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Exam 22: Investors and the Investment Process

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Question 41

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In 1937 the Eli Lilly family donated millions of dollars in stock to fund a not-for-profit charitable organization.Such organizations are typically called _________________.

A) annuities
B) endowments
C) mutual funds
D) personal trusts

E) None of the above
F) All of the above

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Question 42

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A portfolio manager indexes part of a portfolio and actively manages the rest of the portfolio.This is called a _________ strategy.

A) passive aggressive
B) passive core
C) passively active
D) balanced fund

E) All of the above
F) B) and D)

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Question 43

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Medfield College's $10 million endowment fund is not allowed to spend any contributed capital or any capital gains.The fund may only spend investment earnings.The fund is expected to need between $500,000 and $1,000,000 to pay for new lab equipment for the science building.Which of the following is/are true? I.The fund should have a target rate of return of at least 10%. II.The limitations on spending require the fund to limit its considerations to growth stocks. III.The requirement to spend money out of the fund this year provides a liquidity constraint that may reduce the fund's rate of return.

An institutional investor will have to pay off a maturing bond issue in 3 years.The institution has 10,000 bonds outstanding each with a $1,000 par value.The institutional money manager is reevaluating the fund's $100 million portfolio at this time.She is bullish on stocks and wants to put the most she can into the stock market but she cannot risk not being able to pay off the bonds.Three year zero coupon bonds are available paying 6% interest.What percentage of the total $100 million portfolio can she put in stocks and still ensure meeting the bond payments?

A portfolio is comprised 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 __________.

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

Endowment funds are held by __________.

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

Of the following,the most flexible type of life insurance policy from the policyholder's perspective is probably a(n) ___________ policy.

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

A portfolio is comprised of three index funds: an equity index comprising 40% of the total portfolio,a bond index comprising 30% of the total portfolio and an international index comprising 30% of the total portfolio.After each quarter the portfolio manager buys and sells some of each sector so as to preserve the original weights for each sector.This is an example of ____________.

The price of your investment increases 20% one month after you buy it.You do not believe that the stock's prospects have changed.Which one of the following actions would indicate the lowest amount of risk aversion?

One of the major functions of the investment committee is to ________________.

One way that life insurance firms can hedge the risk created by offering whole life insurance policies by ________________.

An employee has an average wage of $60,000 and they have worked for the firm for 25 years.The defined benefit pension plan pays retirees 2.5% of the average wage times the years of service.The employee can expect to receive _______ per year upon retirement.

For an investor concerned with maximizing liquidity,which of the following investments should be avoided?

The two most important factors in describing an individual or organization's investment objectives are ________________.

An active asset allocation strategy involves _________.

_______ is a life insurance policy that will provide a death benefit only but has no savings plan.

An investor with high risk aversion will likely require which of the following risk return combinations?