Question 1

An investor has a long time horizon and desires to earn the market rate of return.However,the investor will need to withdraw funds each year from their investment portfolio.The biggest constraint a planner would face with this client is a ___________ constraint.

Accepted Answer

A)   tax
B)   risk tolerance
C)   liquidity
D)   socialE) A) and B)
F) C) and D) C

Question 2

At which one of the following institutions is liquidity usually the most important?

Accepted Answer

A)   Mutual funds
B)   Pension funds
C)   Life insurers
D)   BanksE) None of the above
F) A) and D)

Question 3

The prudent investor rule requires __________.

Accepted Answer

A)   executives of companies to avoid investing in options of companies they work for
B)   executives of companies to disclose their transactions in stocks of companies they work for
C)   professional investors who manage money for others to avoid all risky investments
D)   professional investors who manage money for others to constrain their investments to those that would have been approved by a prudent investorE) All of the above
F) C) and D)

Question 4

A family will retire in a few years.They have a high tax bracket and are concerned about their after tax rate of return.A meeting with their financial planner reveals they are primarily focused on safety of principal and they will need a 6% to 8% average rate of return on their portfolio.They desire a diversified portfolio and liquidity is likely to be a concern due to health reasons.If you had to choose from the list below which of the following asset allocations seems to best fit this family's situation?

Accepted Answer

A)   10% money market; 50% intermediate term bonds; 40% blue chip stocks, many with high dividend yields
B)   0% money market; 60% intermediate term bonds; 40% stocks
C)   10% money market; 30% intermediate term bonds; 60% high dividend paying stocks
D)   5% money market; 35% intermediate term bonds; 60% stocks, most with low dividendsE) C) and D)
F) A) and C) A

Question 5

The asset universe is the _____________________.

Accepted Answer

A)   set of investments an investment company can legally invest in
B)   existing set of assets the investment company currently owns in one or more of its portfolios
C)   list of assets approved by the investment committee that may be placed in the investment company's portfolios
D)   market portfolio of all available risky assetsE) All of the above
F) B) and C) C

Question 6

For a bank,the difference between the interest rate charged to borrowers and the interest rate paid on liabilities is called the __________.

Accepted Answer

A)   insurance premium
B)   interest rate spread
C)   risk premium
D)   term premiumE) All of the above
F) A) and C)

Question 7

The term "investment horizon" refers to __________.

Accepted Answer

A)   the proportion of short-term to long-term investments held in an investor's portfolio
B)   the planned liquidation date of an investment
C)   the average maturity date of investments held in a portfolio
D)   the maturity date of the longest investment in the portfolioE) None of the above
F) A) and C)

Question 8

You are thinking of investing in one of two assets.Asset A has higher systematic risk than Asset B. You can be sure that Asset A's _______ return will be higher than Asset B, but you can't be sure if Asset A's _______ return will be higher than Asset B's.

Accepted Answer

A)   realized; expected
B)   real; nominal
C)   expected; realized
D)   nominal; expectedE) A) and C)
F) All of the above

Question 9

Both a wife and her husband work in the airline industry.They are in their 40s and they have a high tax bracket and are concerned about their after tax rate of return.A meeting with their financial planner reveals they are primarily focused on long term capital gains and they will need at least a 9% to 11% average rate of return to meet their retirement goals.They desire a diversified portfolio and liquidity is not currently a major concern.If you had to choose from the list below which of the following asset allocations seems to best fit their situation?

Accepted Answer

A)   10% money market; 40% long term bonds; 10% commodities; 40% high dividend paying stocks
B)   0% money market; 60% long term bonds; 40% stocks
C)   10% money market; 30% long term bonds; 10% commodities; 50% high dividend paying stocks
D)   5% money market; 30% long term bonds; 5% commodities; 60% stocks, most with low dividends and high growth prospectsE) None of the above
F) B) and D)

Question 10

A clearly understood investment policy statement is not critical for which one of the following?
I.Mutual funds
II.Individuals
III.Defined benefit pension funds

Accepted Answer

A)   II only
B)   III only
C)   I only
D)   A policy statement is necessary for all threeE) B) and C)
F) B) and D)

Question 11

An investor refuses to invest in any firm that produces alcohol or tobacco.This is an example of a ___________ constraint.

Accepted Answer

A)   return requirement
B)   risk tolerance
C)   liquidity
D)   socialE) C) and D)
F) None of the above

Question 12

A mutual fund may not hold more than ______ of the shares of any publicly traded company.

Accepted Answer

A)   5%
B)   10%
C)   25%
D)   50%E) None of the above
F) A) and B)

Question 13

A ______ insurance policy provides death benefits,with no buildup of cash value.

Accepted Answer

A)   whole life
B)   universal life
C)   variable life
D)   term lifeE) C) and D)
F) B) and C)

Question 14

When used in the context of investment decision making,the term "liquidity" refers to _____________.

Accepted Answer

A)   the ease and speed with which an asset can be sold at any value possible
B)   the ease and speed with which an asset can be sold without having to discount the value
C)   an aspect of monetary policy
D)   the proportion of short-term to long-term investments held in an investor's portfolioE) A) and B)
F) B) and C)

Question 15

To _____ means to mitigate a financial risk.

Accepted Answer

A)   invest
B)   speculate
C)   hedge
D)   renegeE) B) and C)
F) A) and D)

Question 16

Major functions of the investment committee include all but which one of the following?

Accepted Answer

A)   Engage in security selection for each portfolio managed
B)   Broadly determine the overall asset allocation of the investment company
C)   Determine the asset class weights for each portfolio
D)   Determine the asset universeE) C) and D)
F) A) and B)

Question 17

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.

