Exam 22: Investors and the Investment Process

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

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

An active asset allocation strategy involves ________.

If an individual confers legal title to property to another person or institution to manage the property on their behalf, the individual has created ________.

A clearly understood investment policy statement is not critical for which one of the following? I. Mutual funds II. Individuals III. Defined benefit pension funds

An institutional investor will have to pay off a maturing bond issue in 3 years. The institution has 10,000 bonds outstanding, each with a $1,000 par value. The institutional money manager is reevaluating the fund's total portfolio of $100 million at this time. She is bullish on stocks and wants to put the most she can into the stock market, but she cannot risk being unable to pay off the bonds. Three-year zero-coupon bonds are available paying 6% interest. What percentage of the total $100 million portfolio can she put in stocks and still ensure meeting the bond payments?

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 ________.

Which of the following is typically concerned with their investment assets having relatively fixed returns and their liabilities having relative variable returns?

Go Global Investment Management has an asset allocation strategy of 70% U.S. investments and 30% global investments. Within the United States, Go Global has allocated 65% of its portfolio to equities and 35% to bonds. Go Global now holds 4% of its U.S. equity portfolio in the stock of Wally World. Internationally, Go Global has allocated 62% to equities and 38% to bonds. About what percentage of Go Global's total portfolio is invested in Wally World?

Medfield College's $10 million endowment fund is not allowed to spend any contributed capital or any capital gains. The fund may spend only 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 that the fund limit its considerations to growth stocks. 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.

A pension fund manager who decided to move money out of an index fund and into a socially responsible fund is ________.

The two most important factors in describing an individual's or organization's investment objectives are ________.

For an investor concerned with maximizing liquidity, which of the following investments should be avoided?

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

In 1937 the Eli Lilly family donated millions of dollars in stock to fund a not-for-profit charitable organization. Such organizations are typically called ________.

An individual is on the game show Squeal or No Squeal, and she has a choice between receiving a certain gain of $100,000 and receiving a 50% chance of winning $200,000 or zero. If she takes the gamble instead of the certain $100,000, she is acting ________.

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

The term investment horizon refers to ________.

Suppose that the pretax holding-period returns on two stocks are the same. Stock A has a high dividend payout policy and stock B has a low dividend payout policy. If you are a high-tax rate individual and do not intend to sell the stocks during the holding period, ________.

A pension fund will owe $ 20 million to retirees in 25 years. An actuary assumes a 5.6% rate of return on the funds invested in the pension plan, but the fund actually earns 7.1%. The pension plan receives annual contributions from the company sponsor. If the 7.1% rate of return is expected to continue, by how much can the company reduce its pension payments per year?