CFA2020L1QbanksAnswers portfolio management

Read ding g 51:: Porrtfolio Manag gem ment:: An Overrview w Question #1 of 24 Question ID: 1206820 The portfolio approach to investing is best described as evaluating each investment based on its: A) fundamentals such as the nancial performance of the issuer B) contribution to the portfolio’s overall risk and return C) potential to generate excess return for the investor Explanation The portfolio approach to investing refers to evaluating individual investments based on their contribution to the overall risk and return of the investor's portfolio (Study Session 18, Module 51.1, LOS 51.a) Question #2 of 24 Question ID: 1206836 MAL Investments is an asset management company that consists of three subsidiaries: one that focuses on mid-cap value stocks, one that focuses on alternative assets, and one that focuses on long-term emerging market sovereign debt MAL is most accurately described as a: A) multi-boutique rm B) specialist asset manager C) full-service asset manager Explanation A multi-boutique rm is a holding company that includes a number of di erent specialist asset managers (Study Session 18, Module 51.2, LOS 51.e) Question #3 of 24 Question ID: 1212536 Endowments and foundations typically have investment needs that can be characterized as: A) short time horizon, low risk tolerance, and low liquidity needs B) long time horizon, high risk tolerance, and low liquidity needs C) long time horizon, low risk tolerance, and high liquidity needs Explanation Endowments and foundations invest for the long term to provide ongoing funding for a speci c purpose or charitable cause They typically have relatively low cash payout rates as a percentage of total assets Their investment needs are best characterized as long time horizons, low liquidity needs, and high risk tolerance (Study Session 18, Module 51.1, LOS 51.c) Question #4 of 24 Question ID: 1206823 In the top-down approach to asset allocation, industry analysis should be conducted before company analysis because: A) most valuation models recommend the use of industry-wide average required returns, rather than individual returns B) an industry's prospects within the global business environment are a major determinant of how well individual rms in the industry perform C) the goal of the top-down approach is to identify those companies in non-cyclical industries with the lowest P/E ratios Explanation In general, an industry's prospects within the global business environment determine how well or poorly individual rms in the industry Thus, industry analysis should precede company analysis The goal is to nd the best companies in the most promising industries; even the best company in a weak industry is not likely to perform well (Study Session 18, Module 51.1, LOS 51.b) Question #5 of 24 Question ID: 1212532 High risk tolerance, a long investment horizon, and low liquidity needs are most likely to characterize the investment needs of a(n): A) insurance company B) de ned bene t pension plan C) bank Explanation A de ned bene t pension plan typically has a long investment time horizon, low liquidity needs, and high risk tolerance Insurance companies and banks typically have low risk tolerance and high liquidity needs Banks and property and casualty insurers typically have short investment horizons (Study Session 18, Module 51.1, LOS 51.c) Question #6 of 24 Identifying a benchmark for a client portfolio is most likely to be part of the: A) planning step B) execution step C) feedback step Question ID: 1206826 Explanation Identi cation of the client's benchmark would be established in the planning step, to allow assessment of performance in the feedback step (Study Session 18, Module 51.1, LOS 51.b) Question #7 of 24 Question ID: 1206819 The ratio of an equally weighted portfolio's standard deviation of return to the average standard deviation of the securities in the portfolio is known as the: A) relative risk ratio B) diversi cation ratio C) Sharpe ratio Explanation The diversi cation ratio is calculated by dividing a portfolio's standard deviation of returns by the average standard deviation of returns of the individual securities in the portfolio (sometimes calculated as the average annualized standard deviation of portfolio securities selected at random over the historical measurement period) (Study Session 18, Module 51.1, LOS 51.a) Question #8 of 24 Question ID: 1206835 Promised payments to pension bene ciaries are a responsibility of the plan sponsor in: A) a de ned bene t plan only B) both a de ned bene t plan and a de ned contribution plan C) a de ned contribution plan only Explanation In a de ned bene t plan the promised payments to bene ciaries are a responsibility of the rm sponsoring the plan In a de ned contribution plan no xed payments are promised to bene ciaries (Study Session 18, Module 51.1, LOS 51.d) Question #9 of 24 Question ID: 1206824 Which of the following actions is best described as taking place in the execution step of the portfolio management process? A) Choosing a target asset allocation B) Developing an investment policy statement C) Rebalancing the portfolio Explanation The three major steps in the portfolio management process are (1) planning, (2) execution, and (3) feedback The planning step includes evaluating the investor's needs and preparing an investment policy statement The execution step includes choosing a target asset allocation, evaluating potential investments based on top-down or bottom-up analysis, and constructing the portfolio The feedback step includes measuring and reporting performance and monitoring and rebalancing the portfolio (Study Session 18, Module 51.1, LOS 51.b) Question #10 of 24 Question ID: 1206841 Which of the following pooled investments is least likely to employ large amounts of leverage? A) Venture capital fund B) Private equity buyout fund C) Global macro hedge fund Explanation Hedge funds and buyout rms typically employ high leverage to acquire assets Venture capital typically involves an equity interest (Study Session 18, Module 51.2, LOS 51.f) Question #11 of 24 Question ID: 1206833 In a de ned contribution pension plan, investment risk is borne by the: A) employee B) plan manager C) employer Explanation In a de ned contribution plan, the employee makes the investment decisions and assumes the investment risk (Study Session 18, Module 51.1, LOS 51.d) Question #12 of 24 Question ID: 1206837 Which of the following statements about active and passive asset management is most accurate? A) Active management has been gaining market share over time versus passive management B) Passive management’s share of industry revenues is smaller than its share of assets under management C) Active management may use fundamental analysis, technical analysis, or a “smart beta” approach to outperform a chosen benchmark Explanation Because fees for passive management are lower than fees for active management, passive management represents a smaller share of industry revenues than assets under management Passive management has been gaining market share over time versus active management Smart beta is a passive management strategy that focuses on a speci c market risk factor (Study Session 18, Module 51.2, LOS 51.e) Question #13 of 24 Question ID: 1206838 A pooled investment with a share price signi cantly di erent from its net asset value (NAV) per share is most likely a(n): A) closed-end fund B) exchange-traded fund C) open-end fund Explanation Closed-end funds' share prices can di er signi cantly from their NAVs Open-end fund shares can be purchased and redeemed at their NAVs Market forces keep exchange-traded fund share prices close to their NAVs because arbitrageurs can pro t by trading when there are di erences (Study Session 18, Module 51.2, LOS 51.f) Question #14 of 24 Question ID: 1206839 A pooled investment fund buys all the shares of a publicly traded company The fund reorganizes the company and replaces its management team Three years later, the fund exits the investment through an initial public o ering of the company's shares This pooled investment fund is best described as a(n): A) private equity fund B) venture capital fund C) event-driven fund Explanation A private equity fund or buyout fund is one that acquires entire public companies, takes them private, and reorganizes the companies to increase their value An event-driven fund is a hedge fund that invests in response to corporate events such as mergers or acquisitions Venture capital funds invest in start-up companies (Study Session 18, Module 51.2, LOS 51.f) Question #15 of 24 Question ID: 1206827 The execution step in the portfolio management process is most likely to include: A) performance measurement and portfolio rebalancing B) preparation of an investment policy statement C) asset allocation and security analysis Explanation The three major steps in the portfolio management process are planning, execution, and feedback Asset allocation and security analysis are components of the execution step, as is portfolio construction Preparation of an investment policy statement is a component of the planning step Portfolio monitoring and rebalancing, as well as performance measurement and reporting, are part of the feedback step (Study Session 18, Module 51.1, LOS 51.b) Question #16 of 24 Question ID: 1206825 The top-down analysis approach is most likely to be employed in which step of the portfolio management process? A) The feedback step B) The planning step C) The execution step Explanation Top-down analysis would be used to select securities in the execution step (Study Session 18, Module 51.1, LOS 51.b) Question #17 of 24 