Question 4 Rob Hartwell, CFA, is a portfolio manager whose client base is primarily comprised of high net worth individuals. Hartwell has been hired by Joan McCarthy, a highly successful entrepreneur who has recently retired from her position as CEO of her company. Prior to the retention of Hartwell, McCarthy’s portfolio had been poorly managed by another investment advisor who had never formulated an investment policy for her and had invested Hartwell’s money in assets that were not particularly suitable for either her risk tolerance or her return requirements. One of Hartwell’s first tasks as McCarthy’s new portfolio manager is to formulate an investment policy for McCarthy in light of her new retirement status, taking into account her current and future needs for income-generating investment vehicles. Hartwell will then evaluate all current holdings and determine, on an individual basis and with regards to the portfolio as a whole, whether each position should be retained or liquidated. Hartwell identifies two large positions in companies located in Slotvenski, an Eastern European country that, until twenty years ago, was under communist rule. The investments are in two manufacturing concerns: one that produces paper products for domestic use, while the other manufactures leather goods for export to EU countries and the United States. Hartwell believes that the fundamental financial analysis of the two corporations should be relatively straightforward, but knows that he must first gain a firm understanding of the country’s economic climate in order to evaluate the investments in the context of the overall portfolio. Since the early 1990s, the government of Slotvenski has worked to replace its country’s formerly closed economy with a free market system with the hope of encouraging domestic economic growth. Policies were formulated specifically to create incentives for the country’s citizens to trade, invest and develop new technologies. As a result, over the past decade, the country has experienced a twenty percent increase in the growth rate of its labor productivity. In addition, over the same time period, the country has enjoyed an eight percent increase in the real GDP per labor hour. On the surface, both of these developments would appear to be of benefit to McCarthy’s investments in the developing country. Hartwell is impressed by Slotvenski’s recent economic progress, but in light of McCarthy’s return parameters, he wants to do further analysis to attempt to determine whether or not this pattern of growth is sustainable in the future. He first will evaluate the country’s economic progress to determine which of the three predominant growth theories is most applicable to this situation. He observes that over the past decade, real interest rates have declined slightly, and Hartwell must determine what impact this may have on future economic growth. In his analysis, Hartwell also notes several demographic trends emerging in the country’s economy. Of particular interest to Harwell is the change in the composition of the country’s workforce. As the country has become more industrialized, more opportunities for women to enter the workforce have led to a slight decrease in the country’s birth rate. At the same time, increased disposable income per capita has led to an increased domestic demand for consumer goods. Part 1) An incentive system that will encourage a country’s economy to realize economic growth is composed of three main social institutions. Which of the following institutions must be present for a society to be able to create incentives for economic growth? A) Savings and investment in new capital. B) Investment in human capital. C) Increased labor productivity. D) Establishment of property rights. Part 2) With a proper incentive system in place, the economic growth of a country will least likely come from which of the following sources? A) The efficient exchange of goods and services. B) Investment in human capital. C) Technological advancements. D) Increased savings and investment in new capital. Part 3) Which of the following statements regarding the growth rate of labor productivity is most accurate? A) The two factors that contribute to the growth of labor productivity are growth in physical capital per labor hour and technological change. B) Technological change is largely dependent upon growth in savings and investment in physical capital. C) Growth in capital labor per hour causes the productivity curve to shift to the right. D) Labor productivity can be quantified as capital per labor hour. Part 4) Assuming that the Slotvenski economy experiences a 6 percent increase in capital per labor hour, calculate the amount attributable to investment in new capital and the amount attributable to technological advancement.
| Investment in New Capital Advancement | Technological Advancement | A) | 2.00% | 4.00% | B) | 4.00% | 2.00% | C) | 5.33% | 2.67% | D) | 2.67% | 5.33% |
Part 5) In accordance with the new growth theory, a decrease in real interest rates: A) is caused by an accumulation of capital, which will eventually stifle economic growth. B) will act as an incentive for people to discover new products and technology. C) will result in a decrease in capital accumulation and decreased technological advancement. D) will have little or no effect on population growth. Part 6) The economic theory that argues that the most important economic influence on population growth in a society is the opportunity cost to women for entering the workplace is: A) classical growth theory. B) new growth theory. C) economic growth theory. D) neoclassical growth theory.
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发表于 2008-5-17 17:06
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