Reading 49: The Asset Allocation Decision LOS c习题精选 2010, objective, investor, capital

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LOS c: Describe the return objectives of capital preservation, capital appreciation, current income, and total return.

An investor with a below-average risk tolerance wants her portfolio to gain value through capital gains and reinvestment of income. Her most appropriate return objective is:

A) capital preservation.

B) capital appreciation.

C) total return.

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The total return objective describes a portfolio that is structured to grow in value to meet a future need through both capital gains and the reinvestment of current income. A capital appreciation objective seeks to grow the portfolio value through capital gains and is more appropriate for less risk-averse investors.

 

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An investor insists that his portfolio maintain its value in terms of purchasing power and is quite concerned about a loss of value. This investor’s return objective is best described as:

A) total return.

B) capital appreciation.

C) capital preservation.

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The capital preservation objective is appropriate when a portfolio must earn a return that is at least equal to the inflation rate (maintain its purchasing power) with a very low risk of losing value.

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Which of the following statements about return objectives is FALSE?

A) To achieve the capital appreciation objective, the nominal rate of return must exceed the rate of inflation.

B) The total return objective is less risky than the capital appreciation objective.

C) To achieve the capital preservation objective, the nominal rate of return must exceed the inflation rate.

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To achieve the capital preservation objective, the nominal rate of return must equal the inflation rate. The total return objective is often thought to be riskier than the income objective, but less risky than the capital appreciation objective.

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Which of the following return objectives is most likely the primary objective given a 70 year-old widow who owns a portfolio comprised of 100% Treasury bonds?

A) Capital preservation.

B) Current income.

C) Capital appreciation.

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Owning mainly fixed-income securities would generally rule out capital appreciation as an appropriate return objective. The fact that these are Treasury bonds suggests that capital preservation is a higher priority than current income.

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Which of the following statements about return objectives is TRUE?

A) The total return objective considers returns from both capital gains and current income, net of expected inflation.

B) To achieve the capital appreciation objective, the real rate of return must exceed the rate of inflation.

C) To achieve the capital appreciation objective, the nominal rate of return must exceed the rate of inflation.

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The total return objective considers returns from both capital gains and the reinvestment of current income, but is not net of inflation (net of inflation, this is the real total return).

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Which of the following statements about return objectives is least accurate?

A) Capital preservation is usually a key objective for a university endowment, while current income is usually a key objective for an investor who is in retirement.

B) Both the capital preservation and current income objectives are appropriate for investors that have a relatively low risk tolerance.

C) Capital gains are likely to be equally important for investors with capital appreciation, capital preservation, or current income objectives.

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Capital gains are likely to be of less importance to investors with a current income objective.