Reading 49: The Asset Allocation Decision - LOS c ～ Q1-3 following, return, about, statements, style

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1.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 riskier than the current income objective.

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

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

2.Which of the following statements about return objectives is TRUE?

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

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

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

D)   The current income objective is usually appropriate when an investor requires the purchasing power of the initial investment to increase over time.

3.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 percent Treasury bonds?

A)   Capital appreciation.

B)   Current income.

C)   Capital preservation.

D)   Total return.

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答案和详解如下：

1.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 riskier than the current income objective.

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

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

The correct answer was D)

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.

2.Which of the following statements about return objectives is TRUE?

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

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

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

D)   The current income objective is usually appropriate when an investor requires the purchasing power of the initial investment to increase over time.

The correct answer was C)

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). The current income objective is usually appropriate when an investor wants or needs to supplement other sources of income to meet living expenses or some other planned spending need.

3.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 percent Treasury bonds?

A)   Capital appreciation.

B)   Current income.

C)   Capital preservation.

D)   Total return.

The correct answer was C)

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