HFT 3 EXAM 2026 UPDATE QUESTIONS AND
CORRECT VERIFIED ANSWERS ALREADY
GRADED A+ (BRAND NEW VISION)
A high-tax-bracket couple in their 40s focused on long-term capital gains, needing 9-
11% average return, wanting diversification, with liquidity not a major concern - which
asset allocation best fits their situation? - ANS-5% money market; 30% long-term
bonds; 5% commodities; 60% stocks, most with low dividends and high growth
prospects
The asset universe is the - ANS-list of assets approved by the investment
committee that may be placed into the investment company's portfolio
When a company sets up a defined contribution pension plan, who bears the risk and
who receives the return? - ANS-The employee bears the risk and the employee
receives the return.
What does the term "investment horizon" refer to? - ANS-The planned liquidation date
of an investment.
What are the two most important factors in describing an individual's or organization's
investment objectives? - ANS-Return requirement and risk tolerance.
If pretax returns on a high-dividend stock (A) and low-dividend stock (B) are the same,
and a high-tax-rate investor doesn't intend to sell during the holding period, what
happens to after-tax returns? - ANS-Stock B will have a higher after-tax holding-
period return than stock A.
If a bank's assets have much longer maturity than its liabilities and it wants to limit
interest rate risk, what should it do? - ANS-Prefer to invest in variable-rate assets.
For which institution is liquidity usually the most important? - ANS-Banks.
If a defined benefit pension fund's actual rate of return exceeds the actuarial assumed
rate, who benefits? - ANS-The firm's shareholders will benefit.
Which action indicates the lowest amount of risk aversion after a stock price increases
20% with no change in prospects? - ANS-You buy more stock, anticipating that it
will go higher.
What type of mutual funds do conservative vs. risk-tolerant investors likely prefer? -
ANS-Income (conservative); high growth (risk-tolerant).
, What is the term for the risk that your money won't grow fast enough to keep pace with
inflation? - ANS-Purchasing power risk.
Which life insurance policy provides a death benefit and a fixed-rate tax-deferred
savings plan? - ANS-Whole life.
Which institution typically has the longest investment horizon? - ANS-Pension funds.
When life insurance companies seek long-term investments, what are they focusing on?
- ANS-The investment horizon.
An investor who refuses to invest in firms producing alcohol or tobacco is exhibiting
what type of constraint? - ANS-Social constraint.
A portfolio manager who rebalances quarterly among index funds to preserve original
sector weights is an example of what? - ANS-A totally passively managed fund.
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 - ANS-a money market fund
Which of the following typically strives to earn a return on their investments that
exceeds the actuarially determined rate of return? - ANS-Pension funds
Which type of insurance product allows policyholders to adjust their death benefit
according to their needs? - ANS-Universal life
Which one of the following is a life insurance policy that will provide a fixed death benefit
and allows the policyholder to choose where to invest the policy's cash value? - ANS-
Variable life
Price volatility is greatest on which one of the following investments? - ANS-20-year
zero-coupon bonds
Personal trusts are typically allowed to engage in which of the following investment
activities? - ANS-None of the given activities are allowed.
One way life insurance firms can hedge the risk from whole-life policies is by - ANS-
holding long-term bonds
Major functions of the investment committee include all but which one of the following? -
ANS-Engage in security selection for each portfolio managed.
A passive asset allocation strategy involves - ANS-maintaining approximately the
same proportions of a portfolio in each asset class over time
CORRECT VERIFIED ANSWERS ALREADY
GRADED A+ (BRAND NEW VISION)
A high-tax-bracket couple in their 40s focused on long-term capital gains, needing 9-
11% average return, wanting diversification, with liquidity not a major concern - which
asset allocation best fits their situation? - ANS-5% money market; 30% long-term
bonds; 5% commodities; 60% stocks, most with low dividends and high growth
prospects
The asset universe is the - ANS-list of assets approved by the investment
committee that may be placed into the investment company's portfolio
When a company sets up a defined contribution pension plan, who bears the risk and
who receives the return? - ANS-The employee bears the risk and the employee
receives the return.
What does the term "investment horizon" refer to? - ANS-The planned liquidation date
of an investment.
What are the two most important factors in describing an individual's or organization's
investment objectives? - ANS-Return requirement and risk tolerance.
If pretax returns on a high-dividend stock (A) and low-dividend stock (B) are the same,
and a high-tax-rate investor doesn't intend to sell during the holding period, what
happens to after-tax returns? - ANS-Stock B will have a higher after-tax holding-
period return than stock A.
If a bank's assets have much longer maturity than its liabilities and it wants to limit
interest rate risk, what should it do? - ANS-Prefer to invest in variable-rate assets.
For which institution is liquidity usually the most important? - ANS-Banks.
If a defined benefit pension fund's actual rate of return exceeds the actuarial assumed
rate, who benefits? - ANS-The firm's shareholders will benefit.
Which action indicates the lowest amount of risk aversion after a stock price increases
20% with no change in prospects? - ANS-You buy more stock, anticipating that it
will go higher.
What type of mutual funds do conservative vs. risk-tolerant investors likely prefer? -
ANS-Income (conservative); high growth (risk-tolerant).
, What is the term for the risk that your money won't grow fast enough to keep pace with
inflation? - ANS-Purchasing power risk.
Which life insurance policy provides a death benefit and a fixed-rate tax-deferred
savings plan? - ANS-Whole life.
Which institution typically has the longest investment horizon? - ANS-Pension funds.
When life insurance companies seek long-term investments, what are they focusing on?
- ANS-The investment horizon.
An investor who refuses to invest in firms producing alcohol or tobacco is exhibiting
what type of constraint? - ANS-Social constraint.
A portfolio manager who rebalances quarterly among index funds to preserve original
sector weights is an example of what? - ANS-A totally passively managed fund.
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 - ANS-a money market fund
Which of the following typically strives to earn a return on their investments that
exceeds the actuarially determined rate of return? - ANS-Pension funds
Which type of insurance product allows policyholders to adjust their death benefit
according to their needs? - ANS-Universal life
Which one of the following is a life insurance policy that will provide a fixed death benefit
and allows the policyholder to choose where to invest the policy's cash value? - ANS-
Variable life
Price volatility is greatest on which one of the following investments? - ANS-20-year
zero-coupon bonds
Personal trusts are typically allowed to engage in which of the following investment
activities? - ANS-None of the given activities are allowed.
One way life insurance firms can hedge the risk from whole-life policies is by - ANS-
holding long-term bonds
Major functions of the investment committee include all but which one of the following? -
ANS-Engage in security selection for each portfolio managed.
A passive asset allocation strategy involves - ANS-maintaining approximately the
same proportions of a portfolio in each asset class over time
