2019 CFA level 3 qbank reading 10 managing individual investor portfolios questions

10/11/2018 Learning Management System Question #1 of 95 Vivian Collins is a client of ESP Financial Advisors She presents her situation as follows: Collins is currently a divorced mother to a 5-year-old daughter, Daija She is 35 years old She has worked at her current job with the government for the last 13 years, and assumes that she will remain there until retirement and collect her pension Collins wants to be able to send Daija to the college of her choice Collins expects her daughter to eventually marry and have children She would love to be able to leave something to these future grandchildren How many time horizons does Collins have? in A) en tre B) Question #2 of 95 bo ok c C) When planning for retirement, an individual investor may wish to use a Monte Carlo approach m over a deterministic approach because: o A) Monte Carlo approaches are simpler and quicker to implement B) Monte Carlo approaches provide a better analysis of outcome ranges than the single w w wealth gure estimate generated by deterministic approaches w C) deterministic approaches use inappropriate inputs Question #3 of 95 Which of the following parts of an investment policy statement (IPS) is NOT considered a constraint? A) Time horizon B) Taxes C) Risk tolerance https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 1/43 10/11/2018 Learning Management System Question #4 of 95 Which of the following statements about Monte Carlo simulation is CORRECT? Monte Carlo simulation: A) typically produces approximately 100 trials B) is best when it uses only historical data .in C) forecasts a more accurate risk/return tradeo than a deterministic approach w w w o m bo ok c en tre Question #5 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 2/43 10/11/2018 Learning Management System Carl and Terri Anderson, age 45 have a $1,500,000 investment portfolio Given the following investment policy statement, which of the potential portfolios would be most appropriate for the Anderson's? Ability to take risk: The Anderson's have a long time horizon and meet their current expenses through current income Their ability to take risk is high Willingness to take risk: Objectives in bo ok c Overall: en tre Risk Tolerance The Anderson's have stated that they not want to gamble with their money, but are willing to take some risk to achieve their investment goals, if they are adequately compensated for that risk in the form of expected return .o m High ability to take risk and moderate willingness to take risk leads to a moderately high risk tolerance w w w Return Objectives Constraints The Anderson's want to have a portfolio worth $3,500,000 in today's dollars when they retire in 20 years They are planning to spend their current income and not plan to make any further contributions to their account The break-even in ation rate implied by TIPS is 2.5% Multistage, consisting of at least time horizons Time Horizon Retirement in 20 years Retirement – at least 20 years after retirement Liquidity Requirements Would like to keep $50,000 in cash on hand at all times to meet emergency expenses Legal/Regulatory None Taxes Tax aspects should be considered and the https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 3/43 10/11/2018 Learning Management System bulk of retirement savings should be held in a tax advantaged account None Portfolio Portfolio Portfolio Large cap U.S Stocks 8% 20% 36% 15% Small cap U.S stocks 12% 10% 10% 15% International developed market equities 11% 10% 10% International emerging market equities 15% U.S corporate bonds U.S Treasury bonds Venture capital Cash (T-bills) 0% 5% 20% 35% 35% 4% 22% 0% 30% 20% 10% 0% 0% 3% 3% 4% 5% 8.62% 7.80% 6.10% 12.80% 10.20% 7.40% w w o Standard deviation 5% m Total expected return 0% 5% bo ok c Asset Class in Asset Class Return en tre Unique Considerations A) Portfolio w B) Portfolio C) Portfolio Question #6 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 4/43 10/11/2018 Learning Management System Jessica Paskiet, a portfolio manager for Porthouse Investment Management is drafting an investment policy statement for her new client, Kenneth Moon Which of the following procedures should Paskiet follow when drafting the risk and return objectives for her client? Procedure 1: Consider the client's risk tolerance and return objective separately from one another Procedure 2: Focus on the investor's required returns only, as desired returns are not important when drafting the IPS With regard to the procedures Paskiet has proposed: Incorrect B) Incorrect Correct C) Incorrect Incorrect Question #7 of 95 bo ok c A) Correct in Procedure en tre Procedure m Steve Smith is 55 years old He has just been promoted to VP of manufacturing of a well established manufacturing conglomerate Recently, Smith received a substantial inheritance o from a wealthy relative Given this information, how would Smith be classi ed along a risk w w tolerance spectrum? A) Low-to-moderate w B) Moderate-to-high C) Not enough