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

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. Of the total amount of new funds that will be invested by Genny and by her employer on her behalf, how much will Genny put into the safe account each year; how much into the risky account

Discuss the relationships between investor objectives, constraints, and policies.

The desirable components of an Investment Policy Statement for individual investors can be divided into

General pension funds typically invest __________ of their funds in equity securities.

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

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 can Stephanie be sure of having in the safe account at retirement

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

__________ can be used to create a perfect inflation hedge

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

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. Of the total amount of new funds that will be invested by Stephanie and by her employer on her behalf, how much will she put into the safe account each year; how much into the risky account

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

The investment horizon is

An important benefit of Keogh plans is that

Discuss the tax status of the major categories of institutional investors described in the text.

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

The shortest time horizons are likely to be set by

A ___________ is established when an individual confers legal title to property to another person or institution to manage the property for one or more beneficiaries.

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

Deferral of capital gains tax I) means that the investor doesn't need to pay taxes until the investment is sold. II) allows the investment to grow at a faster rate. III) means that you might escape the capital gains tax if you live long enough. IV) provides a tax shelter for investors.

Deferral of capital gains tax does not I) mean that the investor doesn't need to pay taxes until the investment is sold. II) allow the investment to grow at a faster rate. III) mean that you might escape the capital gains tax if you live long enough. IV) provide a tax shelter for investors.