Reading 10: Prudence in Perspective - LOS c ~ Q1-5

respect, following, statements, style, least

Q1. With respect to the Prudent Man Rule and the Prudent Investor Rule, which of the following statements is least accurate?

A) An investment that is not appropriate under the Prudent Man Rule may be appropriate under the Prudent Investor Rule.

B) Both impose discretion in choosing investments.

C) The Prudent Investor Rule imposes an ordinary standard of care.

Q2. Which of the following statements represent the most important aspect of the Prudent Man Rule?

A) Using caution and being conservative in the selection of investments.

B) The fiduciary is generally forbidden from delegating their investment authority.

C) Each investment is considered on its own merits, not in regard to the rest of the portfolio.

Q3. Which of the following statements regarding the Prudent Investor Rule (PIR) and the Prudent Man Rule (PMR) is most correct?

A) The PIR is primarily results-oriented while the PMR is process-oriented.

B) Under the PIR restrictions on investment in categories of securities have been codified.

C) Under the PIR no particular investment is either prudent or imprudent.

Q4. Mary Rutherford, CFA, is considering the purchase of Greenbelt Paper's stock in an upcoming initial public offering (IPO) for a portfolio that she serves as trustee. She has performed the necessary research and believes that the stock satisfies the fund's risk/reward requirements. Under the Prudent Man Rule, Rutherford would:

A) not be allowed to buy the IPO, because the transaction is considered too risky.

B) be allowed to buy the IPO as well as any options on the stock.

C) be allowed to buy the IPO.

Q5. Mary Rutherford, CFA, is considering the purchase of Greenbelt Paper's stock in an upcoming initial public offering (IPO) for a portfolio that she serves as trustee. She has performed the necessary research, and believes that the stock satisfies the fund's risk/reward requirements. Under the Prudent Investor Rule, Rutherford would:

A) be allowed to buy the IPO.

B) not be allowed to buy the IPO because the transaction is considered too risky.

C) not be allowed to buy the IPO but could instead purchase a large position in the secondary market.