information to tell Question #8 of 95 Which of the following sets of assumptions is most relevant to the behavioral nance investment framework? Investors are: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 5/43 10/11/2018 Learning Management System A) loss averse, investors exhibit biased expectations, investors construct portfolios via asset segregation B) risk averse, investors demonstrate rational expectations with respect to investment choices, investors construct portfolios consistent with asset integration C) risk averse, investors exhibit biased expectations, investors construct portfolios via asset segregation .in Question #9 of 95 The investment policy statement: en tre Which of the following statements concerning an investor's policy statement is least accurate? A) provides guidance to the investment advisor regarding issues of appropriateness of decisions bo ok c B) determines the client's ability and willingness to take risk m C) should represent the return objectives of the investor .o Question #10 of 95 w w Which of the following statements regarding situational pro ling is least accurate? A) With situational pro ling, the source of an investor's wealth is considered an indicator w of the investor's risk tolerance B) When properly used, situational pro ling will provide a great degree of insight into an investor's preferences, economic situation, goals, and desires C) Situational pro ling considers an individual's preferences, economic resources, goals, and desires Question #11 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 6/43 10/11/2018 Learning Management System Investor behavior and psychology allow classi cation according to risk preferences The particular technique associated with this classi cation exercise is termed personality: A) assessing B) typing C) testing .in Question #12 of 95 Dan Kreuz, age 35, is a supervisor with BHS Consumer Finance and earns an annual salary of en tre $95,000 per year before taxes His spouse, Szeren Kreuz, age 36, is a marketing manager for a rm specializing in rental property, and earns $55,000 per year Dan and Szeren recently inherited $800,000 from Szaren's father's estate In addition to their income and their inheritance, the Kreuz's have accumulated the following assets: bo ok c $10,000 in cash $150,000 in stock and bond mutual funds $240,000 in BHS common stock The Kreuz's annual living expenses are $90,000 per year and their tax rate is 40 percent After- m tax salary increases will o set any future increases in living expenses.  In a discussion with their o nancial advisor, Joel Douglas, the Kreuz's express concern about having enough assets for a w w comfortable retirement The Kreuz's make the following comments to Douglas: We want to retire in 20 years We were very uncomfortable with the decline in the stock market from 2000-2002, and w cannot tolerate a drop in our investments of more than 10% in any given year We not plan to have children After the discussion with Douglas, he goes back to his o ce to prepare an investment policy statement for the Kreuz's He determines that to meet their goals, they will need $2,500,000 in 20 years Which of the following is the most appropriate description of the risk objective for the Kreuz's? Willingness to Take Risk A) Below Average Ability to Take Risk Above Average Overall Conclusion Above Average https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 7/43 10/11/2018 Learning Management System B) Below Average Below Average Below Average C) Below Average Above Average Below Average Question #13 of 95 Gary Daly is a retired schoolteacher who invests most of his money in U.S Treasury bonds and notes He has often stated that in times of crisis, he feels that it is better to be safe than sorry .in In terms of behavioral nance, Daly is exhibiting which personality type? A) Cautious en tre B) Methodical Question #14 of 95 bo ok c C) Spontaneous Which of the following statements about risk and decision-making styles would least likely m appear in a personality typing questionnaire? o A) I not like contact sports, like football w w B) I typically lose sleep when the market is down w C) My favorite subject in school was mathematics Question #15 of 95 Which of the following represents the process involved in creating an investment policy statement? A) Evaluate objectives, capital market expectations, and investment strategies B) Evaluate objectives and constraints and combine them with capital market expectations C) Determine constraints and formulate investment strategies https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 8/43 10/11/2018 Learning Management System Question #16 of 95 Which of the following statements distinguishes the ability to take risk from the willingness to take risk? The: A) willingness to take risk is connected with primary goals and objectives B) ability to take risk is more amenable to quantitative measures whereas the willingness to take risk is more qualitative in nature C) ability to take risk is more qualitative in nature whereas