Chapter 1: Asset Classes and Securities (11 Questions)
1. What is the most common name for a security that represents ownership in a corporation?
a) Debenture
b) Common Stock ✓
c) Municipal Bond
d) Preferred Stock
2. A bond that is trading at a price higher than its $1,000 par value is selling at a:
a) Discount
b) Par
c) Premium ✓
d) Liquidation Value
3. Which shareholder right allows existing common stockholders to maintain their percentage of
ownership when a company issues new shares?
a) Cumulative Voting Right
b) Preemptive Right ✓
c) Statutory Voting Right
d) Capital Gain Right
4. Which type of order guarantees that a trade will be executed immediately at the best available
price?
a) Limit Order
b) Stop Order
c) Market Order ✓
d) Good-’til-Cancelled Order
5. A bond analyst uses the concept of duration to measure a bond’s sensitivity to what factor?
a) Credit Rating Changes
b) Interest Rate Changes ✓
c) Exchange Rate Fluctuations
d) Dividend Payouts
6. What is the process called when a private company first sells shares to the public?
a) Secondary Offering
b) Seasoned Equity Offering (SEO)
c) Initial Public Offering (IPO) ✓
d) Treasury Sale
7. An investor who buys on margin is essentially doing what?
a) Selling a stock they don't own
b) Borrowing money to purchase securities ✓
c) Buying only tax-exempt bonds
d) Trading in the Fourth Market
8. What is the primary expectation of an investor who initiates a short sale?
a) The stock price will rise
b) The stock will declare a dividend
c) The stock price will decline ✓
d) The market volatility will increase
9. Which valuation model calculates a stock's value based on the present value of all its future
dividend payments?
a) Price-to-Earnings (P/E) Ratio
b) Dividend Discount Model (DDM) ✓
c) Capital Asset Pricing Model (CAPM)
d) Sharpe Ratio
10. Which market facilitates the trading of exchange-listed securities between institutions without
using the exchange itself?
a) Primary Market
b) Secondary Market
c) Third Market ✓
d) First Market
11. Which security typically has a senior claim on a company's assets and earnings over common
stock, but less control?
a) Common Stock
b) Preferred Stock ✓
c) Corporate Bond
d) Futures Contract
Chapter 2: Pooled Investment Products (11 Questions)
12. A mutual fund that deducts a sales charge when the investor first buys the shares is called a:
a) Back-End Load
b) No-Load Fund
c) Front-End Load ✓
d) 12b-1 Fee Fund
13. What does the acronym NAV stand for in the context of mutual funds?
a) Neutral Asset Volume
b) Nominal Annual Value
c) Net Asset Value ✓
d) Non-Accelerated Volatility
14. Which pooled investment product is bought and sold on a stock exchange throughout the day at
market-determined prices?
a) Mutual Fund (MF)
b) Unit Investment Trust (UIT)
c) Exchange-Traded Fund (ETF) ✓
d) Closed-End Fund (CEF)
15. The percentage of a mutual fund's assets that are replaced each year is measured by the:
a) Expense Ratio
b) Beta Coefficient
c) Turnover Ratio ✓
d) Quick Ratio
16. A Unit Investment Trust (UIT) is characterized by having a portfolio that is generally:
a) Aggressively traded
b) Fixed and unmanaged ✓
c) Used only for short selling
d) Concentrated in one stock
17. A Closed-End Fund (CEF) often trades at a discount or premium to its NAV because:
a) It is legally required to
b) It has a variable number of shares
c) Its shares trade based on supply and demand on an exchange ✓
d) It has zero operating expenses
18. The Management Expense Ratio (MER) of a fund covers:
a) Brokerage commissions for buying the fund
b) Management and administrative fees ✓
c) Client tax liabilities
d) Short-term capital gains
19. Buying a pooled investment product is the quickest way for a small investor to reduce which type
of risk?
a) Systematic Risk
b) Interest Rate Risk
c) Inflation Risk
d) Unsystematic Risk ✓
20. Which document provides mandatory legal details about a fund's objectives, fees, and risks to
prospective investors?
a) Annual Report
b) Statement of Additional Information (SAI)
c) Prospectus ✓
d) Financial Statement
21. What key feature allows Managed Accounts to be customized for a client's specific tax or ethical
preferences?
