Investment Advisor Financial Investment 4

Question 1

Which of the following describes the concept of 'duration' in fixed income investing?

Accepted Answer

A measure of a bond's price sensitivity to interest rate changes

Answer

Duration measures how much a bond's price will change for a 1% change in interest rates; it is expressed in years but represents price sensitivity.

Question 2

An investor buys a stock at $50, receives a $2 dividend, and sells at $55. What is the total return?

Accepted Answer

14%

Answer

Total return = (price gain + dividend) / purchase price = ($5 + $2) / $50 = 14%.

Question 3

Which asset class has historically provided the best long-term hedge against unexpected inflation?

Accepted Answer

Common equities and real assets

Answer

Common stocks and real assets (real estate, commodities) tend to appreciate with inflation over the long run, unlike fixed-income instruments whose real value erodes.

Question 4

What is the key difference between a closed-end fund and an open-end mutual fund?

Accepted Answer

Closed-end funds issue a fixed number of shares that trade on an exchange

Answer

Closed-end funds have a fixed share count and trade on exchanges at market-determined prices, which may differ from NAV, unlike open-end funds that issue/redeem at NAV.

Question 5

A portfolio manager who selects securities based on predicted macroeconomic trends (GDP growth, inflation, interest rates) is using which approach?

Accepted Answer

Top-down investing

Answer

Top-down investing starts with macroeconomic analysis to select favorable sectors and countries before choosing individual securities within those areas.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Financial Investment 4