’s asset allocation choices was the result of | [
"A. liquidity needs",
"B. asset size",
"C. regulation"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | chart | C | Solution: C.
During Phase 1, OHF was restricted to investing in only cash and high-grade debt instruments. | easy | multiple-choice | portfolio management | english | 234 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||||||
551 | english_234_2_r1 | nan | In Phase 3, the most likely change in the constraints facing OHF’s ability to undertake asset allocation arose from an increased need for | [
"A. governance resources",
"B. Liquidity",
"C. risk reduction"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | chart | A | Solution: A.
In Phase 3, 40% of assets were to be invested in high-yield bonds, real estate, private equity, and
hedge funds, which were to be managed externally. Each external manager was limited to
approximately $75 million of the fund’s assets. As indicated in the table below, the number of
external managers require... | easy | multiple-choice | portfolio management | english | 234 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
552 | english_234_3_r1 | nan | Based on Exhibit 2, compared with the strategic asset allocation, the incremental return added to the fund through tactical asset allocation was closest to | [
"A. 0.39%",
"B. 0.53%",
"C. 0.13%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | chart | B | Solution: B. By underweighting investment-grade bonds and real estate and overweighting public equity and high-yield bonds, the TAA strategy added 0.53% to the return of the fund, as shown below. <ans_image_1> <ans_image_2> | hard | multiple-choice | portfolio management | english | 234 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
553 | english_234_4_r1 | nan | The most appropriate conclusion that can be drawn from Exhibit 3 is that | [
"A. management’s risk–return objectives may not have been achieved with the TAA portfolio",
"B. the current portfolio is a corner portfolio",
"C. the Sharpe ratios for the policy portfolio and the TAA portfolio are the same"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | chart | A | Solution: A.
The Sharpe ratio is the slope of the line drawn from the risk-free rate to a particular portfolio.
The two portfolios of interest are the policy portfolio and the TAA portfolio because both are
indicated as being efficient. The diagram to the right indicates that the policy portfolio/risk-free
combination ... | medium | multiple-choice | portfolio management | english | 234 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
554 | english_235_1_r1 | Joenia Dantas is a financial risk manager for Alimentos Serra (AS), a Brazilian manufacturer and
exporter of soybean-based food products. AS is a privately held corporation, wholly owned by
Cesar Serra. Recently, AS took out a R25,000,000, four-year, floating-rate bank loan requiring
semi-annual payments of interest ba... | Dantas’ explanation of her plan to convert the four-year loan from floating to fixed is most likely | [
"A. correct",
"B. incorrect, because the fixed loan rate will be 15.30%",
"C. incorrect, because the swap should be entered to pay SELIC"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Converting a floating-rate loan to a fixed-rate loan requires entering into a plain-vanilla
(fixed-for-floating) interest rate swap on the pay-fixed side. The swap should have the same
maturity, the same payment frequency, and the same floating interest rate index as the loan and
its notional principal sho... | hard | multiple-choice | derivatives | english | 235 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
555 | english_235_2_r1 | nan | Dantas’ characterization of the interest rate swap as a hedge for the bank loan is most likely | [
"A. correct",
"B. incorrect, because the swap increases the cash flow risk of AS",
"C. incorrect, because the swap increases the market value risk of AS"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The original loan is floating rate. A floating rate loan has very low duration and therefore little
market value risk. It might, as Serra suggests, pose a cash flow risk if the firm is not able to handle
the increase in loan payments associated with an increase in market interest rates. Using an
interest r... | hard | multiple-choice | derivatives | english | 235 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
556 | english_235_3_r1 | nan | The duration of the interest rate swap described in Exhibit 1 is closest to | [
"A. -2.41 years",
"B. -2.66 years",
"C. -2.91 years"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The duration of the pay-fixed position in an interest rate swap is equal to the duration of a
floating rate bond with the same payment frequency minus the duration of a fixed rate bond with
coupon rate equal to the fixed rate and maturity equal to the swap maturity. The duration of the
floating rate bond i... | hard | multiple-choice | derivatives | english | 235 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
557 | english_235_4_r1 | nan | In order to reduce the duration of his bond portfolio to the desired level, Serra will enter into a pay-fixed swap position with a notional principal closest to | [
"A. R17.5 million",
"B. R27.5 million",
"C. R42.0 million"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A. <ans_image_1> | hard | multiple-choice | derivatives | english | 235 | 4 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
558 | english_235_5_r1 | nan | If AS enters into the yen-real currency swap with a notional principal of ¥1.2 billion (R40.0 million), net yen interest expense for each year is closest to | [
"A. ¥28.80 million",
"B. ¥85.20 million",
"C. ¥114.00 million"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
If AS borrows in yen, it will borrow ¥1.2 billion (=R30,000,000 × ¥40/R). In order to hedge this, it
will enter into a currency swap with a notional principal of ¥1.2 billion/R30,000,000. It will
receive 7.10% in yen from the swap and pay 9.50% in yen on the loan, for a net payment of 2.40%
(on ¥1.2 billio... | hard | multiple-choice | derivatives | english | 235 | 5 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
559 | english_236_1_r1 | Omega Analytics provides risk management consulting for institutional and individual clients.
