1、Chapter 28 Test Bank - StaticStudent: _Multiple Choice Questions1. The CFA Institute divides the process of portfolio management into three main elements, which are _, _, and _.A. planning; execution; resultsB. security selection; asset allocation; actionC. planning; asset allocation; feedbackD. pla
2、nning; execution; feedbackE. risk tolerance; feedback; action2. The planning phase of the CFA Institutes investment management processA. 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.
3、All of the options are correct.E. None of the options are correct.3. The execution phase of the CFA Institutes investment management processA. uses data about the client and capital market.B. uses details of optimal asset allocation and security selection.C. uses changes in expectations and objectiv
4、es.D. All of the options are correct.E. None of the options are correct.4. The feedback phase of the CFA Institutes investment management processA. uses data about the client and capital market.B. uses details of optimal asset allocation and security selection.C. uses changes in expectations and obj
5、ectives.D. All of the options are correct.E. None of the options are correct.5. _ refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints.A. Investment constraintsB. Investment objectivesC. Investment polici
6、esD. All of the options are correct.E. None of the options are correct.6. One incorrect belief that is often cited as a reason for fully funded pension funds to invest in equities isA. stocks have higher risk.B. bonds have lower returns.C. stocks provide a hedge against inflation.D. stocks have high
7、er returns.E. All of the options are incorrect beliefs that are often cited.7. _ in the process of asset allocation.A. Deriving the efficient portfolio frontier is a stepB. Specifying asset classes to be included in the portfolio is a stepC. Specifying the capital market expectations is a stepD. All
8、 of the options are steps.E. None of the options are steps.8. Questionnaires and attitude surveys suggest that risk toleranceA. 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 options are correct.9. _ can be used
9、to create a perfect inflation hedge.A. GoldB. Real estateC. TIPSD. The S&P 500 IndexE. None of the options are correct.10. A fully funded pension plan can invest surplus assets in equities provided it reduces the proportion in equities when the value of the fund drops near the accumulated benefit ob
10、ligation. This strategy is referred to asA. immunization.B. hedging.C. diversification.D. contingent immunization.E. overfunding.11. Workers who change jobs may wind up with lower pension benefits at retirement than otherwise identical workers who stay with the same employer, even if the employers h
11、ave defined benefit plans with the same final pay benefit formula. This is referred to asA. an accumulated benefit obligation.B. an unfunded liability.C. immunization.D. indexation.E. the portability problem.12. The _ the proportion of total return that is in the form of price appreciation, the _ wi
12、ll be the value of the tax deferral option for taxable investors.A. greater; greaterB. greater; lowerC. lower; greaterD. The answer cannot be determined from the information provided.E. None of the options are correct.13. An important benefit of Keogh plans is thatA. they are not taxable until funds
13、 are withdrawn as benefits.B. they are protected against inflation.C. they are automatically insured by the Federal government.D. they are not taxable until funds are withdrawn as benefits, and they are protected against inflation.E. they are not taxable until funds are withdrawn as benefits, and th
14、ey are automatically insured by the Federal government.14. Variable life insuranceA. 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 options are correct.E.
15、 None of the options are correct.15. Endowment funds are held byA. charitable organizations.B. educational institutions.C. for profit firms.D. charitable organizations and educational institutions.E. educational institutions and for profit firms.16. _ center on the trade off between the return the i
16、nvestor wants and how much risk the investor is willing to assume.A. Investment constraintsB. Investment objectivesC. Investment policiesD. All of the options are correct.E. None of the options are correct.17. The stage an individual is in his/her life cycle will affect his/herA. return requirements
17、.B. risk tolerance.C. asset allocation.D. return requirements and risk tolerance.E. All of the options are correct.18. A remainderman isA. a stockbroker who remained working on Wall Street after the 1987 crash.B. an employee of a trustee.C. one who receives interest and dividend income from a trust
18、during their lifetime.D. one who receives the principal of a trust when it is dissolved.19. _ are boundaries that investors place on their choice of investment assets.A. Investment constraintsB. Investment objectivesC. Investment policiesD. All of the options are correctE. None of the options are co
19、rrect.20. The investment horizon isA. the investors expected age at death.B. the starting date for establishing investment constraints.C. based on the investors risk tolerance.D. the date at which the portfolio is expected to be fully or partially liquidated.21. Liquidity isA. the ease with which an
20、 asset can be sold.B. the ability to sell an asset for a fair price.C. the degree of inflation protection an asset provides.D. the ease with which an asset can be sold and the ability to sell an asset for a fair price.E. All of the options are correct.22. The objectives of personal trusts normally a
21、re _ in scope than those of individual investors, and personal trust managers typically are _ than individual investors.A. broader; more risk averseB. broader; less risk averseC. more limited; more risk averseD. more limited; less risk averse23. When a company sets up a defined contribution pension
22、plan, the _ bears all the risk, and the _ receives all the return from the plans assets.A. employee; employeeB. employee; employerC. employer; employeeD. employer; employerE. Cannot determine; depends on the economic environment.24. Suppose that the pre tax holding period returns on two stocks are t
23、he same. Stock A has a high dividend payout policy and stock B has a low dividend payout policy. If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period,A. stock A will have a higher after tax holding period return than stock B.B. the af
24、ter tax holding period returns on stocks A and B will be the same.C. stock B will have a higher after tax holding period return than stock A.D. it is impossible to determine which stock will have a higher after tax holding period return given the information available.25. The prudent investor rule r
25、equiresA. 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.
