Investment Strategies - Review Questions 6 - 11

  1. With respect to market timing,
    1. The potential for gain is unlimited.
    2. It is the single greatest determinant of a portfolio's performance.
    3. It is possibly quite expensive.
    4. Some have dubbed it 'closet rebalancing' of a portfolio.
  2. Possible disadvantages of a buy and hold strategy include:
    1. It is expensive.
    2. It subjects the portfolio to the risk of a single asset class, inadvertently driving that portfolio's risk and return.
    3. Implementation is complicated.
    4. The strategy is dynamic.
  3. An investor looking to hedge downside risk and preserve gain in a long stock position whilst minimizing transaction cost would pursue which of the following strategies:
    1. A debit spread.
    2. A strap.
    3. A zero-cost collar.
    4. A short straddle.
  4. In a long margin account, the investor's initial margin is:
    1. 25%
    2. The debit balance/.75
    3. 50%
    4. None of the foregoing.
  5. In a rising market, a short seller's loss is limited to:
    1. the amount borrowed.
    2. unlimited.
    3. the decline in price.
    4. none of the above.
  6. DRIP plans entail which of the following risks:
    1. transaction costs could erode returns significantly.
    2. the investor may not be able to identify stocks with a history of significant dividend payouts.
    3. the strategy is complex.
    4. there are tax implications.
Review Questions 12 - 16


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