A pool of investment assets owned by a government is best described as a(n): A) state managed fund B) sovereign wealth fund C) o cial reserve fund Explanation A sovereign wealth fund is a pool of investment assets owned by a government (Study Session 18, Module 51.1, LOS 51.c) Question ID: 1212534 Question #18 of 24 Question ID: 1206822 Which of the following would be assessed rst in a top-down valuation approach? A) Industry risks B) Fiscal policy C) Industry return on equity (ROE) Explanation In the top-down valuation approach, the investor should analyze macroeconomic in uences rst, then industry in uences, and then company in uences Fiscal policy, as part of the macroeconomic landscape, should be analyzed rst (Study Session 18, Module 51.1, LOS 51.b) Question #19 of 24 Question ID: 1206834 In a de ned bene t pension plan: A) the employer’s pension expense is equal to its contributions to the plan B) the employee is promised a periodic payment upon retirement C) the employee is responsible for making investment decisions Explanation In a de ned bene t pension plan, a periodic payment, typically based on the employee's salary, is promised to the employee upon retirement and the employer contributes to an investment trust that generates the principal growth and income to meet the pension obligation The employees not direct the investments in their accounts as they in a de ned contribution plan Pension expense for a de ned bene t plan has several components, including service cost, prior service cost, and interest cost, and depends on actuarial assumptions and the expected rate of return on plan assets (Study Session 18, Module 51.1, LOS 51.d) Question #20 of 24 Question ID: 1212535 Which of the following institutional investors is most likely to have low liquidity needs? A) Bank B) Property insurance company C) De ned bene t pension plan Explanation A de ned bene t pension plan has less need for liquidity than a bank or a property and casualty insurance company Banks have high liquidity needs because assets may have to be sold quickly if depositors withdraw their funds Property and casualty insurance companies need to keep liquid assets to meet claims as they arise (Study Session 18, Module 51.1, LOS 51.c) Question #21 of 24 Question ID: 1212533 Which of the following types of investors is likely to have the shortest investment horizon? A) Foundation B) Life insurance company C) Property and casualty insurance company Explanation Foundations and life insurance companies typically have long investment horizons Property and casualty insurance companies typically have shorter investment horizons than life insurance companies because claims against their policies occur sooner on average (Study Session 18, Module 51.1, LOS 51.c) Question #22 of 24 Question ID: 1206840 A mutual fund that invests in short-term debt securities and maintains a net asset value of $1.00 per share is best described as a: A) balanced fund B) bond mutual fund C) money market fund Explanation Money market funds invest primarily in short-term debt securities and are managed to maintain a constant net asset value, typically one unit of currency per share A bond mutual fund typically invests in longer-maturity securities than a money market fund A balanced fund invests in both debt and equity securities (Study Session 18, Module 51.2, LOS 51.f) Question #23 of 24 Question ID: 1206818 In the Markowitz framework, an investor should most appropriately evaluate a potential investment based on its: A) e ect on portfolio risk and return B) intrinsic value compared to market value C) expected return Explanation Modern portfolio theory concludes that an investor should evaluate potential investments from a portfolio perspective and consider how the investment will a ect the risk and return characteristics of an investor's portfolio as a whole (Study Session 18, Module 51.1, LOS 51.a) Question #24 of 24 Question ID: 1206821 Which of the following is typically the rst general step in the portfolio management process? A) Develop an investment strategy B) Write a policy statement C) Specify capital market expectations Explanation The policy statement is the foundation of the entire portfolio management process Here, both risk and return are integrated to determine the investor's goals and constraints (Study Session 18, Module 51.1, LOS 51.b) Reading 52: Portfolio Risk and Return: Part I Question #1 of 91 Question ID: 1206929 According to Markowitz, an investor's optimal portfolio is determined where the: A) investor's lowest utility curve is tangent to the e cient frontier B) investor's utility curve meets the e cient frontier C) investor's highest utility curve is tangent to the e cient frontier Explanation The optimal portfolio for an investor is determined as the point where the investor's highest utility