Accepted Answer

A)   employee; employee
B)   employee; employer
C)   employer; employee
D)   employer; employerE) None of the above
F) A) and C)

Question 18

Under a "passive core" portfolio management strategy,a manager would ___________.

Accepted Answer

A)   index the entire portfolio
B)   index part of the portfolio and actively manage the rest
C)   delegate the management of core segments of the portfolio to other managers
D)   actively manage the entire portfolioE) A) and B)
F) A) and C)

Question 19

The objectives of personal trusts normally are __________ in scope than those of individual investors and personal trust managers typically are __________ than individual investors.

Accepted Answer

A)   broader; more risk averse
B)   broader; less risk averse
C)   more limited; more risk averse
D)   more limited; less risk averseE) B) and C)
F) A) and D)

Question 20

Under the provisions of a typical defined benefit pension plan,the employer is responsible for _____________.

Accepted Answer

A)   investing in conservative fixed-income assets
B)   paying benefits to retired employees
C)   counseling employees in the selection of asset classes
D)   paying employees the market rate of return on employee contributionsE) A) and B)
F) A) and C)

Exam 22: Investors and the Investment Process

An investor has a long time horizon and desires to earn the market rate of return.However,the investor will need to withdraw funds each year from their investment portfolio.The biggest constraint a planner would face with this client is a ___________ constraint.

Correct Answer
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C

At which one of the following institutions is liquidity usually the most important?

Correct Answer
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The prudent investor rule requires __________.

Correct Answer
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Correct Answer
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A

The asset universe is the _____________________.

Correct Answer
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C

For a bank,the difference between the interest rate charged to borrowers and the interest rate paid on liabilities is called the __________.

Correct Answer
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The term "investment horizon" refers to __________.

Correct Answer
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You are thinking of investing in one of two assets.Asset A has higher systematic risk than Asset B. You can be sure that Asset A's _ return will be higher than Asset B, but you can't be sure if Asset A's _ return will be higher than Asset B's.

Correct Answer
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Correct Answer
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A clearly understood investment policy statement is not critical for which one of the following? I.Mutual funds II.Individuals III.Defined benefit pension funds

Correct Answer
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An investor refuses to invest in any firm that produces alcohol or tobacco.This is an example of a ___________ constraint.

Correct Answer
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A mutual fund may not hold more than ______ of the shares of any publicly traded company.

Correct Answer
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A ______ insurance policy provides death benefits,with no buildup of cash value.

Correct Answer
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When used in the context of investment decision making,the term "liquidity" refers to _____________.

Correct Answer
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To _____ means to mitigate a financial risk.

Correct Answer
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Major functions of the investment committee include all but which one of the following?

Correct Answer
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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.

Correct Answer
verified

Under a "passive core" portfolio management strategy,a manager would ___________.

Correct Answer
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The objectives of personal trusts normally are in scope than those of individual investors and personal trust managers typically are than individual investors.

Correct Answer
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Under the provisions of a typical defined benefit pension plan,the employer is responsible for _____________.

Correct Answer
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Exam 22: Investors and the Investment Process

An investor has a long time horizon and desires to earn the market rate of return.However,the investor will need to withdraw funds each year from their investment portfolio.The biggest constraint a planner would face with this client is a ___________ constraint.

Correct AnswerverifiedC

At which one of the following institutions is liquidity usually the most important?

Correct AnswerverifiedShow Answer

The prudent investor rule requires __________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

The asset universe is the _____________________.

Correct AnswerverifiedC

For a bank,the difference between the interest rate charged to borrowers and the interest rate paid on liabilities is called the __________.

Correct AnswerverifiedShow Answer

The term "investment horizon" refers to __________.

Correct AnswerverifiedShow Answer

You are thinking of investing in one of two assets.Asset A has higher systematic risk than Asset B. You can be sure that Asset A's _______ return will be higher than Asset B, but you can't be sure if Asset A's _______ return will be higher than Asset B's.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A clearly understood investment policy statement is not critical for which one of the following? I.Mutual funds II.Individuals III.Defined benefit pension funds

Correct AnswerverifiedShow Answer

An investor refuses to invest in any firm that produces alcohol or tobacco.This is an example of a ___________ constraint.

Correct AnswerverifiedShow Answer

A mutual fund may not hold more than ______ of the shares of any publicly traded company.

Correct AnswerverifiedShow Answer

A ______ insurance policy provides death benefits,with no buildup of cash value.

Correct AnswerverifiedShow Answer

When used in the context of investment decision making,the term "liquidity" refers to _____________.

Correct AnswerverifiedShow Answer

To _____ means to mitigate a financial risk.

Correct AnswerverifiedShow Answer

Major functions of the investment committee include all but which one of the following?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Under a "passive core" portfolio management strategy,a manager would ___________.

Correct AnswerverifiedShow Answer

The objectives of personal trusts normally are __________ in scope than those of individual investors and personal trust managers typically are __________ than individual investors.

Correct AnswerverifiedShow Answer

Under the provisions of a typical defined benefit pension plan,the employer is responsible for _____________.

Correct AnswerverifiedShow Answer

Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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C

Correct Answer
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Correct Answer
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You are thinking of investing in one of two assets.Asset A has higher systematic risk than Asset B. You can be sure that Asset A's _ return will be higher than Asset B, but you can't be sure if Asset A's _ return will be higher than Asset B's.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

The objectives of personal trusts normally are in scope than those of individual investors and personal trust managers typically are than individual investors.

Correct Answer
verified

Correct Answer
verified