the willingness to take risk can en tre in be measured in a quantitative nature Question #17 of 95 A) individual selections bo ok c Behavioral nance models of asset pricing take into account economic considerations and add: B) security speci c characteristics w w o m C) personal preferences Question #18 of 95 w Which class of liquidity constraints is usually NOT considered a factor when formulating an individual's investment policy statement? A) Ongoing expenses B) Negative liquidity events C) Cash carried on the person Question #19 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 9/43 10/11/2018 Learning Management System Which of the following inputs is NOT used in both deterministic and probabilistic analyses in individual retirement planning? A) Current income B) Input variable probabilities C) Assets owned .in Question #20 of 95 Larry Smith, CFA, is the new equity portfolio manager for a socially responsible mutual fund en tre The investment policy statement stipulates which stocks not meet the fund's de nition of socially responsible Because Smith was new to the fund, he did not personally agree to the stocks that were forbidden Subsequently, he included a stock into the portfolio that was on the restricted list Which of the following statements is least accurate? prior to stock selection bo ok c A) Smith was responsible for reading and understanding the investment policy statement B) Smith is to be held responsible for the investment policy statement even though it was written before he was employed at the fund w w o m C) Smith did not violate the investment policy statement w Question #21 of 95 Which of the following statements about appropriate investment planning is CORRECT? A) Individual investment planning could include the consultation of counsel B) It is not a good idea to get too speci c when constructing an investment policy statement C) An appropriate investment objective for a typical 23-year-old investor is a low-risk strategy, such as capital preservation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 10/43 10/11/2018 Learning Management System Given the following investment policy statement, which portfolio allocation would be most appropriate for Martin and Sheila Torch? Ability to take risk: Martin is a pediatrician and has a high level of income The high level of income, and modest size of living expenses compared to overall assets give the Torch's a high ability to tolerate risk Willingness to take risk: Objectives in Torch states that he wants to emphasize protecting the asset base he has built and does not want the value of his investments to decline more than 10% in a given year Torch's statement implies a low willingness to take risk bo ok c Overall: en tre Risk Tolerance m The low willingness to take risk overshadows the Torch's high ability to take risk w w o Return Objectives w Constraints Time Horizon Liquidity Requirements Income requirement in retirement is 2.1% Growth requirement including in ation and meeting gifting goals is 3.8% Total after tax return requirement = 5.9% Multistage, consisting of time horizons Torch will retire in years Retirement - at least 20 years Post retirement - desire to gift assets at death to children and charities Minimal liquidity requirements other than funding annual living expenses Seek legal counsel to create documents to Legal/Regulatory express the Torch's wishes after their death Taxes The Torch's are taxable investors in the 35% https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 29/43 10/11/2018 Learning Management System tax bracket Tax aspects of investments should be considered Unique Considerations Desire to leave two children and charities a large estate after the death of Martin and Sheila Expected Yield Allocation Allocation Allocation Cash (T-bills) 3.0% 3.0% 5% 5% 10% Domestic Bonds 5.5% 5.5% 15% 20% 35% International Bonds 6.5% 5.0% 5% 10% 10% Domestic Equities 8.0% 2.0% 40% 30% International Equities (Developed) 11.0% 2.5% 10% 20% 10% Venture Capital 20.0% 0.0% 20% 0% 0% Real Estate (REITs) 8.0% 5.0% 5% 5% 5% 10.00% 7.70% 6.78% 2.53% 3.30% 3.83% 0.42 0.52 0.62 w w Expected after-tax return Expected yield en tre w Sharpe ratio 40% bo ok c o m Asset Class in Expected After-tax Return A) Allocation B) Allocation C) Allocation Question #63 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 30/43 10/11/2018 Learning Management System After selecting allocations based on a return objective criterion, the process of elimination for selecting the appropriate individual investor allocation can next use which of the following factors? A) Risk objective B) Unique considerations C) Liquidity constraint .in Question #64 of 95 process? Concurrently with the: A) return objectives bo ok c B) capital market expectations formations en tre Risk objectives should be evaluated during which stage of the investment policy statement C) investment strategy decision .o m Question #65 of 95 w w Which of the following statements about approaches in retirement planning is least accurate? A) Monte Carlo