curve is tangent to the e cient frontier (Study Session 18, Module 52.3, LOS 52.i) Question #2 of 91 Question ID: 1206903 Which one of the following statements about correlation is NOT correct? A) Potential bene ts from diversi cation arise when correlation is less than +1 B) If the correlation coe cient were 0, a zero variance portfolio could be constructed C) If the correlation coe cient were -1, a zero variance portfolio could be constructed Explanation A correlation coe cient of zero means that there is no relationship between the stock's returns The other statements are true (Study Session 18, Module 52.3, LOS 52.g) Question #3 of 91 Question ID: 1206876 An analyst observes the following return behavior between stocks X and Y Time Period X's Return Y's Return 10 11 10 What is the covariance of returns between stocks X and Y? A) -3.0 B) +3.0 C) +1.5 VaR and Conditional VaR are measures of tail risk, the probability of or magnitude of extreme negative outcomes in the tail of a distribution (Study Session 19, Module 55.1, LOS 55.g) Question #13 of 14 Question ID: 1207056 Buying insurance is best described as a method for an organization to: A) shift a risk B) prevent a risk C) transfer a risk Explanation Buying insurance transfers a risk to the insurance company Shifting a risk is changing the distribution of outcomes, typically with a derivatives contract Preventing a risk refers to taking steps such as strengthening security procedures (Study Session 19, Module 55.1, LOS 55.g) Question #14 of 14 Question ID: 1207054 Examples of nancial risks include: A) market risk, liquidity risk, and tax risk B) solvency risk, credit risk, and market risk C) credit risk, market risk, and liquidity risk Explanation Credit risk, market risk, and liquidity risk are examples of nancial risk Solvency risk and tax risk are classi ed as non- nancial risks (Study Session 19, Module 55.1, LOS 55.f) Reading 56: Technical Analysis Question #1 of 28 Question ID: 1207061 A technical analyst believes stock prices are primarily driven by: A) specialist trading B) the random walk hypothesis C) market supply and demand forces Explanation Other assumptions of technical analysis include: Supply and demand is driven by both rational and irrational behavior, security prices move in trends that persist for long periods of time, and while the cause for changes in supply and demand are di cult to determine, the actual shifts in supply and demand can be observed in market price behavior (Study Session 19, Module 56.1, LOS 56.a) Question #2 of 28 Question ID: 1207072 An inverse head and shoulders pattern most likely indicates: A) the continuation of a downtrend B) the reversal of a downtrend C) the reversal of an uptrend Explanation Inverse head and shoulders patterns typically occur after downtrends and indicate that the trend is going to reverse (Study Session 19, Module 56.1, LOS 56.d) Question #3 of 28 Question ID: 1207083 Elliott wave theory describes the typical pattern of price movements as: A) four waves with the direction of the trend, followed by three waves against the direction of the trend B) ve waves with the direction of the trend, followed by four waves against the direction of the trend C) ve waves with the direction of the trend, followed by three waves against the direction of the trend Explanation According to Elliott wave theory, prices tend to move in ve waves with the direction of the trend and three waves against the direction of the trend (Study Session 19, Module 56.1, LOS 56.g) Question #4 of 28 Question ID: 1207085 The most appropriate tool to use for intermarket analysis of two di erent asset classes is a: A) relative strength chart B) moving average convergence/divergence chart C) stochastic oscillator Explanation Relative strength charts are useful for intermarket analysis because they illustrate the performance of one asset, sector, or index relative to another Momentum indicators, such as stochastic oscillators and MACD oscillators, are generally used to analyze individual markets (Study Session 19, Module 56.1, LOS 56.h) Question #5 of 28 Question ID: 1207067 The trend line for a stock in an uptrend is constructed by drawing a straight line through the: A) lows B) periodic averages C) highs Explanation Trendlines connect the increasing low points on a price chart in an uptrend and the decreasing high points in a downtrend (Study Session 19, Module 56.1, LOS 56.c) Question #6 of 28 One of the assumptions of technical analysis is: A) the market is e cient B) supply and demand are driven by rational and irrational behavior C) all analysts have all current information Explanation Question ID: 1207062 The market is driven by rational and irrational behavior (Study Session 19, Module 56.1, LOS 56.a) Question #7 of 28 Question ID: 1207076 Bollinger bands are drawn based on the: