Financial Advisor Investment Planning and Portfolio Management 2

Question 1

A bond's duration measures its sensitivity to changes in:

Accepted Answer

Interest rates

Answer

Duration measures the price sensitivity of a bond to changes in interest rates; a longer duration means greater price change for a given rate move.

Question 2

Which type of mutual fund is most suitable for an investor seeking broad exposure to the S&P 500 at the lowest possible cost?

Accepted Answer

S&P 500 index fund

Answer

An S&P 500 index fund provides broad market exposure with minimal expenses by passively tracking the index.

Question 3

What is the primary purpose of rebalancing a client's investment portfolio?

Accepted Answer

To restore the portfolio to its target asset allocation

Answer

Rebalancing restores a portfolio to its intended target allocation after market movements cause asset class weights to drift.

Question 4

The efficient market hypothesis (EMH) in its strong form states that:

Accepted Answer

All public and private information is fully reflected in stock prices

Answer

The strong form of EMH states that all information—public and private—is already reflected in security prices, making it impossible to consistently earn abnormal returns.

Question 5

An investor in a 32% tax bracket holds a bond yielding 5%. What is the tax-equivalent yield of a municipal bond yielding 3.5%?

Accepted Answer

5.15%

Answer

Tax-equivalent yield = 3.5% / (1 - 0.32) = 3.5% / 0.68 = 5.15%, making the muni bond competitive with the taxable bond.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Investment Planning and Portfolio Management 2