CPA Investment Strategies 3

Question 1

Which fixed-income strategy seeks to minimize exposure to interest rate risk by matching asset duration to liability duration?

Accepted Answer

Immunization

Answer

Immunization matches the duration of assets to liabilities so that interest rate changes affect both sides equally, protecting the funding ratio.

Question 2

In a barbell bond strategy, an investor allocates capital to:

Accepted Answer

Short- and long-duration bonds with nothing in between

Answer

A barbell strategy concentrates holdings at short and long maturities, combining liquidity with higher yield while avoiding intermediate terms.

Question 3

Which of the following is a characteristic of an efficient market, according to the Efficient Market Hypothesis (EMH)?

Accepted Answer

Current prices fully reflect all available information

Answer

The EMH states that asset prices fully and instantly reflect all available information, making consistent abnormal returns impossible.

Question 4

An investor holds a long position in crude oil futures to profit from anticipated price increases. This is an example of:

Accepted Answer

Speculation taking on price risk for potential gain

Answer

Speculation involves deliberately accepting price risk in futures without an offsetting physical commodity position, aiming to profit from price movements.

Question 5

A CPA client asks about investing in REITs. Which tax feature is most relevant?

Accepted Answer

REITs must distribute at least 90% of taxable income as dividends

Answer

To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders annually, enabling pass-through tax treatment.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Investment Strategies 3