a) Low Turnover Ratio
b) Fixed Portfolio
c) Direct ownership of individual securities ✓
d) Daily pricing at NAV
22. Which financial instrument is an unsecured debt obligation that tracks an index and includes
embedded credit risk?
a) Mutual Fund (MF)
b) Exchange-Traded Fund (ETF)
c) Exchange-Traded Note (ETN) ✓
d) Closed-End Fund (CEF)
Chapter 3: Principles of Investment Risk (11 Questions)
23. Risk that is inherent in the entire market (e.g., economic recession) and cannot be diversified
away is called:
a) Nonsystematic Risk
b) Systematic Risk ✓
c) Liquidity Risk
d) Default Risk
24. What statistical measure is most commonly used to quantify the total volatility (risk) of an
investment's returns?
a) Beta ($\beta$)
b) Alpha ($\alpha$)
c) Standard Deviation ✓
d) Correlation Coefficient
25. An investor who only considers the variability of returns below the expected return (downside
risk) would use:
a) Variance
b) Semivariance ✓
c) Total Return
d) Duration
26. If a stock has a beta ($\beta$) of 0.8, it is expected to be less volatile than the overall market.
a) True ✓
b) False
27. The main assumption of Modern Portfolio Theory (MPT) is that investors, when faced with the
same return, prefer:
a) Higher returns
b) Lower risk ✓
c) Higher beta
d) Higher correlation
28. The collection of portfolios that offer the highest expected return for a given level of risk is called
the:
a) Capital Market Line (CML)
b) Security Market Line (SML)
c) Efficient Frontier ✓
d) Indifference Curve
29. When two assets have a Correlation Coefficient ($\rho$) near -1.0, they are considered excellent
for:
a) Increasing Systematic Risk
b) Diversification ✓
c) Short Selling
d) Increasing Liquidity Risk
30. The risk that rising general prices will reduce the purchasing power of an investor's returns is
known as:
a) Credit Risk
b) Liquidity Risk
c) Inflation Risk ✓
d) Political Risk
31. Which type of risk is specific to a single company or industry (e.g., a CEO scandal) and can be
reduced by diversifying across many stocks?
a) Market Risk
b) Nonsystematic Risk ✓
c) Interest Rate Risk
d) Currency Risk
32. In a normal distribution, approximately what percentage of returns fall within one standard
deviation of the mean?
a) 50%
b) 68% ✓
c) 95%
d) 99%
33. Which risk is relevant when holding bonds, as it reflects the possibility that a rise in interest rates
will cause bond prices to fall?
a) Reinvestment Risk
b) Interest Rate Risk ✓
c) Default Risk
d) Call Risk
Chapter 4: Investment Performance Management (11 Questions)
34. Which return calculation method is most appropriate for evaluating the skill of an investment
manager because it removes the effect of client cash flows?
a) Dollar-Weighted Return (DWR)
b) Time-Weighted Return (TWR) ✓
c) Holding Period Return (HPR)
d) Arithmetic Mean
35. The Sharpe Ratio measures the excess return of a portfolio per unit of its:
a) Systematic Risk ($\beta$)
b) Total Risk (Standard Deviation) ✓
c) Duration
d) Alpha
36. Jensen's Alpha ($\alpha$) measures a manager's performance relative to the return required by
which model?
a) Dividend Discount Model (DDM)
b) Arbitrage Pricing Theory (APT)
c) Capital Asset Pricing Model (CAPM) ✓
d) Efficient Frontier
37. Which performance measure uses beta ($\beta$) in the denominator to assess risk-adjusted
return?
a) Sharpe Ratio
b) Jensen's Alpha
c) Treynor Ratio ✓
d) Correlation Coefficient
38. Technical Analysis is primarily focused on studying which factors?
a) Company Financial Statements
b) Economic Forecasts
c) Historical Price and Volume Data ✓
d) Global Interest Rates
39. The main purpose of establishing a benchmark index for an investment portfolio is to:
a) Guarantee a minimum return
b) Provide a standard for performance measurement ✓
c) Reduce all nonsystematic risk
d) Predict future market movements
40. A Top-Down Analysis approach begins with the study of:
a) A specific company's management
b) Global Economic Trends ✓
c) A stock's price chart
d) Technical indicators
41. Which type of index gives the greatest weight to the companies with the largest total market
value?
