Exam 28: Investment Policy and the Framework of the Cfa Institute

Assume that at retirement you have accumulated $825,000 in a variable annuity contract.The assumed investment return is 5.5%, and your life expectancy is 18 years.What is the hypothetical constant-benefit payment?

Which of the following are commonly thought to be good general investment guidelines? I) Don't try to outguess the market, buying and holding generally pays off. II. Diversify investments to spread risk. III. Investments should be highly concentrated in your company's stock. IV. 401K money is best placed in money market accounts because risk is very low. V. Investments should be allocated to stocks, bonds, and money-market funds.

An important benefit of Keogh plans is that

Target-date retirement funds

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

Genny Webb is 27 years old and has accumulated $7,500 in her self-directed defined contribution pension plan.Each year she contributes $2,000 to the plan, and her employer contributes an equal amount.Genny thinks she will retire at age 63 and figures she will live to age 90.The plan allows for two types of investments.One offers a 3% risk-free real rate of return.The other offers an expected return of 12% and has a standard deviation of 39%.Genny now has 20% of her money in the risk-free investment and 80% in the risky investment.She plans to continue saving at the same rate and keep the same proportions invested in each of the investments.Her salary will grow at the same rate as inflation. How much can Genny expect to have in her risky account at retirement?

The feedback phase of the CFA Institute's investment management process

Assume that at retirement you have accumulated $750,000 in a variable annuity contract.The assumed investment return is 9%, and your life expectancy is 25 years.If the first year's actual investment return is 9%, what is the starting benefit payment?

The governance section of an Investment Policy Statement for individual investors typically contains

Alex Goh is 39 years old and has accumulated $128,000 in his self-directed defined contribution pension plan.Each year he contributes $2,500 to the plan, and his employer contributes an equal amount.Alex thinks he will retire at age 62 and figures he will live to age 86.The plan allows for two types of investments.One offers a 4% risk-free real rate of return.The other offers an expected return of 11% and has a standard deviation of 37%.Alex now has 25% of his money in the risk-free investment and 75% in the risky investment.He plans to continue saving at the same rate and keep the same proportions invested in each of the investments.His salary will grow at the same rate as inflation. How much can Alex expect to have in his risky account at retirement?

Pension funds I) accept contributions from employers, which are tax deductible. II) pay distributions that are taxed as ordinary income. III) pay benefits only from the income component of the fund. IV) accept contributions from employees, which are not tax deductible.

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?

Liquidity is

The optimal portfolio on the efficient frontier for a given investor does not depend on

Target-date retirement funds

Institutional investors will rarely invest in which of these asset classes?

Which of the following are commonly thought to be bad general investment guidelines? I) Don't try to outguess the market, buying and holding generally pays off. III. Investments should be highly concentrated in your company's stock. IV. 401K money is best placed in money market accounts because risk is very low. V. Investments should be allocated to stocks, bonds, and money-market funds.

The scope and purpose section of an Investment Policy Statement for individual investors typically consists of defining the

The principle of duration matching is

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.