Mixed Deck — All Investment Advisor Topics Flashcards
100 cards from real Investment Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 20 Mixed Deck — All Investment Advisor Topics flashcards as text
The United States' Gini coefficient has decreased over the previous few decades.
Answer: Has been increasing
The Gini coefficient is a measure of income inequality, where a higher value indicates greater inequality. Over the past several decades, the Gini coefficient in the United States has generally been increasing. This trend indicates a widening gap between the rich and the poor, signifying growing income disparity.
Which ethical principle requires an investment adviser to treat all clients fairly and not favor certain clients at the expense of others?
Answer: Fair dealing
The principle of fair dealing requires advisers to treat all clients equitably, including allocation of investment opportunities and pricing of services.
Which SEBI regulation governs the registration and conduct of investment advisers in India?
Answer: SEBI (Investment Advisers) Regulations, 2013
The SEBI (Investment Advisers) Regulations, 2013 establish the framework for registration, conduct, and obligations of investment advisers.
Interest rate risk primarily affects which type of investment?
Answer: Fixed-income (bond) investments
Bond prices move inversely to interest rates — when rates rise, existing bond prices fall — making fixed-income investments most exposed to interest rate risk.
A bond with a face value of $1,000, a coupon rate of 6%, and a market price of $1,050 is said to be trading at:
Answer: A premium
When a bond's market price exceeds its face (par) value, it is trading at a premium.
Which of the following behavioral biases causes investors to hold losing investments too long hoping to break even?
Answer: Loss aversion / Disposition effect
The disposition effect (driven by loss aversion) leads investors to hold losing positions to avoid realizing a loss while prematurely selling winners.
The Capital Asset Pricing Model (CAPM) formula is: Expected Return = Rf + β × (Rm − Rf). What does 'Rm − Rf' represent?
Answer: Market risk premium
Rm − Rf is the market risk premium — the excess return investors expect for bearing market risk over the risk-free rate.
The monopsonistic employer keeps adding staff until it reaches the marginal level.
Answer: Revenue product equals marginal labor cost
A monopsonistic employer, being the sole buyer of labor, maximizes profit by hiring workers up to the point where the marginal revenue product of labor equals the marginal labor cost. The marginal revenue product represents the additional revenue generated by hiring one more worker. The marginal labor cost is the additional cost incurred to hire that worker, which includes any wage increases for existing staff.
Which type of risk CANNOT be eliminated through diversification?
Answer: Systematic risk
Systematic (market) risk affects all securities and cannot be diversified away, unlike unsystematic risks tied to individual companies or sectors.
Which one of the following asset allocations is market-dependent?
Answer: Tactical asset allocation
Tactical asset allocation is a dynamic strategy that involves making short-term adjustments to a portfolio's asset mix based on current market conditions and economic outlook. Unlike strategic asset allocation, which sets long-term target percentages, tactical allocation actively seeks to capitalize on perceived market inefficiencies or short-term opportunities, making it inherently market-dependent.
A client realizes a short-term capital gain of ₹1,00,000 from equity mutual funds held for 8 months. What is the applicable tax rate in India?
Answer: 15% flat
Short-term capital gains on equity mutual funds (held less than 12 months) are taxed at a flat 15% under Section 111A of the Income Tax Act.
A client with a 2-year investment horizon and low risk tolerance is best suited for which asset allocation?
Answer: 20% equity, 80% debt
Short horizons and low risk tolerance call for a predominantly debt-oriented portfolio to preserve capital.
How often must a registered investment adviser update their Form ADV?
Answer: Annually within 90 days of fiscal year-end
Registered investment advisers must file an annual updating amendment to Form ADV within 90 days after their fiscal year-end.
A mutual fund with a 12b-1 fee primarily uses that fee to cover:
Answer: Marketing and distribution costs
12b-1 fees are SEC-authorized charges used to pay for a fund's marketing, advertising, and distribution expenses.
Which of the following best describes a 'laddered' bond portfolio strategy?
Answer: Purchasing bonds that mature at staggered intervals over time
A bond ladder spreads maturities over multiple time periods, reducing reinvestment risk and providing regular liquidity as each rung matures.
The riskiest investment is with __________.
Answer: High beta
Beta is a measure of a stock's volatility in relation to the overall market. An investment with a high beta (e.g., greater than 1) indicates that it is more volatile and thus riskier than the market as a whole. Such investments tend to experience larger price swings, both up and down, compared to the broader market, making them more susceptible to significant losses.
Labor demand is elastic when the product demand is
Answer: Inelastic
While typically, elastic product demand leads to elastic labor demand, other factors also influence labor demand elasticity. For instance, if a firm with inelastic product demand faces high labor costs relative to total costs and has readily available substitutes for labor, its demand for labor could still be elastic. In such a scenario, even a small change in wages might lead to a significant adjustment in the quantity of labor demanded, despite consumers being less sensitive to product price changes.
According to the Dividend Discount Model (DDM), what is the primary driver of a stock's intrinsic value?
Answer: Present value of expected future dividends
The DDM calculates intrinsic value as the present value of all expected future dividends, discounted at the required rate of return.
A 50-day moving average crossing above a 200-day moving average is commonly known as a:
Answer: Golden cross
A golden cross occurs when a short-term moving average (e.g., 50-day) crosses above a long-term moving average (e.g., 200-day), which is considered a bullish signal.
Which document must an investment adviser mandatorily provide to a new client BEFORE rendering any investment advice?
Answer: Disclosure document as specified by SEBI
SEBI regulations require investment advisers to furnish a SEBI-prescribed disclosure document to clients before the advisory relationship begins.