a) Price-Weighted Index
b) Equally-Weighted Index
c) Market-Value-Weighted Index ✓
d) Fixed-Income Index
42. A fund manager who is trying to generate a return that is better than the benchmark index is
engaged in:
a) Passive Management
b) Active Management ✓
c) Indexing
d) Rebalancing
43. What concept is the focus of Fundamental Analysis?
a) Price Momentum
b) Trading Volume
c) Intrinsic Value ✓
d) Moving Averages
44. A manager is said to have tracking error when the portfolio's returns deviate significantly from
the:
a) Risk-Free Rate
b) Benchmark Index ✓
c) Initial Public Offering Price
d) Portfolio Beta
Chapter 5: Investment Theory (11 Questions)
45. Which form of the Efficient Market Hypothesis (EMH) claims that stock prices reflect all past
trading data, making technical analysis useless?
a) Strong Form
b) Weak Form ✓
c) Semi-Strong Form
d) Anomalous Form
46. The Capital Market Line (CML) shows the risk-return trade-off for which type of portfolio?
a) Individual, non-diversified stocks
b) Portfolios that combine the market portfolio and the risk-free asset ✓
c) Only the riskiest stocks
d) Portfolios with zero systematic risk
47. According to the Capital Asset Pricing Model (CAPM), an asset’s required rate of return is
determined by the risk-free rate and its exposure to which type of risk?
a) Systematic Risk ($\beta$) ✓
b) Nonsystematic Risk
c) Liquidity Risk
d) Total Risk (Standard Deviation)
48. A security that plots above the Security Market Line (SML) on a risk-return graph is considered to
be:
a) Overvalued
b) Efficient
c) Undervalued ✓
d) Highly correlated with bonds
49. If the Strong Form EMH were true, who would be unable to consistently earn excess returns?
a) Technical Analysts
b) Fundamental Analysts
c) Even those trading on insider information ✓
d) Passive Managers
50. The Random Walk Hypothesis suggests that future stock price movements are:
a) Predictable using past data
b) Highly correlated with economic cycles
c) Random and cannot be predicted ✓
d) Determined entirely by beta
51. The Arbitrage Pricing Theory (APT) is different from CAPM because it uses:
a) Only one risk factor (beta)
b) Only total risk (standard deviation)
c) Multiple macroeconomic factors (e.g., inflation, GDP) ✓
d) Only the risk-free rate
52. The point where an investor's Indifference Curve touches the Efficient Frontier represents the
investor's:
a) Lowest possible risk
b) Highest possible return
c) Optimal Portfolio ✓
d) Required margin level
53. Which form of the EMH suggests that all publicly available information is already reflected in
stock prices, rendering fundamental analysis ineffective?
a) Weak Form
b) Semi-Strong Form ✓
c) Strong Form
d) Random Walk
54. Investors under MPT are assumed to be risk-averse, meaning they:
a) Prefer higher risk for any given return
b) Prefer lower risk for any given return ✓
c) Are indifferent to risk
d) Invest only in risk-free assets
55. For the CAPM to hold true, investors must be able to borrow and lend at which rate?
a) The market return
b) The expected inflation rate
c) The risk-free rate ✓
d) Zero percent
Chapter 6: Asset Allocation (11 Questions)
56. Which allocation strategy involves establishing a long-term, fixed percentage mix of assets?
a) Tactical Asset Allocation (TAA)
b) Core/Satellite Allocation
c) Strategic Asset Allocation (SAA) ✓
d) Dynamic Allocation
57. Tactical Asset Allocation (TAA) involves short-term deviations from the SAA to:
a) Reduce management fees
b) Exploit perceived market mispricings ✓
c) Eliminate all systematic risk
d) Comply with the Investment Policy Statement
58. The practice of adjusting a portfolio's actual asset weights back to the established SAA targets is
called:
a) Momentum Trading
b) Alpha Generation
c) Rebalancing ✓
d) Strategic Drift
59. In a Core/Satellite approach, the Core component typically consists of:
a) High-risk alternative investments
b) Highly concentrated single-stock positions
c) Stable, passively managed index funds ✓
d) Short-term market timing strategies
60. A major advantage of Passive Management (e.g., indexing) compared to active management is:
a) Higher Alpha
b) Lower total costs (fees and trading) ✓
c) Guaranteed outperformance
d) Zero systematic risk
61. If equities have performed very well, a rebalancing strategy would require the portfolio manager
to sell equities and buy bonds.
