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

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Question 31

Multiple Choice

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Endowment funds are held by __________.

A) charitable organizations
B) educational institutions
C) for profit firms
D) A and B
E) B and C

F) B) and E)
G) C) and E)

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Question 32

Multiple Choice

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Assume that at retirement you have accumulated $825,000 in a variable annuity contract.The assumed investment return is 5.5% and your life expectancy is 18 years.What is the hypothetical constant benefit payment?

A) $73,358.93.
B) $33,333.33.
C) $51,481.38.
D) $52,452.73.
E) Cannot tell without additional information.

F) B) and D)
G) A) and D)

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Question 33

Multiple Choice

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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.If the first year's actual investment return is 9%,what is the starting benefit payment?

Discuss four factors you would need to include if you were constructing a retirement planning worksheet.

One incorrect belief that is often cited as a reason for fully-funded pension funds to invest in equities is

Professional financial planners should

__________ refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints.

Which of the following investments allows the investor to choose how to allocate assets?

The risk management section of an Investment Policy Statement for individual investors typically contains ________.

Genny Webb is 27 years old and has accumulated $7,500 in her self-directed defined contribution pension plan. Each year she contributes $2,000 to the plan and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk-free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk-free investment and 80% 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 Genny be sure of having in the safe account at retirement?

The scope and purpose section of an Investment Policy Statement for individual investors typically consists of defining the ________.

Discuss the tax status of the major categories of institutional investors described in the text.

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 expect to have in her risky account at retirement?

An income beneficiary is __________.

A ___________ is established when an individual confers legal title to property to another person or institution to manage the property for one or more beneficiaries.

The desirable components of an Investment Policy Statement for individual investors can be divided into ________.

Genny Webb is 27 years old and has accumulated $7,500 in her self-directed defined contribution pension plan. Each year she contributes $2,000 to the plan and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk-free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk-free investment and 80% 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 Genny currently have in the safe account; how much in the risky account?

Assume that at retirement you have accumulated $825,000 in a variable annuity contract.The assumed investment return is 5.5% and your life expectancy is 18 years.If the first year's actual investment return is 7%,what is the starting benefit payment?

__________ can be used to create a perfect inflation hedge

Discuss the relationships between investor objectives,constraints,and policies.