A) di erence between two smoothed moving averages B) high and low prices in a recent period C) standard deviation of recent price changes Explanation To use Bollinger bands, an analyst will calculate the standard deviation of prices over some number of trading days, and typically will draw the bands two standard deviations above and below a moving average for the same number of days (Study Session 19, Module 56.1, LOS 56.e) Question #8 of 28 Question ID: 1207071 A head and shoulders pattern is most likely to precede a reversal in trend if: A) the left shoulder, the head, and the right shoulder occur on increasing volume B) volume decreases between the left shoulder and the head, then increases between the head and the right shoulder C) the left shoulder, the head, and the right shoulder occur on decreasing volume Explanation Decreasing volume on each of the high prices in a head and shoulders pattern (or each of the low prices in an inverse head and shoulders) suggests weakening in the supply and demand forces that were driving the price trend (Study Session 19, Module 56.1, LOS 56.d) Question #9 of 28 A contrarian technical analyst is most likely to be bullish based on a: A) low put-call ratio B) high volatility index C) low mutual fund cash position Explanation Question ID: 1207078 High levels of the VIX indicate that the outlook of investors is bearish A contrarian interprets this as a bullish sign Low mutual fund cash balances indicate that mutual fund managers are bullish, and, as a result, contrarians are bearish A low put-call ratio indicates bullish investor sentiment, which a contrarian interprets as a bearish sign (Study Session 19, Module 56.1, LOS 56.e) Question #10 of 28 Question ID: 1207079 A technical analyst examining the past 12 months of daily price data for evidence of cycles is most likely to identify: A) Elliott wave patterns B) Kondratie waves C) decennial patterns Explanation Waves in Elliott wave theory vary in length and can be as short as a few minutes Decennial patterns refer to ten-year cycles The Kondratie wave refers to a 54-year cycle (Study Session 19, Module 56.1, LOS 56.f) Question #11 of 28 Question ID: 1207077 Which of the following would a technical analyst most likely interpret as a "buy" signal? A) 30-day moving average crosses above a 5-day moving average B) 10-day moving average crosses above a 60-day moving average C) 20-day moving average crosses below a 100-day moving average Explanation When using moving averages to generate trading signals, a "golden cross" of a shorter-term average above a longer-term average is a buy signal, while a "dead cross" under the longer-term average is a sell signal (Study Session 19, Module 56.1, LOS 56.e) Question #12 of 28 Technical analysts who use cycles de ne a Kondratie wave as a cycle of: A) 54 years B) 18 years C) 10 years Explanation Question ID: 1207080 The Kondratie wave is a 54-year cycle that some technical analysts believe exists for equity market prices (Study Session 19, Module 56.1, LOS 56.f) Question #13 of 28 Question ID: 1207074 A trend is most likely to reverse if the price chart displays a: A) head and shoulders pattern B) rectangle pattern C) descending triangle pattern Explanation Head and shoulders (and inverse head and shoulders) patterns typically indicate a reversal of a price trend Triangle and rectangle patterns typically suggest the price trend will continue in the same direction (Study Session 19, Module 56.1, LOS 56.d) Question #14 of 28 Question ID: 1207081 A technical analyst who identi es a decennial pattern and a Kondratie wave most likely: A) is analyzing a daily or intraday price chart B) associates these phenomena with U.S presidential elections C) believes market prices move in cycles Explanation The decennial pattern and the Kondratie wave are cycles of ten and 54 years, respectively A technical analyst would be most likely to use these cycles to interpret long-term charts of monthly or annual data Presidential elections in the United States are a possible explanation for a four-year cycle (Study Session 19, Module 56.1, LOS 56.f) Question #15 of 28 Question ID: 1207075 A technical analyst who wishes to observe the state of capital ows in the nancial markets is least likely to examine: A) margin debt B) the cash position of mutual funds C) the short interest ratio Explanation The short interest ratio is most commonly interpreted as an indicator of investor sentiment Mutual fund cash positions are an indicator of the ow of funds in nancial markets The level of margin debt can be useful as an indicator of both investor sentiment and the ow of funds (Study Session 19, Module 56.1, LOS 56.e) Question #16 of 28 Question ID: 1207064 Constructing a candlestick chart requires data on: A) opening, high, low, and closing prices only B) high, low, and closing