Investment Advisor Financial Investment 3

Question 1

A portfolio has a beta of 1.4. If the market rises 10%, how much would this portfolio be expected to gain, assuming no alpha?

Accepted Answer

14%

Answer

Expected portfolio return = beta × market return = 1.4 × 10% = 14%; beta measures sensitivity to market movements.

Question 2

Which type of risk CANNOT be eliminated through diversification?

Accepted Answer

Systematic risk

Answer

Systematic (market) risk affects all securities and cannot be diversified away, unlike unsystematic risks tied to individual companies or sectors.

Question 3

An ETF trades at a price above its net asset value (NAV). This condition is called:

Accepted Answer

A premium

Answer

When an ETF's market price exceeds its NAV, it is trading at a premium; authorized participants can create new shares to arbitrage this difference.

Question 4

Which of the following best describes a 'laddered' bond portfolio strategy?

Accepted Answer

Purchasing bonds that mature at staggered intervals over time

Answer

A bond ladder spreads maturities over multiple time periods, reducing reinvestment risk and providing regular liquidity as each rung matures.

Question 5

Under the Efficient Market Hypothesis (EMH) in its strong form, which type of analysis would be unable to consistently produce excess returns?

Accepted Answer

Both technical and fundamental analysis

Answer

Strong-form EMH states that all public and private information is already reflected in prices, making both technical and fundamental analysis unable to generate consistent excess returns.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Financial Investment 3