Q2. Given the Arlt’s personal information gathered from the questionnaire, which of the following statements regarding the correct asset allocation of their portfolio is most accurate?

A)   Their portfolio should be allocated more towards risky assets since their human capital is bond-like.

B)   Since they are in the early part of the accumulation phase of their careers they can tolerate more risk in their portfolio and thus should be invested more heavily in equities.

C)   Their portfolio should be allocated more towards less risky assets because they have a below average willingness to accept risk thus their overall risk level is below average.

Q3. The statements made by the financial consultant regarding the demand for life insurance and the asset allocation of the policy premiums are:

A)   correct for only one of the statements.

B)   incorrect for both statements.

C)   correct for both statements.

Q4. A disadvantage of the Arlt’s choice of the annuity is:

A)   if they both die before their predicted life expectancy the remainder of their assets will go to the insurance company instead of their heirs.

B)   the annuity will lose real earning power in periods of high inflation.

C)   the annuity is less tax efficient than utilizing a 401k or 403b account.

答案和详解如下：

Q2. Given the Arlt’s personal information gathered from the questionnaire, which of the following statements regarding the correct asset allocation of their portfolio is most accurate?

A)   Their portfolio should be allocated more towards risky assets since their human capital is bond-like.

B)   Since they are in the early part of the accumulation phase of their careers they can tolerate more risk in their portfolio and thus should be invested more heavily in equities.

C)   Their portfolio should be allocated more towards less risky assets because they have a below average willingness to accept risk thus their overall risk level is below average.

Correct answer is C)

Even though the Arlt’s human capital is bond-like indicating they should invest their portfolio more towards equities, Karen’s statement about the mortgage crisis indicates a below average willingness to take risk, thus their overall level of risk tolerance is below average. Knowing the size of their portfolio is relatively small the advisor should defer to the client’s willingness to take risk if willingness is below ability and the portfolio is not appreciably large.

Q3. The statements made by the financial consultant regarding the demand for life insurance and the asset allocation of the policy premiums are:

A)   correct for only one of the statements.

B)   incorrect for both statements.

C)   correct for both statements.

Correct answer is C)

The statements made by the financial consultant are correct for both statements. Since the incomes of both Karen and Karl are stable their human capital is bond-like thus to replace this income their demand for life insurance is high and their assets should be allocated more aggressively in equity type investments.

Q4. A disadvantage of the Arlt’s choice of the annuity is:

A)   if they both die before their predicted life expectancy the remainder of their assets will go to the insurance company instead of their heirs.

B)   the annuity will lose real earning power in periods of high inflation.

C)   the annuity is less tax efficient than utilizing a 401k or 403b account.

Correct answer is A)

One disadvantage of an annuity is that a person may die sooner than their predicted life expectancy in which case if they also choose the largest payout this means they aren’t leaving anything to beneficiaries. In that case the rest of their assets in the annuity would go to the insurance company instead of being passed on as a bequest to their heirs. Real earning power is only lost in a fixed annuity in which the income stream is fixed and thus would not keep pace with inflation. The Arlts purchased a variable annuity which should keep pace with inflation assuming the investment returns are at least as high as the rate of inflation. A deferred annuity is not necessarily less tax efficient than a 401k or 403b account because in all these accounts income and capital gains are tax deferred so they are equivalent from that tax standpoint. One tax difference between the 401k / 403b accounts and annuities is the 401k / 403b accounts are funded with pretax dollars which lowers the investor’s taxable income by the amount contributed. In contrast the annuity is funded with after tax dollars thus the investor’s taxable income is not lowered at the time of the contribution as occurs with the 401k / 403b contribution but they owe less income taxes when they withdraw the money during retirement. The goal of the Arlts was to mitigate longevity risk which can only be done with an annuity which offers lifetime payments which is not an option with a 401k / 403b. Although taxes should always be considered they are not specifically mentioned as an issue in this case.

Thank you!