a) True ✓
b) False
62. A rebalancing method that only initiates a trade when an asset's weight deviates from the target
by a specified percentage (e.g., 5%) is known as:
a) Time-Based Rebalancing
b) Threshold-Based Rebalancing ✓
c) Strategic Rebalancing
d) Tactical Rebalancing
63. The Investment Policy Statement (IPS) for a client is primarily designed to document the client's:
a) Manager's personal trading strategy
b) Current tax bracket
c) Objectives and Constraints ✓
d) Daily stock price forecasts
64. When designing a portfolio, what is the first rule an advisor should follow?
a) Only use ETFs
b) Go back to the Investment Policy Statement (IPS) ✓
c) Always maximize leverage
d) Target a beta of 1.5
65. What is the goal of an active manager?
a) To match the benchmark return
b) To generate alpha ✓
c) To eliminate all risk
d) To achieve zero portfolio turnover
66. Rebalancing a portfolio generally has the effect of:
a) Increasing the portfolio's expected return
b) Reducing the portfolio's overall risk ✓
c) Increasing the manager's fees
d) Increasing the portfolio's duration
Chapter 7: Wealth Management (12 Questions)
67. Which ratio measures a company's ability to cover its short-term debts with its most liquid assets
(cash, receivables), excluding inventory?
a) Current Ratio
b) Debt-to-Equity Ratio
c) Quick Ratio (Acid-Test Ratio) ✓
d) Price-to-Earnings Ratio
68. The ratio that shows the net income generated for each dollar of shareholder investment is the:
a) Return on Assets (ROA)
b) Gross Profit Margin
c) Return on Equity (ROE) ✓
d) Inventory Turnover
69. Venture Capital (VC) is a type of private equity that focuses its investments on:
a) Mature, publicly traded companies
b) New or early-stage, high-growth companies ✓
c) Real estate investment trusts (REITs)
d) Government-issued bonds
70. What is the primary purpose of an executive being granted stock options as compensation?
a) To provide a guaranteed cash payment
b) To align the executive's financial interests with shareholders ✓
c) To fund the company's pension plan
d) To increase the company's current ratio
71. Wealth Management is a broad service that covers:
a) Only short-term borrowing
b) Only stock market trading
c) A client's entire financial picture, including planning, tax, and estate needs ✓
d) Only high-yield bond investments
72. An investor who has a concentrated stock position can use put options to protect against a drop
in the stock price. This is an example of:
a) Tax Optimization
b) Hedging ✓
c) Liquidation
d) Margin Trading
73. The risk that an asset cannot be sold quickly enough without significantly impacting its price is
called:
a) Credit Risk
b) Inflation Risk
c) Liquidity Risk ✓
d) Volatility Risk
74. The adjusted basis of an asset is most relevant when calculating the investor's:
a) Capital gain or loss upon sale ✓
b) Annual dividend income
c) Market capitalization
d) Quick Ratio
75. Which financial instrument is most closely associated with an investor receiving fixed payments
for life or a term, with the remainder going to charity?
a) Mutual Fund
b) Charitable Remainder Trust (CRT) ✓
c) Managed Futures Account
d) Common Stock
76. If a company's Current Ratio is 0.8:1, what does this primarily suggest?
a) The company has too much inventory
b) The company may have difficulty meeting short-term obligations ✓
c) The company's ROE is excellent
d) The company is efficiently managing its assets
77. Which investment strategy involves an active professional manager trading futures contracts on
currencies, interest rates, and commodities?
a) Private Equity
b) Managed Futures ✓
c) Venture Capital
d) Real Estate Investment Trust (REIT)
78. A client who sets up a Trust to ensure their assets are distributed to their children only when they
turn 30 is addressing which type of planning objective?
a) Liquidity
b) Tax Optimization
c) Estate Planning and Control ✓
d) Investment Performance
Chapter 8: Behavioral Finance (12 Questions)
79. The tendency for an investor to overvalue assets they already own simply because they possess
them is known as the:
a) Overconfidence Bias
b) Loss Aversion
c) Endowment Effect ✓
d) Hindsight Bias
80. Which emotional bias explains why investors are often reluctant to sell a losing investment,
hoping to simply "break even"?
