Question 1

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 2

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

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 can Stephanie expect to have in her risky account at retirement?

Accepted Answer

A) $2,731,838 
B) $2,915,415 
C) $1,425,316 
D) $224,651 
E) $3,545,886 
A) $2,731,838 
B) $2,915,415 
C) $1,425,316 
D) $224,651 
E) $3,545,886

Question 4

__________ refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints.

Accepted Answer

A) Investment constraints 
B) Investment objectives 
C) Investment policies 
D) All of the above 
E) None of the above 
A) Investment constraints 
B) Investment objectives 
C) Investment policies 
D) All of the above 
E) None of the above

Question 5

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

Accepted Answer

A) three main elements consisting of scope and purpose, governance, and risk management. 
B) three main elements consisting of scope and purpose, governance, and investment, return and risk objectives. 
C) four main elements consisting of scope and purpose, governance, risk management, and feedback. 
D) four main elements consisting of scope and purpose, governance, risk management, and investment, return and risk objectives. 
E) five main elements consisting of scope and purpose,governance,risk management,investment,return and risk objectives,and evaluation. 
A) three main elements consisting of scope and purpose, governance, and risk management. 
B) three main elements consisting of scope and purpose, governance, and investment, return and risk objectives. 
C) four main elements consisting of scope and purpose, governance, risk management, and feedback. 
D) four main elements consisting of scope and purpose, governance, risk management, and investment, return and risk objectives. 
E) five main elements consisting of scope and purpose,governance,risk management,investment,return and risk objectives,and evaluation.

Question 6

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.If the first year's actual investment return is 7%,what is the starting benefit payment?

Accepted Answer

A) $30,000.00 
B) $74,401.95 
C) $51,481.38 
D) $52,452.73 
E) Cannot tell without additional information 
A) $30,000.00 
B) $74,401.95 
C) $51,481.38 
D) $52,452.73 
E) Cannot tell without additional information

Question 7

Professional financial planners should

Accepted Answer

A) assess their client's risk and return requirements on a one-time basis. 
B) explain the investment plan to the client. 
C) inform the client about the outcome of the plan. 
D) A, B, and C 
E) B and C 
A) assess their client's risk and return requirements on a one-time basis. 
B) explain the investment plan to the client. 
C) inform the client about the outcome of the plan. 
D) A, B, and C 
E) B and C

Question 8

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

Accepted Answer

Investor objectives reflect the investor

Question 9

Which of the following investments allows the investor to choose how to allocate assets?

Accepted Answer

A) Variable Life insurance policies 
B) Keogh plans 
C) Personal funds 
D) Tax qualified defined contribution plans 
E) All of the above 
A) Variable Life insurance policies 
B) Keogh plans 
C) Personal funds 
D) Tax qualified defined contribution plans 
E) All of the above

Question 10

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 be sure of having in the safe account at retirement?

Accepted Answer

A) $45,473 
B) $62,557 
C) $78,943 
D) $54,968 
E) $74,643 
A) $45,473 
B) $62,557 
C) $78,943 
D) $54,968 
E) $74,643

Question 11

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

Accepted Answer

A) return, distribution, and risk requirements 
B) process for review of the IPS 
C) appropriate metrics for risk measurement 
D) relevant constraints 
E) context,investor,and structure 
A) return, distribution, and risk requirements 
B) process for review of the IPS 
C) appropriate metrics for risk measurement 
D) relevant constraints 
E) context,investor,and structure

Question 12

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.

Accepted Answer

A) tax shelter 
B) defined contribution plan 
C) personal trust 
D) fixed annuity 
E) Keogh plan 
A) tax shelter 
B) defined contribution plan 
C) personal trust 
D) fixed annuity 
E) Keogh plan

Question 13

__________ can be used to create a perfect inflation hedge

Accepted Answer

A) Gold 
B) Real estate 
C) CPI-linked bonds 
D) The S&P 500 index 
E) None of the above 
A) Gold 
B) Real estate 
C) CPI-linked bonds 
D) The S&P 500 index 
E) None of the above

Question 14

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 15

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 above 
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 above

Question 16

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

Accepted Answer

Mutual funds, pension plans, and endowme

Question 17

Endowment funds are held by __________.

Accepted Answer

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

Question 18

One incorrect belief that is often cited as a reason for fully-funded pension funds to invest in equities is

Accepted Answer

A) stocks have higher risk. 
B) bonds have lower returns. 
C) stocks provide a hedge against inflation. 
D) stocks have higher returns. 
E) all of the above are incorrect beliefs that are often cited. 
A) stocks have higher risk. 
B) bonds have lower returns. 
C) stocks provide a hedge against inflation. 
D) stocks have higher returns. 
E) all of the above are incorrect beliefs that are often cited.

Question 19

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?

Accepted Answer

A) $30,000.00 
B) $33,333.33 
C) $76,354.69 
D) $52,452.73 
E) Cannot tell without additional information 
A) $30,000.00 
B) $33,333.33 
C) $76,354.69 
D) $52,452.73 
E) Cannot tell without additional information

Question 20

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?

Accepted Answer

A) $73,358.93. 
B) $33,333.33. 
C) $51,481.38. 
D) $52,452.73. 
E) Cannot tell without additional information. 
A) $73,358.93. 
B) $33,333.33. 
C) $51,481.38. 
D) $52,452.73. 
E) Cannot tell without additional information.

Exam 28: Investment Policy and the Framework of the CFA Institute Appendices

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

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

__________ refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints.

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

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.If the first year's actual investment return is 7%,what is the starting benefit payment?

Professional financial planners should

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

Which of the following investments allows the investor to choose how to allocate assets?

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

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.

__________ can be used to create a perfect inflation hedge

An income beneficiary is __________.

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

Endowment funds are held by __________.

One incorrect belief that is often cited as a reason for fully-funded pension funds to invest in equities is

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?

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?

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Filters