JoeyDVivre

Which of the following is least likely to be an advantage of a valid investment policy statement?

A) Provides for short-term strategy shifts in response to short-term dramatic value declines.

B) Promotes long-term discipline in investment decisions.

C) Allows for a continual dynamic process in meeting investor objectives.

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The investment policy statement does not provide for shifts in strategy due to value declines

JoeyDVivre

The investment policy statement is important because it helps:

A) direct long-term investment portfolio decisions that deter adjustments due to panic and overconfidence.

B) direct long-term investment portfolio decisions and promotes adjustments in response to panic and overreaction.

C) direct short-term investment portfolio decisions as a result of short-term responses to overreacting markets.

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The investment policy statement helps insure against short-term strategy changes due to panic or overconfidence.

JoeyDVivre

The investment policy statement does not contain which of the following?

A) Portfolio position listing.

B) Evaluation of investor risk preferences.

C) Asset allocation guidelines.

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The investment policy statement does not contain a listing of portfolio positions, only guidelines as to what positions are allowed.

JoeyDVivre

The investment policy statement does not contain:

A) industry specifics for potential investment.

B) guidelines for adjusting portfolio composition.

C) a client description.

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The investment policy statement may provide guidelines for which industry may or may not be included in the portfolio but will not provide specifics about industry characteristics.

JoeyDVivre

The investment policy statement does not contain:

A) industry specifics for potential investment.

B) guidelines for adjusting portfolio composition.

C) a client description.

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The investment policy statement may provide guidelines for which industry may or may not be included in the portfolio but will not provide specifics about industry characteristics.

JoeyDVivre

A money manager who crafts portfolios using all of Standard & Poor’s sector index exchange traded funds (ETFs), aggressively overweighting and underweighting sectors, follows what investment strategy?

A) Semi-active.

B) Active.

C) Passive.

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Semi-active strategies involve using indexes as the underlying investments, but trying to add value through some active management. In this case, the manager starts with index ETFs, but actively adjusts the allocation. He is a semi-active manager.

JoeyDVivre

Which of the following statements regarding the effect of investors’ time horizon on portfolio choice is least accurate?

A) Endowments and foundations typically invest with an average or below average tolerance for risk.

B) Longer time horizons may indicate an investor’s greater ability to take risk, even if willingness is not apparent.

C) Legal and regulatory factors usually do not affect the investment policies of individual investors.

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Endowments and foundations typically invest with an average or above average tolerance for risk, in part due to their relatively longer investment time horizons.

JoeyDVivre

Which of the following factors are least likely to affect the formulation of an investment policy statement for a university’s endowment fund?

A) Multi-stage time horizons.

B) Tax considerations.

C) Social considerations.

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An endowment would receive tax-exempt status, and therefore would not have to include tax considerations when formulating an investment policy statement.

JoeyDVivre

Max and Anna Klushefski have both turned 30 in the last year. The couple decides 30 is the right age to start thinking more about their future, so they meet with a financial planner, Thelma Black. Both Max and Anna work. Their 401k plans have a combined value of $135,000 and represent their only investment assets. Anna, a schoolteacher, is pregnant with their first child and plans to quit her job when the child is born. The couple hopes to have at least two more children. Max makes $65,000 per year as a junior executive at a clothing firm. The couple has been banking Anna’s salary for the last two years and can live on what Max makes.
Max and Anna had not thought much about their future, but in response to Black’s questions, they come up with two goals:

• Anna wants to stay out of the work force until all of her children are out of the house.
• Max wants to retire at 65 with at least $2 million in his portfolio.

Neither Max nor Anna knows much about investing, but Max’s friends tell him that stocks are the best option because they earn the best returns. Max and Anna want to invest most of their money in stocks.Based only on the information presented above, the Klushefskis’:

A) investment objectives are too aggressive.

B) plans need to consider time horizons.

C) ability to take risk conflicts with their willingness to take risk.

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Given that a 30-year-old man is making $65,000 in an executive position, he can be excused for aiming fairly high. A $2 million portfolio is aggressive, but not necessarily out of reach, with 35 years to work on it. The Klushefskis are young enough so they can afford to take risks and can live on their work income. That meshes with their willingness to focus on stocks. However, their plans do not include payments for college or any other major expenses between now and retirement. They should consider other possible needs for their money and plan their finances according to those time horizons, as well as their retirement goals

JoeyDVivre

Which of the following statements regarding the ethical conduct necessary for managing portfolios is least accurate?

A) The standard of conduct is embodied by the CFA Institute Code and Standards.

B) The portfolio manager should not presume that they have more knowledge than the client.

C) The portfolio manager should meet standards of competence.

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Because the portfolio manager is an expert in the field, he or she has presumably more knowledge than the client. The manager is thus in a position of trust and should adhere to the highest standards of ethical conduct.