Posts by Dan Madden, CFP®
Odd Lot Theory
Which of the following tells the investor that the Odd Lot Theory indicates a bull market? The ratio of odd lot purchases to sales is constant. Odd lot sales exceed odd lot purchases. The ratio of odd lot purchases to sales reaches the resistance point. Odd lot purchases exceed odd lot sales. CLICK TO REVEAL…
Read MoreSIPC Reimbursement
Course: Investment Planning Lesson 2: Securities Markets and the Fed Student Question: The coursework states that the SIPC will pay claims up to $500,000, but in Example 2, they only gave Bruce $350,000. Why is that? Thanks. Wesley Example 2 Bruce had $400,000 in cash and $100,000 in securities in his brokerage account. His broker/dealer…
Read MorePractice Question: Correlation between International Stocks and T-Bills
What is the correlation in returns between international stocks and Treasury bills? Low Moderate High Perfectly negative CLICK TO REVEAL ANSWER Expand A is the answer. The correlation in returns between international stocks and Treasury bills is typically slightly negative (slightly below zero), meaning the correlation in returns is low and often they will move…
Read MorePractice Question: What is a spread?
Which of the following combinations correctly describes a spread? A combination of a short sale and a purchase of a call for the same stock A combination of buying and selling calls on the same stock with different expiration dates and exercise prices A combination of a put and a call on the same stock…
Read MorePractice Question: Sharpe vs Treynor Index
Which of the following statements are correct about Fund 1 and 2 given the following information? Fund 1 Fund 2 Return on portfolio 13% 17% Beta .95 1.02 Standard deviation .18 .22 Risk free rate of return is 7% Market return is 15% (1) Fund 1 was more efficient under the Sharpe performance index (2)…
Read MoreSelf-Employment Deduction Calculation
Course: Income Tax Planning Lesson 7: Arriving at Adjusted Gross Income Student Question: Dan, can you help me with the below question? While I know a self-employed person can reduce AGI by 50%, I still couldn’t seem to come up with an answer that matched any of the choices. QUESTION Scott is a self-employed financial…
Read MorePractice Question: Efficient Market Hypothesis
Which of the following correctly states an implication of the efficient market hypothesis? Security prices adjust slowly to new information. The strong form asserts that technical analysis can produce superior performance. An investor will earn a risk-adjusted return consistent with the market. It is difficult to produce superior performance in nonfinancial markets. CLICK TO REVEAL…
Read MorePower Exercisable with Consent of Another – Include in Estate?
Course: Estate Planning Lesson 6: Transfer Taxation III Student Question: For “Power exercisable with consent of another”, can you explain why the assets WOULD be included in John’s estate? Since he has power to appoint property, wouldn’t that be adverse to Betty and her ability to enjoy the property? The example is below. EXAMPLE Albert…
Read MorePractice Question: Bond Compound Yield
An investor bought a bond at par that matures in 15 years. The bond pays an annual coupon of $130 and the reinvestment rate is 9%. What is the realized compound yield of this bond? 11.05% 12.55% 13.00% 14.10% CLICK TO REVEAL ANSWER Expand A is the answer. One would anticipate a realized compound yield…
Read MoreStandard Deviation
Big Blue Company stock has an average return of 7% and a standard deviation of 3%. What percentage of the time should an investor in Big Blue Company expect to earn 4% or more? A.34% 68% 84% 95% CLICK TO REVEAL ANSWER Expand C is the answer. Big Blue Company will earn between 4% and…
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