Reading 19: Low-basis Stock－LOS d techniques, reduce, equity, exchange

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 4: Private Wealth Management
Reading 19: Low-basis Stock
LOS d: Critique the effectiveness of outright sales, exchange funds, completion portfolios, and hedging strategies as techniques to reduce concentrated equity risk.

tycoon

Of the diversification techniques, the one that is most likely to be cost effective, but also effectively limit any further gains on the concentrated position is:

A) outright sale.

B) use of exchange funds.

C) implementation of a hedge.

D) establishment of a completion portfolio.

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Answer and Explanation

Of the diversification techniques, the one that is likely to be cost effective, but also effectively limit any further gains on the concentrated position is the implementation of a hedge.

tycoon

Of the diversification techniques, the one that is most likely to result in immediate diversification, but require that the investors funds will be tied up for a fixed period of time is:

A) use of exchange funds.

B) outright sale.

C) establishment of a completion portfolio.

D) implementation of a hedge.

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Answer and Explanation

Of the diversification techniques, the one that is likely to result in immediate diversification, but require that the investors funds will be tied up for a fixed period of time is the use of exchange funds.

tycoon

Of the diversification techniques, the one that is most likely to have the greatest tax costs is:

A) use of exchange funds.

B) establishment of a completion portfolio.

C) implementation of a hedge.

D) outright sale.

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Answer and Explanation

Of the diversification techniques, the one that is likely to have the greatest tax costs is outright sale.