prices only C) opening, high, low, and closing prices, and trading volume Explanation Candlestick charts require the open, high, low, and close for each trading period (Study Session 19, Module 56.1, LOS 56.b) Question #17 of 28 Question ID: 1207066 Which of the following technical analysis observations most likely represents a change in polarity? A) A resistance level on a line chart is breached and later acts as a support level B) Following an “X” column, a point-and- gure chart begins a new “O” column C) Bars on a candlestick chart change from empty to lled Explanation "Change in polarity" refers to a perceived tendency for breached support levels to become resistance levels and breached resistance levels to become support levels (Study Session 19, Module 56.1, LOS 56.c) Question #18 of 28 The resistance level signi es the price at which a stock's supply would be expected to: A) increase substantially B) cause the stock price to "break out" C) decrease substantially Explanation Question ID: 1207068 Support and resistance levels Most stock prices remain relatively stable and uctuate up and down from their true value The lower limit to these uctuations is called a support level – the price range where a stock appears cheap and attracts buyers The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling Generally, a resistance level tends to develop after a stock has experienced a steady decline from a higher price level Technicians believe that the decline in price will cause some investors who acquired the stock at a higher price to look for an opportunity to sell it near their break-even points Therefore, the supply of stock owned by investors is overhanging the market When the price rebounds to the target price set by these investors, this overhanging supply of stock comes to the market and dramatically reverses the price increase on heavy volume (Study Session 19, Module 56.1, LOS 56.c) Question #19 of 28 Question ID: 1207063 A technical analysis chart that illustrates only the closing prices of a security on each trading day is best described as a: A) line chart B) bar chart C) point and gure chart Explanation Line charts are composed of closing prices for each trading day connected by lines Bar charts require high and low prices for each trading day Point and gure charts not necessarily show each trading day's closing price (Study Session 19, Module 56.1, LOS 56.b) Question #20 of 28 Question ID: 1207084 An Elliott wave theorist who forecasts prices based on Fibonacci ratios is most likely to predict that a wave will be: A) six-elevenths the size of the previous wave B) ve-eighths the size of the previous wave C) four-ninths the size of the previous wave Explanation The sequence of Fibonacci numbers is 0, 1, 1, 2, 3, 5, 8, 13 Five-eighths is a Fibonacci ratio (Study Session 19, Module 56.1, LOS 56.g) Question #21 of 28 Question ID: 1207082 Technical analysts who employ Elliott Wave Theory are most likely to use Fibonacci numbers to forecast the: A) number of subwaves within a larger wave B) sizes of waves C) timing of wave direction changes Explanation In Elliott Wave Theory, the sizes of waves are believed to correspond to ratios of Fibonacci numbers Technical analysts who employ this theory may use Fibonacci ratios to estimate price targets (Study Session 19, Module 56.1, LOS 56.g) Question #22 of 28 Question ID: 1207086 When technical analysts say a stock has good "relative strength," they mean the: A) stock has performed well compared to other stocks in the same risk category as measured by beta B) recent trading volume in the stock has exceeded the normal trading volume C) ratio of the price of the stock to a market index has trended upward Explanation This is the de nition of relative strength When the ratio of the stock price to the market price increases over time, the stock is out-performing the market (Study Session 19, Module 56.1, LOS 56.h) Question #23 of 28 Question ID: 1207087 Asset allocation using technical analysis is most likely to be based on: A) a stochastic oscillator B) correlations within asset classes C) intermarket analysis Explanation Intermarket analysis based on relative strength analysis is used to identify in ection points in the price trends of asset classes in order to adjust asset class allocations (Study Session 19, Module 56.1, LOS 56.h) Question #24 of 28 A support level is the price range at which a technical analyst would expect the: Question ID: 1207070 A) supply of a stock to decrease substantially B) demand for a stock to increase substantially C) demand for a stock to decrease substantially Explanation Support and resistance levels.  Most stock prices remain relatively stable and uctuate up and down from their true value The lower limit to these uctuations is called a support level – the price range where a stock appears cheap and attracts buyers.  