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LOS j: Judge the appropriateness of constant mix, buy-and-hold, and CPPI rebalancing strategies, when given an investor's risk tolerance and asset return expectations.
Q1. Which of the following asset allocation strategies passively assumes that risk tolerance is directly related to wealth levels?
A) Constant mix.
B) Constant proportion portfolio insurance (CPPI).
C) Buy and hold.
Q2. Which of the following strategies is most likely to outperform if stock market reversals are expected to occur?
A) Buy and hold.
B) Constant mix.
C) Constant proportion.
Q3. Constance Frye, a portfolio manager for the money-management unit of Freedom, a broker-dealer, is concerned about the positioning of her managed accounts. Economic indicators are mixed, and stock valuations are all over the map. Frye is not confident about the direction the market will take over the next year, but she is very confident that volatility will increase.
Overall, Frye is satisfied with her asset allocations, but she is less certain about her rebalancing strategies. Freedom is a large shop, and she is responsible for several hundred portfolios. The company generally uses automated trading programs for rebalancing, and Frye’s chief concern is that the wrong program will be used, and some portfolios will not adjust well.
Frye decides to stress-test her rebalancing strategies to see how they would respond to a range of market movements. She starts with a basic portfolio containing just stocks and cash. Here is what she learns:
|
Stress |
Rebalancing Strategy A |
Rebalancing Strategy B |
|
Sustained upward market |
Portfolio value rises but lags Strategy B |
Portfolio rises strongly |
|
Sustained downward market |
Portfolio value falls and lags Strategy B |
Portfolio falls to a certain level, then holds steady |
|
Volatile, directionless market |
Portfolio value rises |
Portfolio value declines |
Stanley Montone trades stocks for Freedom. Montone is busy today, making trades to rebalance portfolios managed by Freedom’s money-management unit. He makes the following buys:
|
Security |
Bid Price |
Ask Price |
Trading Price |
No. of Shares |
|
Flanders Fudge |
$45.78 |
$45.96 |
$45.90 |
1,400 |
|
Grossman Golf |
$8.45 |
$8.52 |
$8.53 |
600 |
|
Hedger Health Care |
$115.67 |
$115.81 |
$115.79 |
150 |
When Montone trades, he transacts through an intermediary. Normally, he buys shares controlled by the intermediary, who in turn purchased them from someone else.
Montone trades in:
A) a brokered market.
B) a quote-driven market.
C) an electronic crossing network.
Q4. Assuming a portfolio begins at a mix of 50% stocks and 50% cash, which of the following rebalancing strategies could allow the portfolio balance to fall to $0?
A) Only buy and hold.
B) Only constant proportion.
C) Only constant mix.
Q5. Which statement regarding Montone’s trades is least accurate?
A) He did not get best execution.
B) He is trading in a highly liquid market.
C) He provided liquidity in two of the trades.
Q6. The portfolio-rebalancing strategies Frye is testing are most likely:
Strategy A Strategy B
A) constant mix constant proportion
B) buy and hold constant proportion
C) constant proportion constant mix
Q7. Which rebalancing strategy does NOT connect risk tolerance to wealth?
A) Constant mix.
B) Buy and hold.
C) Constant mix, constant proportion, and buy and hold all connect risk tolerance to wealth.
Q8. The weighted average effective spread for Montone’s three stock trades is closest to:
A) $0.0712.
B) $0.1056.
C) $0.0833.
Q9. Which of the following strategies is most likely to outperform if a stock market reversal is NOT expected to occur?
A) Buy and hold.
B) Constant mix.
C) Constant proportion. | 
发表于 2009-4-10 13:08
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