Exam 16: Investors and the Investment Process

Which of the following is the least likely to be included in the portfolio management process?

An investor with high risk aversion will likely require which of the following risk-return combinations?

A portfolio manager indexes part of a portfolio and actively manages the rest of the portfolio. This is called a ________ strategy.

The prudent investor rule requires ________.

An active asset allocation strategy involves ________.

One of the major functions of the investment committee is to ________.

Which one of the following institutions typically has the longest investment horizon?

The first step any investor should take before beginning to invest is to ________.

Personal trusts are typically allowed to engage in which of the following investment activities? I. Buying and selling futures contracts II. Short selling securities III. Purchasing and writing options IV. Buying shares on margin

Medfield College's $10 million endowment fund is not allowed to spend any contributed capital or any capital gains. The fund may only spend investment earnings. The fund is expected to need between $500 000 and $1 000 000 to pay for new lab equipment for the science building. Which of the following is/are true? i. The fund should have a target rate of return of at least 10%. II. The limitations on spending require the fund to limit its considerations to growth shares. III. The requirement to spend money out of the fund this year provides a liquidity constraint that may reduce the fund's rate of return.

In a defined benefit pension plan, the ________ bears all of the fund's investment performance risk.

If the maturity of a bank's assets is much longer than the maturity of its liabilities and it wants to limit its interest rate risk the bank may ________.

Conservative investors are likely to want to invest in ________ mutual funds while risk-tolerant investors are likely to want to invest in ________.

Endowment funds are held by ________.

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

________ is a life insurance policy that will provide a death benefit only but has no savings plan.

________ is a life insurance policy that provides a death benefit and a fixed rate tax deferred savings plan.

As the typical investor ages the composition of their wealth usually switches from primarily ________ to primarily ________.

Go Global Investment Management has an asset allocation strategy of 60% US investments and 40% global investments. Within the US Go Global has allocated 70% of its portfolio to equities and 30% to bonds. Go Global now holds 3% of its US equity portfolio in the stock of Wally World. Internationally, Go Global has allocated 55% to equities and 45% to bonds. About what percentage of Go Global's total portfolio is invested in Wally World?

Both a wife and her husband work in the airline industry. They are in their 40s and they have a high tax bracket and are concerned about their after-tax rate of return. A meeting with their financial planner reveals they are primarily focused on long-term capital gains and they will need at least a 9% to 11% average rate of return to meet their retirement goals. They desire a diversified portfolio and liquidity is not currently a major concern. If you had to choose from the list below which of the following asset allocations seems to best fit their situation?