The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling Generally, a support level will develop after a stock has experienced a steady decline from a higher price level Technicians believe that, at some price below the recent peak, other investors will buy who did not buy prior to the rst price increase and have been waiting for a small reversal to get into the stock When the price reaches this support price, demand surges and price and volume begin to increase again (Study Session 19, Module 56.1, LOS 56.c) Question #25 of 28 Question ID: 1207060 The advantages of using technical analysis include: A) the incorporation of psychological reasons behind price changes B) complete objectivity C) ease in interpreting reasons behind stock price trends Explanation Technical analysis avoids having to use fundamental data and adjusting for accounting problems, incorporates psychological as well as economic reasons behind price changes, and tells WHEN to buy; not WHY investors are buying Drawbacks include subjective interpretation of charts and graphs (Study Session 19, Module 56.1, LOS 56.a) Question #26 of 28 Question ID: 1207065 Point and gure charts are most likely to illustrate: A) changes of direction in price trends B) signi cant increases or decreases in volume C) the length of time over which trends persist Explanation A point-and- gure chart includes only signi cant price changes, regardless of their timing or volume The technician determines what price interval to record as signi cant (the box size) and when to note changes of direction in prices (the reversal size) Point and gure charts not show volume and are not scaled to even time periods (Study Session 19, Module 56.1, LOS 56.b) Question #27 of 28 Question ID: 1207069 The point where technicians expect a substantial increase in the demand for a stock to occur is called a: A) resistance level B) break-out point C) support level Explanation Support and resistance levels Most stock prices remain relatively stable and uctuate up and down from their true value The lower limit to these uctuations is called a support level – the price range where a stock appears cheap and attracts buyers The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling A breakout occurs when the price breaches a support or resistance level and thus may indicate either an increase or a decrease in demand for a stock (Study Session 19, Module 56.1, LOS 56.c) Question #28 of 28 Question ID: 1207073 A trend is most likely to continue if the price chart displays a(n): A) double top B) inverse head and shoulders pattern C) ascending triangle pattern Explanation Triangles are considered to be continuation patterns An inverse head and shoulders pattern would most likely indicate the reversal of a downtrend, while a double top would most likely indicate the reversal of an uptrend (Study Session 19, Module 56.1, LOS 56.d) Reading 57:: Fintech in Investment Management Question ID: 1207097 Question #1 of 10 Investors in an initial coin o ering (ICO) typically receive: A) voting rights in the ICO issuer B) registered securities C) cryptocurrency Explanation An ICO is a sale of cryptocurrency to investors in exchange for cash or another cryptocurrency (Study Session 19, Module 57.1, LOS 57.d) Question #2 of 10 Question ID: 1207090 Which of the following uses of data is most accurately described as curation? A) An investor creates a word cloud from nancial analysts’ recent research reports about a company B) A data technician accesses an o site archive to retrieve data that has been stored there C) An analyst adjusts daily stock index data from two countries for their di erent market holidays Explanation Curation is ensuring the quality of data—for example, by adjusting for bad or missing data Word clouds are a visualization technique Moving data from a storage medium to where they are needed is referred to as transfer (Study Session 19, Module 57.1, LOS 57.b) Question #3 of 10 Question ID: 1207095 Robo-advisory services are most likely to be appropriate for an investor who is interested in: A) actively managed investments B) traditional asset classes C) high-frequency trading Explanation Robo-advisory services typically o er passively managed investments in traditional asset classes Highfrequency trading refers to intraday arbitrage trading with computer algorithms (Study Session 19, Module 57.1, LOS 57.c) Question #4 of 10 Question ID: 1207096 A government decides it will privatize vehicle registrations if the province's auto insurance companies can record and maintain ownership titles using distributed ledger technology This application of distributed ledger technology is best characterized as: A) tokenization B) blockchain C) smart contracts Explanation Tokenization refers to maintaining ownership records for