Question 1

For an individual investor, the value of home ownership is likely to be viewed

Accepted Answer

A) as a hedge against increases in rental rates. 
B) as a guarantee of availability of a particular residence. 
C) as a hedge against inflation. 
D) as a hedge against increases in rental rates and as a guarantee of availability of a particular residence. 
E) All of the options 
A) as a hedge against increases in rental rates. 
B) as a guarantee of availability of a particular residence. 
C) as a hedge against inflation. 
D) as a hedge against increases in rental rates and as a guarantee of availability of a particular residence. 
E) All of the options D

Question 2

Target-date retirement funds are not

Accepted Answer

A) inappropriate for most investors. 
B) very high in fees. 
C) designed to function much like hedge funds. 
D) inappropriate for most investors or very high in fees. 
E) All of the options 
A) inappropriate for most investors. 
B) very high in fees. 
C) designed to function much like hedge funds. 
D) inappropriate for most investors or very high in fees. 
E) All of the options E

Question 3

Stephanie Watson is 23 years old and has accumulated $4,000 in her self-directed defined contribution pension plan.Each year she contributes $2,000 to the plan and her employer contributes an equal amount.Stephanie thinks she will retire at age 67 and figures she will live to age 81.The plan allows for two types of investments.One offers a 3.5% risk-free real rate of return.The other offers an expected return of 10% and has a standard deviation of 23%.Stephanie now has 5% of her money in the risk-free investment and 95% 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 does Stephanie currently have in the safe account; how much in the risky account

Accepted Answer

A) $3,800; $200 
B) $2,000; $2,000 
C) $200; $3,800 
D) $2,500; $1,500 
E) $1,500; $2,500 
A) $3,800; $200 
B) $2,000; $2,000 
C) $200; $3,800 
D) $2,500; $1,500 
E) $1,500; $2,500 C

Question 4

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

Accepted Answer

A) immunization. 
B) hedging. 
C) diversification. 
D) contingent immunization. 
E) overfunding. 
A) immunization. 
B) hedging. 
C) diversification. 
D) contingent immunization. 
E) overfunding.

Question 5

Discuss four factors you would need to include if you were constructing a retirement planning worksheet.

Accepted Answer

Factors include how much income you will

Question 6

Liquidity is

Accepted Answer

A) the ease with which an asset can be sold. 
B) the ability to sell an asset for a fair price. 
C) the degree of inflation protection an asset provides. 
D) All of the options 
E) the ease with which an asset can be sold and the ability to sell an asset for a fair price. 
A) the ease with which an asset can be sold. 
B) the ability to sell an asset for a fair price. 
C) the degree of inflation protection an asset provides. 
D) All of the options 
E) the ease with which an asset can be sold and the ability to sell an asset for a fair price.

Question 7

Endowment funds are held by

Accepted Answer

A) charitable organizations. 
B) educational institutions. 
C) for-profit firms. 
D) charitable organizations and educational institutions. 
E) educational institutions and for-profit firms. 
A) charitable organizations. 
B) educational institutions. 
C) for-profit firms. 
D) charitable organizations and educational institutions. 
E) educational institutions and for-profit firms.

Question 8

Alan Barnett is 43 years old and has accumulated $78,000 in his self-directed defined contribution pension plan.Each year he contributes $1,500 to the plan and his employer contributes an equal amount.Alan thinks he will retire at age 60 and figures he will live to age 83.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 10% and has a standard deviation of 34%.Alan now has 40% of his money in the risk-free investment and 60% 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. Of the total amount of new funds that will be invested by Alan and by his employer on his behalf, how much will he put into the safe account each year; how much into the risky account

Accepted Answer

A) $1,500; $1,500 
B) $1,200; $1,800 
C) $2,000; $1,000 
D) $2,500; $500 
E) $1,400; $1,600 
A) $1,500; $1,500 
B) $1,200; $1,800 
C) $2,000; $1,000 
D) $2,500; $500 
E) $1,400; $1,600

Question 9

Discuss some of the advantages "personal funds" have over mutual funds.

Accepted Answer

Personal funds are a user-friendly alter

Question 10

Pension funds do not 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.