Rachel Osborne, is an investment advisor for Omega who works with the firm’s larger
accounts. She is considering derivative strategies for several clients.
• HMM Foundation owns 30,000 shares of Nasdaq 100 Index Tracking Stock... | If the HHM Foundation enters into the collar recommended by Osborne and the market value of QQQQ is $33 at the expiration of the options, the profit from the position would be closest to | [
"A. $85,500",
"B. $90,000",
"C. $94,500"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The profit per collar = ST + max(0, X1-ST)-max(0, ST-X2)-S0-(p0-c0), where:
S0, ST = price of underlying at time 0 and time T
X1 = exercise price of put, X2 = exercise price of call;
p0 = price of put at time 0; c0 = price of call at time 0
Profit = 33+0-0-30-0.15 = 2.85
Total profit = $2.85x30,000 = $85,5... | hard | multiple-choice | derivatives | english | 236 | 1 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
560 | english_236_2_r1 | nan | If the HHM Foundation enters into the collar recommended by Osborne, the maximum potential profit from the position at expiration of the options is closest to | [
"A. $145,500",
"B. $150,000",
"C. $154,500"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The maximum profit on the collar occurs when the short call expires at the money, i.e., QQQQ =
$35.
Max profit per collar = ST + max (0, X1-ST)-max (0, ST-X2)-S0-(p0-c0)
Max profit per collar = 35+0-0-30-.15 = $4.85
Total max profit = 4.85×30,000 = $145,500 | hard | multiple-choice | derivatives | english | 236 | 2 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
561 | english_236_3_r1 | nan | At expiration of the DJX call options, the maximum potential profit from the bull spread strategy recommended for Valentine is closest to | [
"A. $6,000",
"B. $26,000",
"C. $60,000"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
A bull spread combines a long call at a lower exercise price (X1 = 88) and a short call at a higher
exercise price (X2 = 94). The cost of X1 is c1 = $4.40 and the cost of X2 is c2 = +$1.00.
The maximum profit per contract = (X2 – X1 – c1 + c2) × 100 = ($94 – $88 – $4.40 + $1.00) × 100
= 2.60 × 100 = $260; ... | hard | multiple-choice | derivatives | english | 236 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
562 | english_236_4_r1 | nan | The delta of Valentine’s bull spread just before contract expiration, if the price of DJX is $93, will most likely be in the range of | [
"A. 0.00 to 0.20",
"B. 0.40 to 0.60",
"C. 0.80 to 1.00"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
If the price of DJX= $93, then the long call (exercise price = $88) will be in the money and its delta
would be close to 1.0. The short call (exercise price = $94) will be out of the money and (very
close to expiration) its delta would be close to 0.0. The overall delta is then very close to 1.0. | hard | multiple-choice | derivatives | english | 236 | 4 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
563 | english_237_1_r1 | Garrison Investments is a money management firm focusing on endowment management for
small colleges and universities. Over the past 20 years, the firm has primarily invested in U.S.
securities with small allocations to high quality long-term foreign government bonds. Garrison’s
largest account, Point University, has a ... | With regard to Garrison’s proposal to generate temporary exposure to European equities in the Point University portfolio, determine the appropriate position in the mid-cap equity index futures. | [
"A. Buy 417 contracts",
"B. Sell 298 contracts",
"C. Sell 417 contracts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C. In order to adjust the allocation of an existing equity portfolio, two futures contracts are needed.