physical assets on a distributed ledger This might, but would not necessarily, use a blockchain, which is a subcategory of distributed ledgers Smart contracts are computerized agreements designed to automatically carry out certain actions if de ned conditions are met (Study Session 19, Module 57.1, LOS 57.d) Question #5 of 10 Question ID: 1207093 The technique in which a machine learns to model a set of output data from a given set of inputs is best described as: A) deep learning B) unsupervised learning C) supervised learning Explanation Supervised learning is a machine learning technique in which a machine is given labeled input and output data and then models the output data based on the input data In unsupervised learning, a machine is given input data in which to identify patterns and relationships, but no output data to model Deep learning is a technique to identify patterns of increasing complexity, and may use supervised or unsupervised learning (Study Session 19, Module 57.1, LOS 57.b) Question #6 of 10 Question ID: 1207089 An executive describes her company's "low latency, multiple terabyte" requirements for managing Big Data To which characteristics of Big Data is the executive referring? A) Volume and velocity B) Volume and variety C) Velocity and variety Explanation Big Data may be characterized by its volume (the amount of data available), velocity (the speed at which data are communicated), and variety (degrees of structure in which data exist) "Terabyte" is a measure of volume "Latency" refers to velocity (Study Session 19, Module 57.1, LOS 57.b) Question #7 of 10 Question ID: 1207088 Which of the following statements about ntech is most accurate? A) Financial services that involve subjective judgment, such as investment advice, are unlikely to be a ected by ntech B) Fintech companies include those that develop technology for the nancial services industry C) A primary driver of ntech is the increasingly structured nature of data that rms must process Explanation Fintech refers to technological developments with potential applications in nancial services, as well as to the industry that develops these technologies While rms must process an increasing volume of data, a large portion of that data exists in unstructured forms Automated investment advice is a potential application of ntech (Study Session 19, Module 57.1, LOS 57.a) Question #8 of 10 Question ID: 1207091 Arti cial intelligence is best described as: A) the eld of study concerned with extracting information from data B) computer systems that emulate human thinking C) networks of smart devices and buildings Explanation Arti cial intelligence refers to computer systems that emulate the functioning of the human mind Networks of smart devices and buildings are referred to as the Internet of Things Data science is the eld of study concerned with extracting information from data (Study Session 19, Module 57.1, LOS 57.b) Question #9 of 10 Question ID: 1207094 Determining the optimal execution instructions for an order to buy a security is most likely to be an application of: A) natural language processing B) text analytics C) algorithmic trading Explanation One of the potential applications of algorithmic trading is entering the optimal execution instructions for a trade Text analytics is used for interpreting unstructured text or voice data Natural language processing is used for applications such as language translation and speech recognition (Study Session 19, Module 57.1, LOS 57.c) Question #10 of 10 Question ID: 1207092 Under which of these conditions is a machine learning model said to be under t? A) The model treats true parameters as noise B) The model identi es spurious relationships C) The input data are not labeled Explanation Under tting describes a machine learning model that is not complex enough to describe the data it is meant to analyze An under t model treats true parameters as noise and fails to identify the actual patterns and relationships A model that is over t (too complex) will tend to identify spurious relationships in the data Labeling of input data is related to the use of supervised or unsupervised machine learning techniques (Study Session 19, Module 57.1, LOS 57.b) ... following portfolios cannot lie on the e cient frontier? Portfolio Expected Return Standard Deviation A 20% 35% B 11% 13% C 8% 10% D 8% 9% A) Portfolio A B) Portfolio C C) Portfolio D Explanation Portfolio. .. active management, passive management represents a smaller share of industry revenues than assets under management Passive management has been gaining market share over time versus active management. .. following portfolios falls below the Markowitz e cient frontier? Portfolio Expected Return Expected Standard Deviation A 12.1% 8.5% B 14.2% 8.7% C 15.1% 8.7% A) Portfolio A B) Portfolio C C) Portfolio