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Exam 22: Investors and the Investment Process

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Question 1

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Of the following, the investment time horizon is typically the shortest for ________.

A) banks
B) endowment funds
C) life insurance companies
D) pension funds

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Question 2

Multiple Choice

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When used in the context of investment decision making, the term liquidity refers to ________.

A) the ease and speed with which an asset can be sold at any value possible
B) the ease and speed with which an asset can be sold without having to discount the value
C) an aspect of monetary policy
D) the proportion of short-term to long-term investments held in an investor's portfolio

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Question 3

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If an investor wants to invest 100% of her portfolio in safe assets but does not want to manage her portfolio, she should invest in ________.

Which of the following is the least likely to be included in the portfolio management process?

An employee has an average wage of $60,000 and has worked for the firm for 28 years. The defined benefit pension plan pays retirees 2.3% of the average wage times the years of service. The employee can expect to receive ________ per year upon retirement.

A pension fund will owe $15 million to retirees in 8 years. An actuary assumes an 7% rate of return on the funds invested in the pension plan. If the pension plan receives annual contributions from the company sponsor, how much must the company pay each year to fully fund the pension liability?

Conservative investors are likely to want to invest in ________ mutual funds, while risk-tolerant investors are likely to want to invest in ________.

For which one of the following institutions is liquidity usually the most important?

The prudent investor rule is an example of a regulation designed to ensure appropriate ________ by money managers.

A portfolio consists of three index funds: an equity index, a bond index, and an international index. The portfolio manager changes the weights periodically according to forecasts for each sector. This is an example of ________.

Personal trusts are typically allowed to engage in which of the following investment activities? I. Buying and selling futures contracts. II. Short-selling securities. III. Purchasing and writing options. IV. Buying stock on margin.

An investor is looking at different retirement investment choices, and he is willing to accept one with upside potential even if that means sacrificing certainty. Which of the following will he most likely select?

When a company sets up a defined contribution pension plan, the ________ bears all the risk and the ________ receives all the return from the plan's assets.

Life insurance companies try to hedge the risks inherent in whole-life insurance policies by investing in ________.

An investor with low risk aversion will likely prefer which of the following risk and return combinations?

Your sister, an avid outdoors person, works in the airline industry, and she has come to you (the financial guru) for investment advice. She is looking into purchasing stocks she knows something about. She is considering purchasing stock in Boeing, Lockheed Martin, United Technologies (maker of aircraft engines) , and Cabela's Sporting Goods. Based only on the information given, which stock should you recommend for her?

The prudent investor rule requires ________.

The first step any investor should take before beginning to invest is to ________.

At the early stage of an individual's working career, his or her retirement portfolio should probably consist mostly of ________.

_______ is a life insurance policy that provides a death benefit and a fixed-rate tax-deferred savings plan.