Question 1

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

Accepted Answer

A)   stocks have higher risk.
B)   bonds have lower returns.
C)   stocks provide a hedge against inflation.
D)   stocks have higher returns.
E)   All of the options are incorrect beliefs that are often cited.F) All of the above
G) C) and D)

Question 2

An important benefit of Keogh plans is that

Accepted Answer

A)   they are not taxable until funds are withdrawn as benefits.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D)   they are not taxable until funds are withdrawn as benefits, and they are protected against inflation.
E)   they are not taxable until funds are withdrawn as benefits, and they are automatically insured by the Federal government.F) B) and C)
G) C) and E)

Question 3

The optimal portfolio on the efficient frontier for a given investor depends on

Accepted Answer

A)   the investor's degree of risk tolerance.
B)   the coefficient, A, which is a measure of risk aversion.
C)   the investor's required rate of return.
D)   the investor's degree of risk tolerance and the investor's required rate of return.
E)   the investor's degree of risk tolerance and the coefficient, A, which is a measure of risk aversion.F) A) and B)
G) B) and C)

Question 4

Alan Barnett is 43 years old and has accumulated $78,000 in his self directed defined contribution pension plan. Each year he contributes $1,500 to the plan, and his employer contributes an equal amount. Alan thinks he will retire at age 60 and figures he will live to age 83. The plan allows for two types of investments. One offers a 4% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 34%. Alan now has 40% of his money in the risk free investment and 60% in the risky investment. He plans to continue saving at the same rate and keep the same proportions invested in each of the investments. His salary will grow at the same rate as inflation. How much does Alan currently have in the safe account; how much in the risky account?

Accepted Answer

A)   $31,200; $46,800
B)   $39,000; $39,000
C)   $15,900; $62,100
D)   $45,300; $32,700
E)   $64,000; $14,000F) A) and E)
G) C) and E)

Question 5

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. What is the hypothetical constant benefit payment?

Accepted Answer

A)   $30,000.00
B)   $33,333.33
C)   $51,481.38
D)   $76,354.69
E)   The answer cannot be determined from the information provided.F) A) and D)
G) None of the above

Question 6

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 have defined benefit plans with the same final pay benefit formula. This is referred to as

Accepted Answer

A)   an accumulated benefit obligation.
B)   an unfunded liability.
C)   immunization.
D)   indexation.
E)   the portability problem.F) A) and E)
G) B) and D)

Question 7

The feedback phase of the CFA Institute's investment management process

Accepted Answer

A)   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)   All of the options are correct.
E)   None of the options are correct.F) A) and C)
G) B) and E)

Question 8

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?

Accepted Answer

A)   $30,000.00
B)   $74,401.95
C)   $51,481.38
D)   $52,452.73
E)   The answer cannot be determined from the information provided.F) A) and B)
G) C) and E)

Question 9

When a company sets up a defined contribution pension plan, the __________ bears all the risk, and the __________ receives all the return from the plan's assets.

Accepted Answer

A)   employee; employee
B)   employee; employer
C)   employer; employee
D)   employer; employer
E)   Cannot determine; depends on the economic environment.F) B) and E)
G) A) and E)

Question 10

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?

Accepted Answer

A)   $45,473
B)   $62,557
C)   $78,943
D)   $54,968
E)   $74,643F) A) and B)
G) C) and D)

Question 11

The prudent investor rule requires

Accepted Answer

A)   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)   professional investors who manage money for others to constrain their investments to those that would have been approved by the prudent investor.E) All of the above
F) A) and C)

Question 12

__________ center on the trade off between the return the investor wants and how much risk the investor is willing to assume.

Accepted Answer

A)   Investment constraints
B)   Investment objectives
C)   Investment policies
D)   All of the options are correct.
E)   None of the options are correct.F) A) and E)
G) A) and B)

Question 13

For an individual investor, the value of home ownership is likely to be viewed

Accepted Answer

A)   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 increases in rental rates and as a guarantee of availability of a particular residence.
E)   All of the options are correct.F) A) and D)
G) C) and E)

Question 14

__________ are boundaries that investors place on their choice of investment assets.

Accepted Answer

A)   Investment constraints
B)   Investment objectives
C)   Investment policies
D)   All of the options are correct
E)   None of the options are correct.F) A) and E)
G) B) and C)

Question 15

General pension funds typically invest __________ of their funds in equity securities.

