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

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?

Target-date retirement funds

__________ in the process of asset allocation.

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

__________ are boundaries that investors place on their choice of investment assets.

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

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

The shortest time horizons are likely to be set by

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?

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.

A remainderman is __________.

The longest time horizons are likely to be set by

Target-date retirement funds are not

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

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.What is the hypothetical constant benefit payment?

The CFA Institute divides the process of portfolio management into three main elements,which are ______,______,and ______.

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?

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 be sure of having in the safe account at retirement?

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

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?