techniques can be used by most individual investors B) Deterministic planning techniques use multiple values for economic and nancial w variables C) Monte Carlo techniques take into account probabilities for input variables Question #66 of 95 Deterministic approaches di er from Monte Carlo approaches in that deterministic approaches: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 31/43 10/11/2018 Learning Management System A) generate single numbers whereas Monte Carlo approaches generate a range of outcomes B) generate ranges of outcomes whereas Monte Carlo approaches generate single numbers C) use probability forecasts whereas Monte Carlo approaches use best estimates Focusing on asset-by-asset characteristics is an example of asset: en tre A) segregation .in Question #67 of 95 B) integration Question #68 of 95 bo ok c C) assimilation m The results of a personality typing questionnaire can be used to classify investors according to risk tolerance and how decisions are made The classi cation that represents investors most o independent in their decision making is: w w A) spontaneous investors B) methodical investors w C) individualist investors Question #69 of 95 Situational pro ling often uses measures of wealth in determining investor risk preferences Which of the following is the best de nition for measure of wealth within a situational pro ling context? The: A) absolute amount of wealth held https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 32/43 10/11/2018 Learning Management System B) amount of wealth held in the stock market C) perceived amount of wealth held Question #70 of 95 Which of the following statements regarding the investment policy statement is least accurate? An individual's investment policy statement: in A) di ers from an institution's in that taxes play a more prominent role Question #71 of 95 bo ok c C) is exactly the same as that of an institution's en tre B) di ers from an institution's in that time horizon plays a more prominent role Brad Piasecki is a successful 35 year old executive in the technology industry with a company that is growing rapidly Piasecki has a pre-tax income of $150,000 per year, and manages to live well below his means Piasecki is currently saving for both his retirement, which will take place m in 30 years, as well as funding his daughter's college education, which will begin in 15 years .o Piasecki's investment manager has determined that based on contributions to his portfolio, Piasecki requires at a minimum, an percent annualized return on his investments in order to w w meet his goals He also states that Piasecki should invest in a diversi ed stock and corporate bond portfolio that provides total return with an emphasis on capital gains When his w investment manager gives Piasecki his recommendations, Piasecki replies "I have seen too many of my colleagues buy risky stocks and have their portfolios wiped out I only want to buy Treasury bonds for my portfolio." Piasecki checks the yields on Treasury bonds, and sees that best yield he can obtain is 4.5 percent Which of the following would be the best course of action for Piasecki's investment manager? A) Invest 50 percent in Treasury bonds and 50 percent in the diversi ed stock/corporate bond portfolio to provide a balance between Piasecki’s risk tolerances and required B) Invest in the Treasury bonds since willingness to take risk always supersedes ability to take risk https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 33/43 10/11/2018 Learning Management System C) Recommend investor education and a reassessment of portfolio objectives since the investor’s view is inconsistent with his goals and ability to take risk Question #72 of 95 Probabilistic outcomes generated by a Monte Carlo approach to retirement planning NOT generate which of the following? B) Better incorporation of tax implications bo ok c Question #73 of 95 en tre C) Higher probabilities of meeting high return expectations .in A) Potential risk/return tradeo s Which of the following statements about personality typing for individual investors is CORRECT? A) An ad hoc approach to personality typing is to administer a short questionnaire m B) It is di cult to render precise categorizations of broad groups of investors w w o C) Subjective assessments of investors are easy to standardize Bill Litner, CFA has been hired by Terri c Tires, Inc (TTI) to counsel TTI's employees concerning w their investments Jill Fisher is one of the employees and she approaches Litner to help her manage her personal nances Fisher is 36, and earns $30,000 per year from her job at TTI She rents an apartment, has about $5,000 in savings, and $3,000 in credit card debt She is divorced with a 12-year old child and does not receive alimony or child support A previous analysis performed by a nancial expert from the company had predicted that Fisher's de ned bene t pension plan would be able to support her in her retirement at her current standard of living TTI's medical coverage is very good and will cover her in her