The first contract should have an underlying equal (or highly similar) to the existing equity
exposure to be reduced. This contract is sold to reduce a portion of the existing portfolio to a
zero beta, effe... | easy | multiple-choice | equity | english | 237 | 1 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |||
564 | english_237_2_r1 | nan | Garrison’s analysis to determine a hedge ratio for the HI exposure is best described as producing a | [
"A. cross hedge",
"B. transaction hedge",
"C. minimum variance hedge"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Regressing the foreign market return measured in the investor’s domestic currency versus the
foreign currency value produces a minimum variance hedge ratio, and the intent is to minimize
the volatility of the return to the domestic investor. It jointly minimizes the volatility of the
foreign market and cur... | hard | multiple-choice | equity | english | 237 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
565 | english_237_3_r1 | nan | Which of the following is the correct short position in yen the managers at Garrison will execute to implement a minimum variance hedge for a JPY 200,000,000 currency exposure | [
"A. 40 million",
"B. 160 million",
"C. 240 million"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The slope coefficient for a regression of the foreign asset returns measured in the investor’s
domestic currency (USD) is the MVHR. JPY 200,000,000 × 0.8 = JPY 160,000,000. | hard | multiple-choice | equity | english | 237 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
566 | english_237_4_r1 | nan | Which of the statements regarding diversifying into foreign markets is most accurate | [
"A. Statement 1",
"B. Statement 2",
"C. Both statements"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The MVHR is based on regressing historical returns and its future performance is therefore less predictable and riskier. The relationship (correlation) can change. Buying calls on the USD is equivalent to buying puts on the yen and the statement correctly describes the consequences of a protective put on t... | hard | multiple-choice | equity | english | 237 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
567 | english_238_1_r1 | Declan Kaufman is an investment manager working at New Wave Advisers, an investment firm
specializing in providing innovative derivatives solutions to institutional investors and
sophisticated individuals.
Ariadne Burch is corporate treasurer of a large European retailer, looking to expand
operations into the United St... | If Burch’s firm raises USD financing through a cross currency basis swap, the cost of borrowing verses a direct USD loan would be | [
"A. 20 bps lower",
"B. 10 bps lower",
"C. 20 bps higher"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Soluton: B. If Burc
h’s firm borrows directly in USD, her firm will pay the USD reference rate +100bps.
If Burch’s firm uses the cross
currency basis swap to borrow USD the firm will:
• Borrow EUR directly at EUR reference rate +70bps.
• Swap the Euros for USD under the swap, and in doing so agreeing to pay the USD ref... | hard | multiple-choice | derivatives | english | 238 | 1 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
568 | english_238_2_r1 | nan | Using the data in Figure 1, the approximate gain or loss for a 1% change in volatility, under the variance swap, is closest to | [
"A. $14.",
"B. $263",
"C. $10,000"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C. The approximate gain or loss for a 1% change in volatility for a variance
swap is the swap’s vega
notional. The vega notional is related to variance notional through the formula: <ans_image_1> | hard | multiple-choice | derivatives | english | 238 | 2 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
569 | english_238_3_r1 | nan | Using the data in Figure 1, the payoff to the variance buyer, from the variance swap, at the end of its life is closest to | [
"A. $526",
"B. $21,000",
"C. $800,000"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Payoff to variance buyer = variance notional × (realized variance – variance strike) = 263 × (212
–192) = $21,040 | hard | multiple-choice | derivatives | english | 238 | 3 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
570 | english_238_4_r1 | nan | How many of Kaufman’s comments regarding the payoff behavior of a variance swap are most accurate | [
"A. Zero",
"B. One",
"C. Two"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Both comments are accurate comments. The value of a variance swap becomes less dependent
on implied volatility and more dependent on realized volatility as time passes. The payoff of
variance swaps is convex in relation to volatility due to the nonlinear (squared) nature of variance
in relation to volatili... | hard | multiple-choice | derivatives | english | 238 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
571 | english_239_1_r1 | Gari Dimeola is an investment advisor specializing in derivatives strategies in equity, fixed income,
and currency markets.
