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Exam 22: Investors and the Investment Process

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Question 31

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Just two months after you put money into an investment its price falls 25 percent.Assuming that none of the investment fundamentals have changed,which of the following actions would evidence the greatest risk tolerance?

A) You sell to avoid further worry and buy something else.
B) You do nothing and wait for the investment to come back.
C) You buy more thinking that if it was a good investment before; now it's not only good it is cheap too.
D) You sue your financial advisor.

E) A) and C)
F) A) and B)

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Question 32

Multiple Choice

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A pension fund will owe $10 million to retirees in 6 years.An actuary assumes an 8% rate of return on the funds invested in the pension plan.If the pension plan receives annual contributions from the company sponsor,how much must the company pay to fully fund the pension liability?

A) $1,212,587
B) $1,363,154
C) $1,533,333
D) $1,666,667

E) A) and B)
F) None of the above

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Question 33

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_______ is a life insurance policy that provides a death benefit and a fixed rate tax deferred savings plan.

Suppose that the pre-tax holding period returns on two stocks are the same.Stock A has a high dividend payout policy and stock B has a low dividend payout policy.If you are a high tax rate individual and do not intend to sell the stocks during the holding period,__________.

The amount of risk an individual should take depends on his or her I.return requirements II.risk tolerance III.time horizon

If a defined benefit pension fund's actual rate of return is _____ than the actuarial assumed rate then the ___________.

Go Global Investment Management has an asset allocation strategy of 60% U.S.investments and 40% global investments.Within the U.S.Go Global has allocated 70% of its portfolio to equities and 30% to bonds.Go Global now holds 3% of its U.S.equity portfolio in the stock of Wally World.Internationally,Go Global has allocated 55% to equities and 45% to bonds.About what percentage of Go Global's total portfolio is invested in Wally World?

My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service.I must have ___________.

An investor is looking at different retirement investment choices and he is willing to accept one with upside potential even if that means sacrificing certainty.Which of the following will he most likely select?

At the early stage of an individual's working career their retirement portfolio should probably consist mostly of _______.

Earnings on variable life and universal life insurance policies are ___________.

Which one of the following institutions typically has the longest investment horizon?

If an investor wishes to invest 100% of her portfolio in safe assets but does not wish to manage her portfolio,she should invest in __________.

In order to become a CFA you must do all except which one of the following?

The major asset most people have during their early working years is their ________.

As the typical investor ages the composition of their wealth usually switches from primarily _______ to primarily _______.

The prudent man law is an example of a regulation designed to ensure appropriate _____________ by money managers.

Empirical evidence suggests that investors become __________ as they approach retirement.

In a defined benefit pension plan,the _____ bears all of the fund's investment performance risk.

If an individual confers legal title to property to another person or institution to manage the property on their behalf the individual has created a(n) ___________.