Which of the following are elements of any investment policy statement?
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I. the client's investment goal
II. suitable and unsuitable investment vehicles
III. an acceptable risk level
IV. a provision for periodic review
One reason to use active investment management is the potential for downside
protection.
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, the potential for downside protection.
The potential for downside protection, where the active manager moves to
cash to cushion a bear market, is one possible reason to use active
investment management.
Marcia Simpson has analyzed her client's situation and has concluded that her client
will come short of attaining the amount of capital he would like to have by the time he
plans to retire. The client is a low risk taker and will have limited funds for future
periodic investments. Before making a recommendation, Marcia should do which one
of the following?
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Discuss the problem and ask the client to clarify how he wishes to adjust his
accumulation goal, risk level, or periodic investments.
After being informed of the various constraints, implications of their
decisions, and other options they have, the client can choose to make
adjustments with which he is comfortable.
Grantor Retained Unitrust (GRUT)
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grantor receives a specified percentage of the value of the trust funds
annually
The higher the standard deviation of an investment in relation to its rate of return,
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, the greater the level of risk for a given rate of return.
The greater the dispersion of returns around an average rate of return, the
greater will be the standard deviation and, consequently, the higher the
level of risk for a given rate of return.
The principal of a Treasury inflation protected security (TIPS) is tied to
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CPI.
TIPS adjustments are tied to the consumer price index (CPI), which is useful
in measuring inflation.
A potential client, Ross Walker, is contacted by Amy Taylor, an investment
professional. Ross is interested in trading complex options and is willing to open an
account if Amy is knowledgeable about options. Amy implies to Ross that she is an
expert in option trading but, in fact, knows only the basic elements of it. Looking
solely at Amy's lack of competency in this area, which fiduciary duty has not been
met?
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duty of care
Lacking the competency to provide advice in the best interest of the client
falls under the fiduciary duty of care.
One change in a client's situation that would require an adjustment in the asset
management process would be
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, a sudden early retirement from his employer.
A sudden early retirement is a major change that would require an
adjustment to the asset management process.
Assume each of the asset classes below has the following correlation to long-term
government bonds:
Treasury bills: 0.67
Corporate bonds: 0.81
Large stocks: 0.37
Small stocks: 0.12
Which one of the following correctly states the impact of diversification on a portfolio
of long-term government bonds?
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Small stocks provide more diversification than large stocks.
Because the correlations of small stocks to long-term government bonds
are less than that of large stocks (even though both are positive), small
stocks provide more diversification than large stocks.
Carol Taylor has $10,000 to invest at the end of each year for five years, and she can
earn a fixed rate of 8%. "How much," she asks, "will my money be worth in five years?"
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$58,666
This is an ordinary annuity problem with n = 5, i = 8, and PMT = 10,000, then
FVOA = $58,666.
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I. the client's investment goal
II. suitable and unsuitable investment vehicles
III. an acceptable risk level
IV. a provision for periodic review
One reason to use active investment management is the potential for downside
protection.
Give this one a try later!
, the potential for downside protection.
The potential for downside protection, where the active manager moves to
cash to cushion a bear market, is one possible reason to use active
investment management.
Marcia Simpson has analyzed her client's situation and has concluded that her client
will come short of attaining the amount of capital he would like to have by the time he
plans to retire. The client is a low risk taker and will have limited funds for future
periodic investments. Before making a recommendation, Marcia should do which one
of the following?
Give this one a try later!
Discuss the problem and ask the client to clarify how he wishes to adjust his
accumulation goal, risk level, or periodic investments.
After being informed of the various constraints, implications of their
decisions, and other options they have, the client can choose to make
adjustments with which he is comfortable.
Grantor Retained Unitrust (GRUT)
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grantor receives a specified percentage of the value of the trust funds
annually
The higher the standard deviation of an investment in relation to its rate of return,
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, the greater the level of risk for a given rate of return.
The greater the dispersion of returns around an average rate of return, the
greater will be the standard deviation and, consequently, the higher the
level of risk for a given rate of return.
The principal of a Treasury inflation protected security (TIPS) is tied to
Give this one a try later!
CPI.
TIPS adjustments are tied to the consumer price index (CPI), which is useful
in measuring inflation.
A potential client, Ross Walker, is contacted by Amy Taylor, an investment
professional. Ross is interested in trading complex options and is willing to open an
account if Amy is knowledgeable about options. Amy implies to Ross that she is an
expert in option trading but, in fact, knows only the basic elements of it. Looking
solely at Amy's lack of competency in this area, which fiduciary duty has not been
met?
Give this one a try later!
duty of care
Lacking the competency to provide advice in the best interest of the client
falls under the fiduciary duty of care.
One change in a client's situation that would require an adjustment in the asset
management process would be
Give this one a try later!
, a sudden early retirement from his employer.
A sudden early retirement is a major change that would require an
adjustment to the asset management process.
Assume each of the asset classes below has the following correlation to long-term
government bonds:
Treasury bills: 0.67
Corporate bonds: 0.81
Large stocks: 0.37
Small stocks: 0.12
Which one of the following correctly states the impact of diversification on a portfolio
of long-term government bonds?
Give this one a try later!
Small stocks provide more diversification than large stocks.
Because the correlations of small stocks to long-term government bonds
are less than that of large stocks (even though both are positive), small
stocks provide more diversification than large stocks.
Carol Taylor has $10,000 to invest at the end of each year for five years, and she can
earn a fixed rate of 8%. "How much," she asks, "will my money be worth in five years?"
Give this one a try later!
$58,666
This is an ordinary annuity problem with n = 5, i = 8, and PMT = 10,000, then
FVOA = $58,666.