Dimeola is approached by his client, Ryan Karunathilike, for advice regarding option
strategies. Karunathilike is a U.K. domiciled client who wants to hedge a short position in Euros
(EUR) over th... | How many of the strategies in Figure 1 meet the objective of Karunathilike | [
"A. Zero",
"B. Two",
"C. All three"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
The U.K. investor is short EUR, so they will lose on this position when the Euro strengthens
against GBP. When the EUR strengthens against GBP the EUR/GBP rate will fall since it will cost
less EUR to b uy GBP (recall that the curriculum presents currency quotes as variable or fixed).
Hence, Strategy 1 and... | hard | multiple-choice | derivatives | english | 239 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
572 | english_239_2_r1 | nan | Which of Karunathilike’s options strategies in Figure 2 is most likely a short straddle position | [
"A. Strategy A",
"B. Strategy B",
"C. Strategy C"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
A short straddle position is created by selling a call and a put with the same underlying details.
The short straddle will have a delta that is close to zero when the options are at the money, but
will have negative gamma since it is a short option position. Short options also have a positive
theta and neg... | hard | multiple-choice | derivatives | english | 239 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
573 | english_239_3_r1 | nan | Based on the Greek exposures displayed in Figure 2, Strategy B is most likely a | [
"A. short straddle",
"B. short put",
"C. bull spread"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
A short put will have a positive delta since it loses value as the underlying asset price falls, and a
negative gamma since it is a short option position. It also has positive theta since short options
profit as time decay reduces the value of the option. It will also have negative vega since an
increase i... | hard | multiple-choice | derivatives | english | 239 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
574 | english_239_4_r1 | nan | The most appropriate options strategy, given Karunathilike’s view on the implied volatility profile of GHS Corp, is to sell | [
"A. out-the-money calls and buy out-the-money puts",
"B. out-the-money puts and buy in-the-money puts",
"C. at-the-money calls and buy at-the-money puts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
A volatility smile occurs when both out-the money (OTM) puts and OTM calls have higher implied volatility than at-the-money (ATM) options. A volatility smirk occurs when OTM puts have higher implied volatility but OTM calls have lower implied volatility. Since options prices decline as implied volatility f... | hard | multiple-choice | derivatives | english | 239 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
575 | english_240_1_r1 | A US bond portfolio manager Tony Kalman wants to hedge a long position in a 10-year Treasury
bond against a potential rise in domestic interest rates.
Besides, he observes that the VIX term structure is upward sloping. In particular, the VIX is at
19.60, the front-month futures contract trades at 21.50, and the second-... | Regarding his view on domestic interest rates, Kalman would most likely | [
"A. sell fixed-income (bond) futures",
"B. enter a receive-fixed 10-year interest rate swap",
"C. sell a strip of 90-day Eurodollar futures contracts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The portfolio manager would most likely use a longer-dated fixed-income (bond) futures contract
to hedge his interest rate risk exposure. The choice of the hedging instrument, in fact, will
depend on the maturity of the bond being hedged. Interest rate futures, like 90-day Eurodollar
futures, have a limite... | easy | multiple-choice | derivatives | english | 240 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
576 | english_240_2_r1 | nan | Based on his view about VIX term structure, Kalman will most likely purchase the | [
"A. VIX and sell the VIX second-month futures",
"B. VIX and sell the VIX front-month futures",
"C. VIX front-month futures and sell the VIX second-month futures"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
VIX futures converge to the spot VIX as expiration approaches, and the two must be equal at
expiration. When the VIX futures curve is in contango and assuming volatility remains stable, the
VIX futures will get “pulled” closer to the spot VIX, and they will decrease in price as they
approach expiration. Tr... | easy | multiple-choice | derivatives | english | 240 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
577 | english_240_3_r1 | nan | For Subscriber 1, the most significant factor to consider would be | [
"A. margin requirements",
"B. transaction costs of using futures contracts",
"C. different quoting conventions for future contracts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Exchange-traded futures contract not only have initial margin requirements, they also have daily
mark-to-market and, as a result, can be subject to daily margin calls. Market participants must
have sufficient liquidity to meet margin calls, or have their positions involuntarily liquidated by
