Chapter 28 Investment Policy and the Framework of the CFA Institute
Answer Key
Multiple Choice Questions
1.
The CFA Institute divides the process of portfolio management into three main elements,
which are ______, ______, and ______.
2.
The planning phase of the CFA Institute’s investment management process
3.
The execution phase of the CFA Institute’s investment management process
4.
The feedback phase of the CFA Institute’s investment management process
5.
__________ refer to strategies aimed at attaining the established rate of return
requirements while meeting expressed risk tolerance and applicable constraints.
6.
One incorrect belief that is often cited as a reason for fully-funded pension funds to invest
in equities is
7.
__________ in the process of asset allocation.
8.
Questionnaires and attitude surveys suggest that risk tolerance
9.
__________ can be used to create a perfect inflation hedge
10.
A fully-funded pension plan can invest surplus assets in equities provided it reduces the
proportion in equities when the value of the fund drops near the accumulated benefit
obligation. This strategy is referred to as
11.
Workers who change jobs may wind up with lower pension benefits at retirement than
otherwise identical workers who stay with the same employer, even if the employers have
defined benefit plans with the same final-pay benefit formula. This is referred to as
12.
The __________ the proportion of total return that is in the form of price appreciation, the
__________ will be the value of the tax-deferral option for taxable investors.
13.
An important benefit of Keogh plans is that
14.
Variable life insurance
15.
Endowment funds are held by
16.
__________ center on the trade-off between the return the investor wants and how much
risk the investor is willing to assume.
17.
The stage an individual is in his/her life cycle will affect his/her
18.
A remainderman is
19.
__________ are boundaries that investors place on their choice of investment assets.
20.
The investment horizon is
21.
Liquidity is
22.
The objectives of personal trusts normally are __________ in scope than those of individual
investors and personal trust managers typically are __________ than individual investors.
23.
When a company sets up a defined contribution pension plan, the __________ bears all the
risk and the __________ receives all the return from the plan’s assets.
24.
Suppose that the pre-tax holding period returns on two stocks are the same. Stock A has a
high dividend payout policy and stock B has a low dividend payout policy. If you are an
individual in a high marginal tax bracket and do not intend to sell the stocks during the
holding period
25.
The prudent investor rule requires
26.
The longest time horizons are likely to be set by
Topic: Investment Policy
27.
The longest time horizons are likely to be set by
28.
The shortest time horizons are likely to be set by
29.
U. S. mutual funds are restricted to holding no more than __________ of any publicly traded
corporation.
30.
Institutional investors will rarely invest in which of these asset classes?
31.
For an individual investor, the value of home ownership is likely to be viewed
32.
Assume that at retirement you have accumulated $500,000 in a variable annuity contract.
The assumed investment return is 6% and your life expectancy is 15 years. What is the
hypothetical constant benefit payment?
33.
Assume that at retirement you have accumulated $500,000 in a variable annuity contract.
The assumed investment return is 6% and your life expectancy is 15 years. If the first
year’s actual investment return is 8%, what is the starting benefit payment?
34.
The first step a pension fund should take before beginning to invest is to
35.
General pension funds typically invest __________ of their funds in equity securities.
36.
The optimal portfolio on the efficient frontier for a given investor depends on