Exam 22: Investors and the Investment Process

The prudent investor rule requires ________.

A portfolio consists of three index funds: an equity index, a bond index, and an international index. The portfolio manager changes the weights periodically according to forecasts for each sector. This is an example of ________.

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

Life insurance companies try to hedge the risks inherent in whole-life insurance policies by investing in ________.

At the early stage of an individual's working career, his or her retirement portfolio should probably consist mostly of ________.

An investor with low risk aversion will likely prefer which of the following risk and return combinations?

Your sister, an avid outdoors person, works in the airline industry, and she has come to you (the financial guru) for investment advice. She is looking into purchasing stocks she knows something about. She is considering purchasing stock in Boeing, Lockheed Martin, United Technologies (maker of aircraft engines), and Cabela's Sporting Goods. Based only on the information given, which stock should you recommend for her?

For which one of the following institutions is liquidity usually the most important?

When a company sets up a defined contribution pension plan, the ________ bears all the risk and the ________ receives all the return from the plan's assets.

If an investor wants to invest 100% of her portfolio in safe assets but does not want to manage her portfolio, she should invest in ________.

An employee has an average wage of $60,000 and has worked for the firm for 28 years. The defined benefit pension plan pays retirees 2.3% of the average wage times the years of service. The employee can expect to receive ________ per year upon retirement.

When used in the context of investment decision making, the term liquidity refers 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 stock on margin.

An investor is looking at different retirement investment choices, and he is willing to accept one with upside potential even if that means sacrificing certainty. Which of the following will he most likely select?

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

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

A pension fund will owe $15 million to retirees in 8 years. An actuary assumes an 7% rate of return on the funds invested in the pension plan. If the pension plan receives annual contributions from the company sponsor, how much must the company pay each year to fully fund the pension liability?

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

Of the following, the investment time horizon is typically the shortest for ________.

The prudent investor rule is an example of a regulation designed to ensure appropriate ________ by money managers.