Q5. Which of the two strategies for meeting lifestyle-based objectives results in a frontier of risk and reward, and under what circumstances would the alternative be more desirable?

A)   Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and maintaining as much upside potential as possible is seen as being of critical importance.

B)   Monte Carlo simulations generating a large number of potential outcomes from fixed horizon strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, an asset allocation strategy, would be more appropriate when maintaining as much upside potential as possible is seen as being of critical importance.

C)   Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance.

Q6. Suppose that we have plotted a set of hypothetical investment outcomes relating to various asset allocations, in terms of expected final account value and probability of failing to reach an objective. This is analogous to:

A)   the role of a replicating portfolio in option pricing theory.

B)   the measurement of interest rate risk for a conventional bond.

C)   a plot of the efficient frontier in traditional finance.

Q7. As opposed to traditional finance, behavioral finance assumes that investors will seek some asset combination that will:

A)   optimize the tradeoff between shortfall risk and expected value.

B)   minimize the risk of a negative lifestyle outcome.

C)   maximize the expected positive lifestyle outcome.

答案和详解如下：

Q5. Which of the two strategies for meeting lifestyle-based objectives results in a frontier of risk and reward, and under what circumstances would the alternative be more desirable?

A)   Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and maintaining as much upside potential as possible is seen as being of critical importance.

B)   Monte Carlo simulations generating a large number of potential outcomes from fixed horizon strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, an asset allocation strategy, would be more appropriate when maintaining as much upside potential as possible is seen as being of critical importance.

C)   Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance.

Correct answer is C)         

Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. This is analogous to the efficient risk-return frontier concept in traditional finance.

The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance. Asset allocation strategies are more appropriate when the investor has the ability to make up any shortfall, or when retaining the potential to reach the maximum objective is important.

Q6. Suppose that we have plotted a set of hypothetical investment outcomes relating to various asset allocations, in terms of expected final account value and probability of failing to reach an objective. This is analogous to:

A)   the role of a replicating portfolio in option pricing theory.

B)   the measurement of interest rate risk for a conventional bond.

C)   a plot of the efficient frontier in traditional finance.

Correct answer is C)         

This is analogous to a plot of the efficient frontier in traditional finance.

Q7. As opposed to traditional finance, behavioral finance assumes that investors will seek some asset combination that will:

A)   optimize the tradeoff between shortfall risk and expected value.

B)   minimize the risk of a negative lifestyle outcome.

C)   maximize the expected positive lifestyle outcome.

Correct answer is A)

As opposed to traditional finance, behavioral finance assumes that investors will seek some asset combination that will optimize the tradeoff between shortfall risk and expected value.

Thank you!