a) Recency Bias
b) Loss Aversion ✓
c) Framing Bias
d) Confirmation Bias
81. An investor who believes their successful trades were due to their skill and their losing trades
were due to bad luck is exhibiting:
a) Anchoring Bias
b) Self-Attribution Bias (Overconfidence) ✓
c) Status Quo Bias
d) Ambiguity Aversion
82. An investor mentally separating their savings into distinct, isolated accounts (e.g., "vacation
fund," "car fund") is an example of:
a) Confirmation Bias
b) Mental Accounting ✓
c) Recency Bias
d) Conservatism Bias
83. The bias where an investor relies too heavily on an initial price (or value) when making a
subsequent decision is called:
a) Framing Bias
b) Anchoring and Adjustment Bias ✓
c) Availability Bias
d) Status Quo Bias
84. A client who ignores market trends and refuses to change their current portfolio allocation is
most likely exhibiting which bias?
a) Overconfidence
b) Loss Aversion
c) Status Quo Bias ✓
d) Recency Bias
85. The bias that causes investors to overweight information that supports their existing beliefs and
dismiss contradictory evidence is:
a) Anchoring Bias
b) Framing Bias
c) Confirmation Bias ✓
d) Endowment Effect
86. A client who invests heavily in a stock because they heard about it on a recent popular news
show is likely influenced by:
a) Loss Aversion
b) Status Quo Bias
c) Availability Bias ✓
d) Hindsight Bias
87. Which of the following is the most effective way for an advisor to help a client mitigate their
behavioral biases?
a) Encourage them to follow their gut feeling
b) Establish a disciplined, written investment process ✓
c) Trade the client's account frequently
d) Only use passive index funds
88. The way a choice is presented ("90% chance of success" versus "10% chance of failure")
influences a person's decision due to:
a) Anchoring Bias
b) Framing Bias ✓
c) Hindsight Bias
d) Recency Bias
89. An investor who uses only the returns from the last year to make long-term allocation decisions is
exhibiting:
a) Confirmation Bias
b) Recency Bias ✓
c) Ambiguity Aversion
d) Endowment Effect
90. A client who prefers domestic stocks over a well-diversified international fund simply because the
foreign market is "unknown" to them is showing:
a) Loss Aversion
b) Overconfidence
c) Ambiguity Aversion ✓
d) Hindsight Bias
Chapter 9: Investment Objectives, Constraints and Suitability (10 Questions)
91. The final process of the investment plan that involves checking the portfolio's alignment with the
IPS and rebalancing is called:
a) Analysis
b) Implementation
c) Monitoring and Follow-up ✓
d) Synthesis
92. The principle that dictates an advisor's recommendations must align with a client's risk tolerance,
goals, and constraints is:
a) Fiduciary Duty
b) Asset Allocation
c) Suitability ✓
d) Due Diligence
93. To be effective, a client's investment goal should be SMART. Which letter requires the goal to
have a specific date for completion?
a) S (Specific)
b) M (Measurable)
c) A (Action-oriented)
d) T (Time-bound) ✓
94. The length of time before a client needs their money for a specific goal is defined as the:
a) Liquidity Constraint
b) Time Horizon ✓
c) Risk Capacity
d) Investment Objective
95. A client's ability to withstand short-term market losses without emotional or financial distress is
their:
a) Risk Premium
b) Risk Tolerance ✓
c) Reinvestment Rate
d) Capital Appreciation
96. An investor saving for a goal that is only two years away should primarily use:
a) High-beta stocks
b) Real estate
c) Cash and highly liquid, short-term securities ✓
d) Venture capital
97. In the investment planning process, calculating the required rate of return to meet a client's goal
is part of the:
a) Collection Phase
b) Analysis Phase ✓
c) Implementation Phase
d) Monitoring Phase
98. Which document is the formal contract setting the rules for the investment portfolio?
a) Annual Fund Report
b) Tax Return
c) Investment Policy Statement (IPS) ✓
d) Stock Certificate
99. Which of the following is generally considered an inappropriate asset for a standard retail
investor's core retirement portfolio?
a) Corporate Bonds
b) Index Mutual Funds
c) Non-income-producing collectibles (e.g., fine art) ✓
d) Real Estate Investment Trusts (REITs)
100. The core function of the Appreciative Inquiry (AI) approach in the planning process is to:
a) Immediately identify all of the client's past investment failures.
b) Focus on the client's strengths and positive outcomes to build the plan. ✓
c) Establish the client's specific tax liability.
d) Determine the portfolio's required beta.