LOS d: Contrast the asset-only and asset/liability management (ALM) approaches to asset allocation.

Q1. Which one of the following most closely matches an advantage of the asset-liability approach over the asset only approach to strategic asset allocation?

A)   Asset classes have different systematic risk exposures.

B)   Liability funding is more accurately controlled.

C)   Liabilities and assets are highly correlated.

Q2. Mark Zedon, a financial consultant prepares a strategic asset allocation for his client based on the client’s risk/return preferences. This approach to strategic asset allocation is called the:

A)   asset only approach.

B)   efficient frontier approach.

C)   investment policy statement approach.

Q3. The investment committee of a life insurance company recommends a strategic asset allocation for the company based on the projected policy premium inflows and payouts along with long-term capital market expectations. This approach to strategic asset allocation is known as the:

A)   asset-liability approach.

B)   static approach.

C)   investment policy statement approach.

LOS d: Contrast the asset-only and asset/liability management (ALM) approaches to asset allocation. fficeffice" />

Q1. Which one of the following most closely matches an advantage of the asset-liability approach over the asset only approach to strategic asset allocation?

A)   Asset classes have different systematic risk exposures.

B)   Liability funding is more accurately controlled.

C)   Liabilities and assets are highly correlated.

Correct answer is B)

The asset-liability approach to strategic asset allocation is desirable because liabilities are more accurately controlled.

Q2. Mark Zedon, a financial consultant prepares a strategic asset allocation for his client based on the client’s risk/return preferences. This approach to strategic asset allocation is called the:

A)   asset only approach.

B)   efficient frontier approach.

C)   investment policy statement approach.

Correct answer is A)

Because the consultant only takes into account the investor’s risk and return preferences, he is using the asset only approach to strategic asset allocation.

Q3. The investment committee of a life insurance company recommends a strategic asset allocation for the company based on the projected policy premium inflows and payouts along with long-term capital market expectations. This approach to strategic asset allocation is known as the:

A)   asset-liability approach.

B)   static approach.

C)   investment policy statement approach.

Correct answer is A)

Because the committee takes into account the company’s inflows and outflows (liabilities), the approach is called the asset-liability approach to strategic asset allocation.