their brokers.... | hard | multiple-choice | derivatives | english | 240 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
578 | english_240_4_r1 | nan | For Subscriber 2, and assuming all of the choices relate to the KRW/USD exchange rate, the best way to implement the trading strategy would be to | [
"A. write a straddle",
"B. buy a put option",
"C. use a long NDF position"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Based on predicted export trends, Subscriber 2 most likely expects the KRW/USD rate to increase
(i.e., the won—the price currency—to depreciate relative to the USD). This would require a long
forward position in a forward contract, but as a country with capital controls, a NDF would be
used instead. (Note:... | medium | multiple-choice | derivatives | english | 240 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
579 | english_240_5_r1 | nan | Based on Subscriber 3’s correlation forecast, the expected domestic-currency return (measured in EUR terms) and expected domestic-currency return risk will most likely | [
"A. increase and decrease",
"B. decrease and remain unchanged",
"C. remain unchanged and increase"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C. <ans_image_1> | medium | multiple-choice | derivatives | english | 240 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
580 | english_241_1_r1 | The Flagstone College endowment fund recently received a significant donation and has decided
to allocate the new funds to fixed income. Flagstone selected Allied Advisors to manage the fixed
income portfolio and is currently evaluating Allied’s recommendations on structuring the
portfolio. Greg Thorne, fixed income po... | Is Thorne’s statement regarding the selection of a bond market index as a benchmark most likely correct | [
"A. Yes",
"B. No, because if the portfolio has a liability to meet, then the liability becomes the benchmark",
"C. No, because the selection of a bond market index is only required if a full-blown active management strategy is followed"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
Thorne’s statement is incorrect because if Flagstone had specific liabilities to match, then the
liability itself becomes the benchmark. | hard | multiple-choice | fixed income | english | 241 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |||
581 | english_241_2_r1 | nan | Based on Statement 2 made by Moir and the information presented in Exhibit 1, the most appropriate benchmark for Flagstone’s endowment fund is the | [
"A. Barclays Aggregate",
"B. Barclays U.S. High Yield",
"C. Barclays 1-3 year Government/Corporate"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The Barclays Aggregate index represents a diversified portfolio of sectors and has medium-term
duration which should generate reasonable returns with moderate price sensitivity as interest
rates fluctuate. Statement 2 clearly indicates that the Flagstone endowment fund has a medium
term horizon and general... | hard | multiple-choice | fixed income | english | 241 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
582 | english_241_3_r1 | nan | The strategy of the portfolio whose returns and risk characteristics are presented in Exhibits 2 and 3 is best described as | [
"A. enhanced indexing by minor risk factor mismatches",
"B. active management by larger risk factor mismatches",
"C. enhanced indexing by matching primary risk factors"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The Barclays Aggregate index represents a diversified portfolio of sectors and has medium-term
duration which should generate reasonable returns with moderate price sensitivity as interest
rates fluctuate. Statement 2 clearly indicates that the Flagstone endowment fund has a medium
term horizon and general... | hard | multiple-choice | fixed income | english | 241 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
583 | english_241_4_r1 | nan | Given the information in Exhibit 3, a mismatch of risk exposures between the portfolio and the benchmark should most likely be attributed to the | [
"A. mortgage sector",
"B. corporate sector",
"C. asset backed sector"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The portfolio’s spread duration (2.87) is greater than that of the benchmark (2.31) resulting in a
mismatch of risk exposures. The difference is primarily because of the larger contribution to
spread duration of corporate bonds in the portfolio (1.96) compared to the benchmark (1.38)
despite having the sim... | hard | multiple-choice | fixed income | english | 241 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
584 | english_241_5_r1 | nan | Given Thorne’s interest rate forecast, which method for managing interest rate risk relative to the benchmark will be most effective | [
"A. Key rate duration",
"B. Effective duration",
"C. Convexity adjustment"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Matching key rate durations will reduce tracking error resulting from a non-parallel shift, such as
a twist in the yield curve. | hard | multiple-choice | fixed income | english | 241 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
585 | english_242_1_r1 | Robert Waterman, and Sophia Chen, are portfolio managers of a U.S-based investment
firm, Simon Fraser Analytics. Waterman and Chen are thinking investing in U.S. and U.K bonds.