Accepted Answer

A) III and IV 
B) II and III 
C) I and II 
D) I, II, and IV 
E) I, II, III, and IV 
A) III and IV 
B) II and III 
C) I and II 
D) I, II, and IV 
E) I, II, III, and IV

Question 11

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

Accepted Answer

A) relevant constraints. 
B) other relevant considerations. 
C) performance measurement accountabilities, metrics for risk measurement, and the rebalancing process. 
D) relevant constraints and other relevant considerations. 
E) All of the options 
A) relevant constraints. 
B) other relevant considerations. 
C) performance measurement accountabilities, metrics for risk measurement, and the rebalancing process. 
D) relevant constraints and other relevant considerations. 
E) All of the options

Question 12

Target-date retirement funds are not

Accepted Answer

A) funds of funds diversified across stocks and bonds. 
B) designed to change their asset allocation as time passes. 
C) a simple but useful strategy. 
D) designed to function much like hedge funds. 
A) funds of funds diversified across stocks and bonds. 
B) designed to change their asset allocation as time passes. 
C) a simple but useful strategy. 
D) designed to function much like hedge funds.

Question 13

Questionnaires and attitude surveys suggest that risk tolerance

Accepted Answer

A) increases with age. 
B) decreases with age. 
C) stays constant over the life cycle for most investors. 
D) cannot be assessed. 
E) None of the options 
A) increases with age. 
B) decreases with age. 
C) stays constant over the life cycle for most investors. 
D) cannot be assessed. 
E) None of the options

Question 14

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

Accepted Answer

A) $30,000.00 
B) $33,333.33 
C) $51,481.38 
D) $52,452.73 
E) Cannot tell without additional information 
A) $30,000.00 
B) $33,333.33 
C) $51,481.38 
D) $52,452.73 
E) Cannot tell without additional information

Question 15

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.

Accepted Answer

A) I and IV 
B) II and III 
C) I and II 
D) I, II, and IV 
E) I, II, III, and IV 
A) I and IV 
B) II and III 
C) I and II 
D) I, II, and IV 
E) I, II, III, and IV

Question 16

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 does Genny currently have in the safe account; how much in the risky account

Accepted Answer

A) $1,500; $6,000 
B) $3,000; $4,500 
C) $2,000; $5,500 
D) $4,800; $2,700 
E) $3,500; $3,500 
A) $1,500; $6,000 
B) $3,000; $4,500 
C) $2,000; $5,500 
D) $4,800; $2,700 
E) $3,500; $3,500

Question 17

A remainderman is

Accepted Answer

A) a stockbroker who remained working on Wall Street after the 1987 crash. 
B) an employee of a trustee. 
C) one who receives interest and dividend income from a trust during their lifetime. 
D) one who receives the principal of a trust when it is dissolved. 
A) a stockbroker who remained working on Wall Street after the 1987 crash. 
B) an employee of a trustee. 
C) one who receives interest and dividend income from a trust during their lifetime. 
D) one who receives the principal of a trust when it is dissolved.

Question 18

Alan Barnett is 43 years old and has accumulated $78,000 in his self-directed defined contribution pension plan.Each year he contributes $1,500 to the plan and his employer contributes an equal amount.Alan thinks he will retire at age 60 and figures he will live to age 83.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 10% and has a standard deviation of 34%.Alan now has 40% of his money in the risk-free investment and 60% 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 Alan expect to have in his risky account at retirement

Accepted Answer

A) $158,982 
B) $309,529 
C) $543,781 
D) $224,651 
E) $345,886 
A) $158,982 
B) $309,529 
C) $543,781 
D) $224,651 
E) $345,886

Question 19

Institutional investors will rarely invest in which of these asset classes

Accepted Answer

A) Bonds 
B) Stocks 
C) Cash 
D) Real estate 
E) Precious metals 
A) Bonds 
B) Stocks 
C) Cash 
D) Real estate 
E) Precious metals

Question 20

An income beneficiary is

Accepted Answer

A) a stockbroker who remained working on Wall Street after the 1987 crash. 
B) an employee of a trustee. 
C) one who receives interest and dividend income from a trust during their lifetime. 
D) one who receives the principal of a trust when it is dissolved. 
E) None of the options 
A) a stockbroker who remained working on Wall Street after the 1987 crash. 
B) an employee of a trustee. 
C) one who receives interest and dividend income from a trust during their lifetime. 
D) one who receives the principal of a trust when it is dissolved. 
E) None of the options

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

For an individual investor, the value of home ownership is likely to be viewed

Target-date retirement funds are not

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

Discuss four factors you would need to include if you were constructing a retirement planning worksheet.

Liquidity is

Endowment funds are held by

Discuss some of the advantages "personal funds" have over mutual funds.

Pension funds do not 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.

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

Target-date retirement funds are not

Questionnaires and attitude surveys suggest that risk tolerance

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

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.

A remainderman is

Institutional investors will rarely invest in which of these asset classes

An income beneficiary is

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

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