Accepted Answer

A)   none
B)   5-10%
C)   15-35%
D)   40-60%
E)   more than 60%F) C) and E)
G) C) and D)

Question 16

The first step a pension fund should take before beginning to invest is to

Accepted Answer

A)   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.E) A) and D)
F) None of the above

Question 17

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?

Accepted Answer

A)   $73,358.93
B)   $33,333.33
C)   $51,481.38
D)   $52,452.73
E)   The answer cannot be determined from the information provided.F) A) and D)
G) A) and C)

Question 18

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 hypothetical constant benefit payment?

Accepted Answer

A)   $30,000.00
B)   $33,333.33
C)   $51,481.38
D)   $52,452.73
E)   The answer cannot be determined from the information provided.F) A) and B)
G) A) and C)

Question 19

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?

Accepted Answer

A)   $2,731,838
B)   $2,915,415
C)   $1,425,316
D)   $224,651
E)   $3,545,886F) A) and C)
G) B) and E)

Question 20

Alex Goh is 39 years old and has accumulated $128,000 in his self directed defined contribution pension plan. Each year he contributes $2,500 to the plan, and his employer contributes an equal amount. Alex thinks he will retire at age 62 and figures he will live to age 86. The plan allows for two types of investments. One offers a 4% risk free real rate of return. The other offers an expected return of 11% and has a standard deviation of 37%. Alex now has 25% of his money in the risk free investment and 75% in the risky investment. He plans to continue saving at the same rate and keep the same proportions invested in each of the investments. His salary will grow at the same rate as inflation. Of the total amount of new funds that will be invested by Alex and by his employer on his behalf, how much will Alex put into the safe account each year; how much into the risky account?

Accepted Answer

A)   $2,500; $2,500
B)   $3,200; $1,800
C)   $3,000; $2,000
D)   $1,250; $3,750
E)   $2,400; $2,600F) A) and B)
G) B) and D)

Exam 28: Investment Policy and the Framework of the Cfa Institute

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 hypothetical constant benefit payment?

Correct Answer
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Correct Answer
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Correct Answer
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__________ center on the trade off between the return the investor wants and how much risk the investor is willing to assume.

Correct Answer
verified

The feedback phase of the CFA Institute's investment management process

Correct Answer
verified

The first step a pension fund should take before beginning to invest is to

Correct Answer
verified

When a company sets up a defined contribution pension plan, the bears all the risk, and the receives all the return from the plan's assets.

Correct Answer
verified

For an individual investor, the value of home ownership is likely to be viewed

Correct Answer
verified

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

Correct Answer
verified

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. What is the hypothetical constant benefit payment?

Correct Answer
verified

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 have defined benefit plans with the same final pay benefit formula. This is referred to as

Correct Answer
verified

The prudent investor rule requires

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

General pension funds typically invest __________ of their funds in equity securities.

Correct Answer
verified

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?

Correct Answer
verified

An important benefit of Keogh plans is that

Correct Answer
verified

__________ are boundaries that investors place on their choice of investment assets.

Correct Answer
verified

The optimal portfolio on the efficient frontier for a given investor depends on

Correct Answer
verified

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?

Correct Answer
verified

Exam 28: Investment Policy and the Framework of the Cfa Institute

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 hypothetical constant benefit payment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

__________ center on the trade off between the return the investor wants and how much risk the investor is willing to assume.

Correct AnswerverifiedShow Answer

The feedback phase of the CFA Institute's investment management process

Correct AnswerverifiedShow Answer

The first step a pension fund should take before beginning to invest is to

Correct AnswerverifiedShow Answer

When a company sets up a defined contribution pension plan, the __________ bears all the risk, and the __________ receives all the return from the plan's assets.

Correct AnswerverifiedShow Answer

For an individual investor, the value of home ownership is likely to be viewed

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. What is the hypothetical constant benefit payment?

Correct AnswerverifiedShow Answer

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 have defined benefit plans with the same final pay benefit formula. This is referred to as

Correct AnswerverifiedShow Answer

The prudent investor rule requires

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

General pension funds typically invest __________ of their funds in equity securities.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

An important benefit of Keogh plans is that

Correct AnswerverifiedShow Answer

__________ are boundaries that investors place on their choice of investment assets.

Correct AnswerverifiedShow Answer

The optimal portfolio on the efficient frontier for a given investor depends on

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When a company sets up a defined contribution pension plan, the bears all the risk, and the receives all the return from the plan's assets.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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