Series 6: Chapter 7 Practice Questions

Taken from our Series 6 Online Guide

Chapter 7 Practice Questions

1. Which of the following types of risk will not be lessened within a portfolio through diversification?

A. Credit risk

B. Systematic risk

C. Nonsystematic risk

D. Liquidity risk

2. Which of the following risks is least likely to apply to debt securities?

A. Purchasing power risk

B. Interest rate risk

C. Credit risk

D. Legislative risk

3. A portfolio has a beta of 1.0. The S&P 500 experiences 8% growth, and the portfolio produces an actual return of 6%, with a risk-free rate of 2%. What is the alpha of the portfolio?

A. 2%

B. -2%

C. 1%

D. -1%

4. If a security has a beta of 1.5, which of the following is true?

A. The security is subject to more systematic risk than a security with a beta of 1.0.

B. The security is subject to less nonsystematic risk than the security with a beta of 1.0.

C. If the security had a market price of $10 at the beginning of the year, and the market returned 10% over the year, we can expect that the stock will now be priced at $15.

D. It will outperform a security with a beta of 1.0

5. Which of the following is not true of passive and active investment strategies?

A. Passive investment strategies are usually lower cost than active investment strategies.

B. Passive investment strategies are usually more tax-efficient than active investment strategies.

C. Technical analysis is considered passive investing strategy, while fundamental analysis is considered an active investing strategy.

D. Strategic asset allocation is considered a passive investment strategy, while tactical asset analysis is considered an active investment strategy.

6. Which of the following would you not expect from someone with an income strategy?

A. Investment in a rental building

B. Investment in corporate bonds

C. Investment in growth stocks

D. Investment in preferred stock

7. Which of the following investment strategie

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