They consider all kinds of yield curve and other strategies. Exhibit 1 shows the data they collected
from the liquid government bonds on U.S an... | Based on the data presented, it is more likely correct to say a “riding the yield curve” strategy | [
"A. Assumes the level of the yield curve will change",
"B. Would be more profitable in the U.K than in the U.S",
"C. Cannot work in the U.S. yield curve environment"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The riding the yield curve strategy is based on assuming the yield curve is upward sloping and will
not change in shape. Therefore, buy the bond at the end of the steeper segment of the curve and
hold it. As it shortens in maturity (duration), it will trade at a now lower yield and there will be a
price ag... | hard | multiple-choice | fixed income | english | 242 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | ||
586 | english_242_2_r1 | nan | Buying convexity will most likely | [
"A. involve increasing the portfolio’s yield",
"B. require selling calls but not puts",
"C. require buying both calls and puts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Buying convexity means increasing portfolio convexity. Higher convexity is a benefit if there are
large changes in interest rates, but the “cost” is a lower yield. Increasing portfolio convexity can
be done by reducing exposure to callable and MBS (both have embedded short call positions),
buying
putable b... | hard | multiple-choice | fixed income | english | 242 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
587 | english_242_3_r1 | nan | Based on the data presented, it is most correct to say the carry trade | [
"A. Involves borrowing in the U.S. and investing in the U.K",
"B. Does best when interest rate parity correctly predicts the change in value of currencies",
"C. Would perform better if U.S. rates decrease and U.K. interest rates increase"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
The carry trade refers to borrowing at lower rates to invest at higher rates. In this case, it was
specified to use three-year duration instruments, so borrow at 1% U.S. rates and invest at 2% U.K.
rates. An increase in U.K. rates would hurt the value of the bonds purchased and having
borrowed in the Unite... | hard | multiple-choice | fixed income | english | 242 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
588 | english_242_4_r1 | nan | Based on the data in Exhibit 2, should the BeeBalm Manufacture bond be hedged against currency risk and what is the hedged return | [
"A. No, the hedge return is 4.70%",
"B. No, the hedge return is 6.60%",
"C. Yes, the hedge return is 6.60%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A. The unhedged return on the foreign bond is
the return on the bond plus the expected change in
The NOK:
7.00
0.40 = 6.60
Hedging the currency requires selling the NOK forward and buying the USD. That makes the
return on the hedged currency the initial forward premium or discount, which is approxim ated at
l... | hard | multiple-choice | fixed income | english | 242 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
589 | english_242_5_r1 | nan | In order for the cross hedge of selling the SEK forward to work, the correlation of | [
"A. SEK and NOK must be high, approaching +1",
"B. SEK and USD must be high, approaching +1",
"C. Both the SEK and NOK must be highly correlated to the USD, approaching +1"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A
The U.S.-based firm would normally sell the foreign currency (NOK) and buy the USD to hedge
the currency risk. An alternative is to sell another currency that is highly correlated to the NOK, a
form of cross hedge (sometimes called a proxy hedge). The idea is that if the NOK declines versus
the USD, the SEK... | hard | multiple-choice | fixed income | english | 242 | 5 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
590 | english_242_6_r1 | nan | Regarding their statements concerning the spread for the BB-rated U.S. corporate bond, the most correct statement is | [
"A. Waterman’s comment on G-spread",
"B. Chen’s comment on I-spread",
"C. Chen’s comment on G-spread"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C. G
spread is the yield of the bond minus the interpolated yield of a comparable duration
governmen t bond. Letting w be the weight to the 3.0 duration U. S. government bond, the
interpolated yield for a 3.5 year duration U.S. government bond is found as follows:
3.5= w3.0+ (1 w) 4.1
3.5= 3.0w+4.1
4.1w
0.6=1... | hard | multiple-choice | fixed income | english | 242 | 6 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
591 | english_243_1_r1 | Samuel Morse, is a senior analyst in the Balance Sheet Strategy Division of Bayside
Insurance. Morse has been asked to contrast the merits of cash flow matching and duration
matching. Bayside presently uses both strategies, but given the recent increase in volatility in US
interest rates over the last month, Bayside’s ... | Which immunization strategy is most likely to be more negatively impacted by non- parallel shifts in the yield curve | [
"A. Cash flow matching",
"B. Duration matching",
"C. The strategies will perform the same"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
A duration matching strategy is more likely than a cash flow matching strategy to be negatively
impacted by non-parallel shifts in the yield curve. With cash flow matching, assets are selected to
mirror the timing of payments in the liability portfolio. In a duration matching strategy, the
potential for gr... | easy | multiple-choice | derivatives | english | 243 | 1 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |||||
592 | english_243_2_r1 | nan | The number of five-year T-note futures contracts required to be sold in order to rebalance the immunizing portfolio is closest to | [
"A. 329 contracts",
"B. 464 contracts",
"C. 501 contracts"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
With derivative overlay strategies, in order to calculate the number of contracts needed, the
futures BPV must be adjusted to reflect the conversion factor:
Futures BPV = Note BPV / Conversion Factor
44.8/0.8=56
Number of contracts = (Asset BPV–Liability BPV) / Futures BPV
(48,000-22,000)/56=464.286 | hard | multiple-choice | derivatives | english | 243 | 2 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
593 | english_243_3_r1 | nan | Which portfolio is most likely to benefit from a flattening yield curve environment | [
"A. Portfolio 1",
"B. Portfolio 2",
"C. Portfolio 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Portfolio 1 is most likely to benefit from a flattening yield curve, as it is constructed using a
barbell approach, with higher allocations at the short and long ends of the yield curve. | easy | multiple-choice | derivatives | english | 243 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
594 | english_243_4_r1 | nan | Given the expected prices over the next year, which bond has the higher expected total return | [
"A. The 2-year",
"B. The 30-year",
"C. Both bonds have the same expected total return"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | B | Solution: B.
