Question 1

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,$2,500F) B) and D)
G) B) and C)

Question 2

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

Accepted Answer

A)  broader, more risk averse
B)  broader, less risk averse
C)  more limited, more risk averse
D)  more limited, less risk averse
E)  none of the aboveF) B) and E)
G) None of the above

Question 3

Target-date retirement funds

Accepted Answer

A)  change their asset allocation as time passes
B)  are a simple but useful strategy
C)  function much like hedge funds
D)  A and B
E)  all of the aboveF) A) and B)
G) All of the above

Question 4

The principle of duration matching is not

Accepted Answer

A)  used only in bond portfolio management
B)  a useful concept for investments with target dates
C)  a means matching one's assets to one's objectives
D)  B and C are correct
E)  none of the aboveF) A) and E)
G) A) and B)

Question 5

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 aboveF) B) and E)
G) A) and B)

Question 6

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.

Accepted Answer

A)  II and III
B)  I, II, IV
C)  I, III, and V
D)  II, III, and IVE) B) and C)
F) A) and C)

Question 7

U.S.mutual funds are restricted to holding no more than __________ of any publicly traded corporation.

Accepted Answer

A)  1%
B)  5%
C)  10%
D)  25%
E)  There is no restriction on percentage ownership.F) A) and D)
G) A) and B)

Question 8

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)  A and B
E)  all of the aboveF) A) and B)
G) A) and D)

Question 9

An important benefit of Keogh plans is that

Accepted Answer

A)  they are not taxable until funds are withdrawn as benefits.
B)  they are protected against inflation.
C)  they are automatically insured by the Federal government.
D)  A and B.
E)  A and CF) A) and B)
G) C) and D) A

Question 10

The stage an individual is in his/her life cycle will affect his/her __________.

Accepted Answer

A)  return requirements
B)  risk tolerance
C)  asset allocation
D)  A and B
E)  A,B,and CF) A) and B)
G) None of the above E

Question 11

Which of the following investments does not allow 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)  Universal Life policiesF) A) and E)
G) All of the above

Question 12

Variable life insurance

Accepted Answer

A)  combines life insurance with a tax-deferred annuity.
B)  provides a minimum death benefit that increases subject to investment performance.
C)  can be converted to a stream of income.
D)  all of the above.
E)  none of the above.F) C) and E)
G) A) and C) D

Question 13

The prudent investor rule requires __________.

Accepted Answer

A)  executives of companies to avoid investing in options of companies by which they are employed
B)  executives of companies to disclose their transactions in stocks of companies by which they are employed
C)  professional investors who manage money for others to avoid all risky investments
D)  professional investors who manage money for others to constrain their investments to those that would have been approved by the prudent investor
E)  none of the aboveF) A) and B)
G) D) and E)

Question 14

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

Accepted Answer

A)  uses data about the client and capital market
B)  uses details of optimal asset allocation and security selection
C)  uses changes in expectations and objectives
D)  A, B, and C
E)  none of the aboveF) None of the above
G) A) and B)

Question 15

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

Accepted Answer

A)  none
B)  5-10%
C)  15-35%
D)  40-60%
E)  more than 60%F) B) and E)
G) A) and B)

Question 16

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 IVF) A) and E)
G) A) and C)

Question 17

The investment horizon is:

Accepted Answer

A)  the investor's expected age at death.
B)  the starting date for establishing investment constraints.
C)  based on the investor's risk tolerance.
D)  the date at which the portfolio is expected to be fully or partially liquidated.
E)  none of the above.F) B) and D)
G) A) and D)

Question 18

The principle of duration matching is

Accepted Answer

A)  used only in bond portfolio management
B)  a useful concept for investments with target dates
C)  means matching one's assets to one's objectives
D)  B and C are correct
E)  none of the aboveF) A) and E)
G) A) and B)

Question 19

__________ center on the trade-off between the return the investor wants and how much risk the investor is willing to assume.

Accepted Answer

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

Question 20

The first step a pension fund should take before beginning to invest is to __________.

Accepted Answer

A)  establish investment objectives
B)  develop a list of investment managers with superior records to interview
C)  establish asset allocation guidelines
D)  decide between active and passive management
E)  none of the aboveF) D) and E)
G) A) and B)

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

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

Correct Answer
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Target-date retirement funds

Correct Answer
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The principle of duration matching is not

Correct Answer
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Questionnaires and attitude surveys suggest that risk tolerance

Correct Answer
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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.

Correct Answer
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U.S.mutual funds are restricted to holding no more than __________ of any publicly traded corporation.

Correct Answer
verified

Target-date retirement funds are not

Correct Answer
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An important benefit of Keogh plans is that

Correct Answer
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A

The stage an individual is in his/her life cycle will affect his/her __________.

Correct Answer
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E

Which of the following investments does not allow the investor to choose how to allocate assets?

Correct Answer
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Variable life insurance

Correct Answer
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D

The prudent investor rule requires __________.

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

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified

The investment horizon is:

Correct Answer
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The principle of duration matching is

Correct Answer
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__________ center on the trade-off between the return the investor wants and how much risk the investor is willing to assume.

Correct Answer
verified

The first step a pension fund should take before beginning to invest is to __________.

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Target-date retirement funds

Correct AnswerverifiedShow Answer

The principle of duration matching is not

Correct AnswerverifiedShow Answer

Questionnaires and attitude surveys suggest that risk tolerance

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

U.S.mutual funds are restricted to holding no more than __________ of any publicly traded corporation.

Correct AnswerverifiedShow Answer

Target-date retirement funds are not

Correct AnswerverifiedShow Answer

An important benefit of Keogh plans is that

Correct AnswerverifiedA

The stage an individual is in his/her life cycle will affect his/her __________.

Correct AnswerverifiedE

Which of the following investments does not allow the investor to choose how to allocate assets?

Correct AnswerverifiedShow Answer

Variable life insurance

Correct AnswerverifiedD

The prudent investor rule requires __________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The investment horizon is:

Correct AnswerverifiedShow Answer

The principle of duration matching is

Correct AnswerverifiedShow Answer

__________ center on the trade-off between the return the investor wants and how much risk the investor is willing to assume.

Correct AnswerverifiedShow Answer

The first step a pension fund should take before beginning to invest is to __________.

Correct AnswerverifiedShow Answer

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verified

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

Correct Answer
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A

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E

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D

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