Deck 4: Investment Policy

Question 1

Retirement plans in the United States are subject to

A) FDRC
B) FERC
C) ERISA
D) ESSES

Answer 1

ERISA

Question 2

All of the following are purposes of an investment policy statement EXCEPT

A) identify portfolio manager
B) identify target return
C) identify investment constraints
D) provide a mechanism for evaluation

Answer 2

identify portfolio manager

Question 3

Clients are responsible for all of the following EXCEPT

A) defining long-range objectives
B) asset allocation
C) ensuring managers follow the investment policy
D) establishing investment policy

Answer 3

asset allocation

Question 4

The investment manager is responsible for all of the following EXCEPT

A) educating the client regarding infeasible objectives
B) monitoring the portfolio
C) revising the portfolio as necessary
D) establishing investment policy

Question 5

In the Bailard, Biehl, and Kaiser classification system what kind of person is impetuous and anxious?

A) Individualist
B) Celebrity
C) Adventurer
D) Guardian

Question 6

In the Bailard, Biehl, and Kaiser classification system what kind of person is confident and careful?

A) Individualist
B) Celebrity
C) Adventurer
D) Guardian

Question 7

In the Bailard, Biehl, and Kaiser classification system what kind of person is impetuous and confident?

A) Individualist
B) Celebrity
C) Adventurer
D) Guardian

Question 8

All of the following are true regarding an endowment fund except

A) it is not-for-profit
B) churches and universities often have one
C) it has a board of trustees or directors
D) is has a maximum life of 75 years

Question 9

An endowment is most similar to a

A) defined contribution pension plan
B) foundation
C) property and casualty insurance company
D) mutual fund

Question 10

The legal literature speaks of the ______ between the needs of current beneficiaries and future beneficiaries.

A) parsimony
B) symbiosis
C) creative tension
D) rational expectations

Question 11

An investor's tendency to look at their investment portfolio too often is partially explained by a phenomenon known as

A) myopic loss aversion
B) absolute risk aversion
C) time and state preference
D) mental accounting

Question 12

Surplus management is most associated with

A) mutual funds
B) endowment funds
C) foundations
D) insurance companies

Question 13

The single most important investment decision is

A) time horizon
B) investment strategy
C) asset allocation
D) risk assessment

Question 14

A good performance benchmark should be

A) published in a national financial newspaper like the Wall Street Journal
B) investable
C) composed equally of stocks and bonds
D) revised as market conditions change

Question 15

All of the following are infeasible return objectives except

A) maintain purchasing power with 100% probability
B) average a 9% rate of return over a five year average
C) earn a 10% rate of return each calendar year
D) ensure the value of the fund never falls below the initial principal and that it produces an annual yield of 7%

Question 16

Most states have adopted the

A) Uniform Management of Institutional Funds Act
B) Foundation Policy Act
C) Uniform Statement of Investment Policy
D) Safe Harbor Institutional Security Statement

Question 17

Major categories of constraints in the investment policy statement include all of the following except

A) tax situation
B) liquidity needs
C) legal considerations
D) benchmarking

Question 18

Purposes of an endowment fund include all of the following except

A) raise the visibility of the institution
B) help maintain operating independence
C) provide operational stability
D) provide a margin of excellence

Question 19

The two main types of pension funds are

A) defined contribution and variable contribution
B) defined contribution and defined benefit
C) fixed annuity and variable annuity
D) equity based and fixed income based

Question 20

The investment policy of which of the following is mostly liability driven?

A) Mutual fund
B) Property and casualty insurance company
C) Foundation
D) Life insurance company

Question 21

Characteristics of a good investment policy statement include all of the following except

A) revised quarterly
B) realistic
C) unambiguous to an outsider
D) sustainable over prior periods

Question 22

The investment policy is the responsibility of the

A) investment manager
B) client
C) ERISA administrators
D) SEC

Question 23

Enforcing the ERISA regulations is the responsibility of

A) investment managers
B) the Federal Reserve
C) the Department of Labor
D) the SEC

Question 24

The investment policy statement should be changed if there is a material change in

A) economic conditions
B) the performance of the portfolio
C) the allocation of assets in the portfolio
D) the clients financial condition

Question 25

A foundation is

A) the section of an investment policy statement that specifies the primary goals and objectives of an investor
B) the first section of an investment policy statement
C) an organization designed to aid the arts, education, research or general welfare
D) a legal document outlining the portfolio management principles to be followed

Question 26

A fiduciary is

A) an investor with experience managing investments
B) an investor with little experience managing investments
C) an investment advisor to those managing investments
D) someone responsible for the management of someone else's money

Question 27

Socially responsible investing based on religious beliefs is known as

A) faith-based investing
B) denominational investing
C) religious fund management
D) life ethics investing