retirement Although Fisher has no other source of income, she recently inherited approximately $2 million in cash from a distant relative, and that is the reason she has approached Litner https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 34/43 10/11/2018 Learning Management System After an initial meeting, Fisher asks Litner to be her investment advisor As a rst step, Litner attempts to assess Fisher's personality type with the use of a questionnaire The questionnaire indicates that she is conservative in that she will want to know with some certainty the lower limit of the value of her portfolio in the future Also, she wants to be informed about every aspect of the investment process, e.g., get detailed information concerning every investment recommendation that Litner makes for her portfolio before approving it Part of the questionnaire attempts to determine how open Fisher is to changes The questionnaire's results indicate that she is willing to adjust and sell positions readily, even at a loss, if new information indicates a change is needed Litner intends to use the information from the questionnaire to compose an investment policy in statement (IPS) He feels that he should compose the outline of the statement in a consultation with Fisher When Litner asks Fisher to meet with him to compose an IPS, Fisher tells Litner that en tre she does not see the need for such a statement She says that she thinks that Litner's credentials are excellent Furthermore, since she has indicated that she intends to review in depth all of Litner's recommendations, having such a statement is unnecessary Litner's bo ok c attempts to gather the information he needs through conversations with Fisher go unanswered and he ends up creating the IPS using the information from the questionnaire Fisher previously lled out Fisher asks Litner to send her information on Litner's rst recommendation for her $2 million portfolio She asks that he send to her such information one at a time for her to review so she m can build her portfolio steadily one investment at a time Fisher tells Litner at the outset that o she wants to avoid frequent rebalancing and turnover because she has heard the costs and tax consequences of rebalancing and turnover can have a signi cant and negative impact on the w w returns of the portfolio w Question #74 of 95 Litner's insistence on an investment policy statement (IPS) is: A) not justi ed, and it should be considered optional B) justi ed because it is bene cial for Litner but not necessarily for Fisher C) justi ed because it is bene cial for both Fisher and Litner Question #75 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 35/43 10/11/2018 Learning Management System Given Fisher's age and her source of wealth, Fisher's familiarity with risk taking is: A) most likely minimal, and she should be willing to accept a lower than average level of risk B) probably high given her lifestyle, and she should be willing to accept a higher than average level of risk C) most likely minimal, but she should be willing to accept a higher than average level of in risk en tre Question #76 of 95 The use of a questionnaire to assess Litner's personality type is: A) a standard approach, and Fisher appears to be an anchoring investor bo ok c B) a standard approach, and Fisher appears to be a spontaneous investor C) a standard approach, and Fisher appears to be a methodical investor .o m Question #77 of 95 w w Fisher's desire to create her portfolio one asset at a time is: A) not unusual and is indicative of the role of investor psychology in investment choices w B) very unusual, and indicates that Litner should not take Fisher on as a client C) very unusual, but it is an acceptable method to create a portfolio for an individual investor, and Litner should follow Fisher's preferences Question #78 of 95 Fisher's fear of the costs associated with rebalancing and turnover are: A) justi ed for both rebalancing and turnover B) not justi ed for rebalancing but are justi ed for turnover https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 36/43 10/11/2018 Learning Management System C) justi ed for rebalancing but not for turnover Question #79 of 95 Litner's use of the questionnaire to create the IPS is: A) recommended because it allows Litner to assess the accuracy of the information for consistency en tre C) not recommended and deemed inappropriate .in B) one of many appropriate ways for gathering information bo ok c Question #80 of 95 Joanne Sparta is a 48-year old, successful physician who earns in excess of $500,000 per year She has also been successful speculating on small business startups, which has added an average of $200,000 to her annual income over the last 10 years Sparta travels extensively She likes to consider herself someone who lives in the fast lane and possesses re ned tastes in m both the arts and entertainment Sparta's annual expenses, including travel and entertainment, o average $375,000 Sparta has no foreseeable liquidity needs, legal, regulatory, or tax concerns, and