Reading 10: Prudence in Perspective-LOS a 习题精选 2011, principles, comparing, fiduciary, center

土豆妮

Session 2: Ethical and Professional Standards: Application
Reading 10: Prudence in Perspective

LOS a: Explain the basic principles of the new Prudent Investor Rule.

 

 

When comparing the fiduciary responsibility under the Prudent Investor Rule (PIR) with that under the Prudent Man Rule (PMR), which of the following is CORRECT? The PIR does:

A) permit the delegation of investment responsibility to third parties; the PMR does not permit the delegation of investment responsibility to third parties.

B) permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties.

C) not permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties.

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Under the PIR, delegation of investment to third parties is permitted, but this is not allowed under the PMR.

lianghuang25

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dwcfa

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土豆妮

Which of the following statements about trustee actions is CORRECT? Trustees must consider:

A) the risk of an investment without regard to its return.

B) an investment's risk/reward profile as it relates to the portfolio.

C) neither the risk nor the return of the portfolio, instead focusing on trading costs.

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The new Prudent Investor Rule states that an investment's risk/reward profile must be considered as it relates to the overall risk of the portfolio. Both risk and return must be considered in tandem.

土豆妮

Which of the following statements is part of the basic principles of the new Prudent Investor Rule?

A) Excessive trading and fees should be avoided.

B) Current income for the trust is totally disregarded in favor of growth.

C) Trustees must consider each investment against its own merits.

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Current income must be considered in tandem with the need for growth. Investments in a portfolio should be considered based on the contribution to the portfolio's risk. Diversification is expected to reduce risk.

土豆妮

The new Prudent Investor Rule states that the practice of diversification:

A) is not as important as generating current income.

B) should not be practiced because it is too costly.

C) is expected in portfolios as a method of reducing risk.

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The new Prudent Investor Rule states that diversification is expected as a method of reducing risk. This contrasts to the old Prudent Man Rule which measured each investment by its own merits and not in the context of the portfolio. Abandoning diversification because of costs is never mentioned, nor is there mention that diversification is mutually exclusive with delegating authority or generating current income.