Assignment
1.The term personal financial planning generally implies:
the achievement of a financial outcome within a specified time period
successfully gaining a job promotion
winning the lottery within a specified time period
both a and b
2. Given an understanding of interest-rate risk, an existing fixed-interest investor in bonds would be affected in which of the following way(s) if the market interest rates on bonds were to rise from 8% to 10%?
interest receipts from the bonds would rise and the market price of the bond would also rise
interest receipts from the bonds would fall and the market price of the bond would also fall
interest receipts from the bonds would be unaffected and the market price of the bond would rise
interest receipts from the bonds would be unaffected and the market price of the bond would fall
3.Passive fund managers attempt to:
outperform the market.
time the market.
replicate the performance of the benchmark.
all of the above.
4.According to the Australian Securities and Investments Commission (ASIC), a managed investment scheme (MIS), commonly known as a managed fund, exists where:
people are brought together to contribute money to obtain an interest in the scheme.
money is pooled together with other investors or used in a common enterprise.
a responsible entity operates the scheme and hence investors do not have day-to-day control over the operation of the scheme.
all of the above.
5.The information ratio:
ignores market movements from returns but instead adjusts for the risk undertaken.
is used as a risk-adjusted measure of the relative performance of a portfolio.
helps to answer the question, 'Was the manager sufficiently rewarded for the risk incurred by deviating from the benchmark?'.
all of the above.
6.The importance of the efficient frontier lies in the fact that it:
identifies where the most efficient portfolios are.
is a curve and shows how diversification lets investors improve their efficient risk / return ratio.
represents the optimal mix of return and risk for a portfolio of investments given a required level of risk.
all of the above.
7.With regard to listed property as an asset class, nominate the correct statement below:
Both listed property trusts known as real estate investment trusts (A-REITs) and unlisted property trusts are pooled investments which hold a basket of properties in one or more of the property sectors and offer units to be purchased by investors.
Listed property trusts do not have similar risks to shares.
Property is a long-term investment with higher risk than fixed-interest investments but slightly lower risk, historically, than shares.
Both a and c.
8.The mean and expected returns on an investment have the following relationship:
they are equivalent as they represent the same outcome.
the mean return is always greater than the expected return.
the mean return is always less than the expected return.
there is no relationship between the mean and expected returns.
9.To be _ _% confident that the actual returns will lie in a given range, we simply determine the values of the expected return plus two standard deviations and the expected return minus two standard deviations, assuming the returns are normally distributed.
42
68
95
99
10.Cash investments aim to provide:
a capital guarantee.
returns that fully offset the investor from the impacts of inflation.
income, liquidity and stable returns.
both b and c.
11.With regard to shares as an asset class, nominate the correct statement below:
Shares are generally considered a relatively high-risk and high-return investment and are suit able for longer-term investors.
Shares have similar risks to listed property trusts.
By investing in companies providing unfranked dividends, Australian investors can derive tax-effective returns by means of the dividend imputation system under which, given companies have already paid tax at the company tax rate, investors can use franking credits to offset the amount of tax they pay on dividends.
Both a and b.
12.In finance, risk may be defined as:
the chance of a loss of capital.
the chance of loss of purchasing power.
the variability of returns.
all of the above.
13.Gibson (2000) studied the effects of using multiple asset classes (2, 3 or 4 asset classes) for portfolio investing. He concluded that:
by using a combination of all 4 asset classes over a period of time an investor would achieve the highest long-term average return but it would have a higher level of risk than other asset class combinations.
by using a combination of 3 asset classes over a period of time an investor would achieve the highest long-term average return with a lower level of risk than other asset class combinations.
by using a combination of 2 asset classes over a period of time an investor would achieve the highest long-term average return with the lowest level of risk.
by using a combination of all 4 asset classes over a period of time an investor would achieve the highest long-term average return with a lower level of risk than other asset class combinations.
14. Which of the following is generally true about the calculation of an individual's equity or net worth ratio?
For a young person or couple, it is expected that their equity ratio would be relatively low as they are likely to have a relatively high level of debt.
For a young person or couple, it is expected that their equity ratio would be relatively high as they are likely to have a relatively low level of debt.
The ratio shows the percentage of net worth to total assets.
Both a and c.
15. A personal balance sheet would not generally include:
dividends received during a period.
a motor vehicle.
a collection of rare banknotes.
both a and b.
16The yield curve:
typically has a normal shape which slopes downward to the right.
is a graph of interest rates relative to their risk.
may be flat when short-term and long-term rates are virtually the same, and a humped yield curve may occur when medium-term rates are higher.
all of the above.
17 Examples of market risk factors include:
an oil spill by an exploration company resulting in a large fine.
the death of a key director of a company.
safety concerns leading to union activities undertaken in a particular industry.
none of the above.