The total return for fixed income securities includes both yield income and price appreciation.
The expected price appreciation for both securities is 1.00%, but as the 30- year yield income is
1.50% more than the 2-year, it will have a higher expected total return.
2-year: Yield income = 4.75/100 = 4.75%
... | hard | multiple-choice | derivatives | english | 243 | 4 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
595 | english_243_5_r1 | nan | Based on Exhibit 4, the total expected return of the fund’s global bond portfolio is closest to | [
"A. 3.52%",
"B. 2.31%",
"C. 1.83%"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C. <ans_image_1> | hard | multiple-choice | derivatives | english | 243 | 5 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
596 | english_243_6_r1 | nan | Are Morse’s statements to Mann supporting Morse’s choice of bonds to sell correct | [
"A. Only Statement 1 is correct",
"B. Only Statement 2 is correct",
"C. Neither Statement 1 nor Statement 2 is correct"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Since the fund’s clients are taxable investors, there is value in harvesting tax losses. These losses
can be used to offset capital gains within the fund that will otherwise be distributed to the clients
and cause them higher tax payments, which decreases the total value of the investment to clients.
The f... | hard | multiple-choice | derivatives | english | 243 | 6 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
597 | english_244_1_r1 | Louis Armstrong are analysts with Cefrino Investments, which sponsors the Cefrino Sovereign
Bond Fund (the Fund).
Armstrong develops two alternative portfolio scenarios based on his own yield curve outlook.
Construct a condor to benefit from less curvature in the 5-year to 10-year area of the yield curve.
The condor wi... | Based on Exhibit 1, which short position is most likely to be included in the condor outlined | [
"A. 1-year $325 million",
"B. 5-year $68 million",
"C. 10-year $37 million"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A. To determine the positions, we take the maximum allowance of 30
year bonds of 15 million and
determine money duration. Money duration is equal to market value x modified duration divided
by 100. 30 year bond money d uration = 15 million × 20.61 /100 = $ 091,5 00. The market values
of the other positions ar... | hard | multiple-choice | fixed income | english | 244 | 1 | 1 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic | |
598 | english_244_2_r1 | nan | To address Foster’s tail risk concern, Armstrong should recommend that expected correlations with their models | [
"A. decrease",
"B. do not change",
"C. increase"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | C | Solution: C.
Increasing the correlations would likely increase the number of extremely unusual outcomes and,
thereby, increase estimated tail risk. Higher correlations in the model increase the dispersion of
outcomes (effectively decreasing diversification). | hard | multiple-choice | fixed income | english | 244 | 2 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
599 | english_244_3_r1 | nan | Which of Armstrong’s three differences about investing in EM credits compared with developed market credits is most correct | [
"A. Difference 1",
"B. Difference 2",
"C. Difference 3"
] | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | table | A | Solution: A.
Emerging markets indexes have a higher proportion of commodity producers and banks than
developed market indexes have. | hard | multiple-choice | fixed income | english | 244 | 3 | 0 | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | Not supported with pagination yet | release_basic |
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