Reading 26: Asset Allocation LOS i～ Q1-3

investment, allocation, additional, including, practical

LOS i: Evaluate the theoretical and practical effects of including additional asset classes in an asset allocation.

Q1. Adding an allocation to alternative asset classes such as private equity and hedge funds has what theoretical impact on the return and risk of an investment portfolio?

Impact on Returns Impact on Risk

A) Increase Increase

B) Decrease Decrease

C) Increase Decrease

Q2. Wahid Sedique, portfolio manager with Fort Meigs Investment Advisors is discussing the practical and theoretical benefits of adding additional asset classes to client portfolios with his colleague Elizabeth Alvarez. In their conversation Sedique states, “From a practical standpoint, adding emerging markets to a portfolio consisting of developed U.S. and International equities provides valuable diversification in the event of a global crisis due to their low correlation with other asset classes.” Alvarez replies, “I think we should include U.S. TIPS in our client allocations because they are a liquid and virtually risk-free way to increase portfolio cash flows in the event of rising inflation.”

With respect to their statements:

A) Sedique is incorrect; Alvarez is correct.

B) Sedique is correct; Alvarez is correct.

C) Sedique is incorrect; Alvarez is incorrect.

Q3. Suzanne Melby, a newly hired analyst for Taylor Capital Advisors, is making a presentation to Taylor’s investment committee about the practical concerns when adding new asset classes to an investment portfolio. In her presentation, Melby makes two statements:

Statement 1: We have seen from the previous charts that adding international securities can increase the returns of a portfolio; however, from the investor’s standpoint, risk may be perceived as higher due to the inclusion of currency, political, and legal risk.

Statement 2: The investment committee has decided that some type of alternative investment such as hedge funds should be included in all client portfolios, but the large amounts of capital required and the difficulty of finding information may prevent us from investing in alternative investments in some client portfolios.

With regard to Melby’s statements, the Taylor Capital Advisors investment committee should:

A) agree with Statement 1, but disagree with Statement 2.

B) disagree with Statement 1, but agree with Statement 2.

C) agree with both Statement 1 and Statement 2.

[此贴子已经被作者于2009-3-5 15:00:10编辑过]