26、professional investors who manage money for others to constrain their investments to those that would have been approved by the prudent investor.26. The longest time horizons are likely to be set byA. banks.B. property and casualty insurance companies.C. pension funds.D. banks and pension funds.E. p
27、roperty and casualty insurance companies and pension funds.27. The longest time horizons are likely to be set byA. banks.B. property and casualty insurance companies.C. endowment funds.D. banks and endowment funds.E. property and casualty insurance companies and endowment funds.28. The shortest time
28、 horizons are likely to be set byA. banks.B. property and casualty insurance companies.C. pension funds.D. banks and property and casualty insurance companies.E. property and casualty insurance companies and pension funds.29. Institutional investors will rarely invest in which of these asset classes
29、?A. BondsB. StocksC. CashD. Real estateE. Precious metals30. For an individual investor, the value of home ownership is likely to be viewedA. as a hedge against increases in rental rates.B. as a guarantee of availability of a particular residence.C. as a hedge against inflation.D. as a hedge against
30、 increases in rental rates and as a guarantee of availability of a particular residence.E. All of the options are correct.31. Assume that at retirement you have accumulated $500,000 in a variable annuity contract. The assumed investment return is 6%, and your life expectancy is 15 years. What is the
31、 hypothetical constant benefit payment?A. $30,000.00B. $33,333.33C. $51,481.38D. $52,452.73E. The answer cannot be determined from the information provided.32. Assume that at retirement you have accumulated $500,000 in a variable annuity contract. The assumed investment return is 6%, and your life e
32、xpectancy is 15 years. If the first years actual investment return is 8%, what is the starting benefit payment?A. $30,000.00B. $33,333.33C. $51,481.38D. $52,452.73E. The answer cannot be determined from the information provided.33. The first step a pension fund should take before beginning to invest
33、 is toA. 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.34. General pension funds typically invest _ of their funds in equity securities.A. noneB. 5 1
34、0%C. 15 35%D. 40 60%E. more than 60%35. The optimal portfolio on the efficient frontier for a given investor depends onA. the investors degree of risk tolerance.B. the coefficient, A, which is a measure of risk aversion.C. the investors required rate of return.D. the investors degree of risk toleran
35、ce and the investors required rate of return.E. the investors degree of risk tolerance and the coefficient, A, which is a measure of risk aversion.36. The optimal portfolio on the efficient frontier for a given investor does not depend onA. the investors degree of risk tolerance.B. the coefficient,
36、A, which is a measure of risk aversion.C. the investors required rate of return.D. the investors degree of risk tolerance and the investors required rate of return.E. the investors degree of risk tolerance and the coefficient, A, which is a measure of risk aversion.37. Target date retirement funds a
37、re notA. funds of funds diversified across stocks and bonds.B. designed to change their asset allocation as time passes.C. a simple, but useful, strategy.D. designed to function much like hedge funds.38. A _ is established when an individual confers legal title to property to another person or insti
38、tution to manage the property for one or more beneficiaries.A. tax shelterB. defined contribution planC. personal trustD. fixed annuityE. Keogh plan39. Professional financial planners shouldA. assess their clients risk and return requirements on a one time basis.B. explain the investment plan to the
39、 client.C. inform the client about the outcome of the plan.D. assess their clients risk and return requirements on a one time basis, explain the investment plan to the client, and inform the client about the outcome of the plan.E. explain the investment plan to the client and inform the client about
40、 the outcome of the plan.40. Deferral of capital gains tax I) means that the investor doesnt 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
41、 investors.A. II and IIIB. I, II, IVC. I, III, and VD. II, III, and IV41. Deferral of capital gains tax does not I) mean that the investor doesnt need to pay taxes until the investment is sold.II) allow the investment to grow at a faster rate.III) mean that you might escape the capital gains tax if
42、you live long enough.IV) provide a tax shelter for investors.A. IIIB. IIC. I, II, and VD. II, III, and IV42. Which of the following investments does not allow the investor to choose how to allocate assets?A. Variable Life insurance policiesB. Keogh plansC. Personal fundsD. Tax qualified defined cont
43、ribution plansE. Universal Life policies43. Which of the following investments allows the investor to choose how to allocate assets?A. Variable Life insurance policiesB. Keogh plansC. Personal fundsD. Tax qualified defined contribution plansE. All of the options are correct.44. Pension funds I) acce
44、pt 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.A. I and IVB. II and IIIC. I and IID. I, II, and IVE. I
45、, II, III, and IV45. Pension funds do not 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.A. III and IVB. II and IIIC. I and IID. I, II, and IVE. I, II, III, and IV46. Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pens