has no unique circumstances Which of the following most appropriately describes Sparta's w w ability and willingness to bear risk? Sparta is: A) both willing and able to accept risk w B) neither able or willing to accept risk C) willing, but unable to accept risk Andirah Wang is a new client of Willowtree Investment Advisors (Willowtree) As part of her initial meeting with her advisor, Anita Reinholt, CFA, Wang completed a questionnaire designed to pro le her personality type The results indicated that she is a person who has a conservative investing nature, but is dent in her own ability to research investment options in a careful, systematic manner https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 37/43 10/11/2018 Learning Management System Reinholt believes in modern portfolio theory (MPT), but after years of experience knows that an individual's investment preferences and decisions are not always congruent with MPT She has become increasingly interested in the tenets of behavioral nance theory in hopes that it will help her understand each client's motivations and biases When meeting with prospects or clients, she is careful to document comments and observations relative to the portfolio management process Reinholt recorded the following statements made by Wang during the initial consultation: "I use the "basket" theory of investing - I don't want to put all my assets in one place so I'll give you a try with about 20% of my investment portfolio - that way I can see how you relative to my other advisors." in "I have been following Pharmitrol, a local company listed on NASDAQ Several of my neighbors have production jobs there and are really optimistic about the rm's en tre prospects Of course they're not in management, but I think they should be able to sense what's going on I have a signi cant position now at $3.50 per share and expect to triple my investment soon." bo ok c Reinholt is considering the appropriate risk and return objectives for Wang's account Wang said that she would like a "moderately aggressive" portfolio Upon reviewing her balance sheet, however, Reinholt notes that Wang already has a signi cant allocation to a few high-risk securities In addition she has some other illiquid and personal use assets, such as her residence, a time share condominium, and an interest in a local miniature golf course Relative o w w meet those goals m to her stated spending and retirement goals, her total net worth appears to not be adequate to Question #81 of 95 w The analysis of Wang's personality questionnaire indicates that she most likely is a: A) cautious investor B) methodical investor C) individualistic investor Question #82 of 95 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 38/43 10/11/2018 Learning Management System Statement by Wang is re ective of which of the following basic principles of the behavioral nance investment framework? A) Loss aversion B) Asset segregation C) Asset integration .in Question #83 of 95 The statement by Wang about Pharmitrol is most re ective of which of the following behavioral en tre tendencies? A) Familiarity C) Anchoring m Question #84 of 95 bo ok c B) Overcon dence .o Which of the following is NOT one of the behavioral nance traits that leads to market w w ine ciency? Investors: A) are overcon dent in their ability to interpret information and predict performance w B) think a well run company will be a good investment C) all have the same information and interpret it the same way Question #85 of 95 For understanding an individual's preferences, goals and desires, situational pro ling: A) places individuals into categories according to stage of life and economic circumstances B) is superior to psychological pro ling https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 39/43 10/11/2018 Learning Management System C) places individuals into categories according to sources of wealth and level of risk aversion Question #86 of 95 Which of the following statements about Wang's ability and willingess to take on risk is most accurate? Wang's Wang’s desire for a moderately aggressive portfolio .in A) willingness and ability to take risk are incongruent therefore Rineholt should defer to en tre B) ability to take risk is determined by her time horizon and portfolio size Question #87 of 95 bo ok c C) willingness to take risk is more important than her ability to take risk Return requirements are those return levels associated with returns needed to meet: o B) secondary goals m A) major goals w w w C) educational goals Question #88 of 95 Which of the following statements about behavioral nance is CORRECT? A) Investors are more concerned with portfolio construction versus individual assets' characteristics B) Investors realize their lack of experience in forecasting C) Behavioral nance assumes investors exhibit character traits di erent than those stipulated by traditional nance https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 40/43 10/11/2018 Learning Management System Question #89 of 95 The willingness to take risk is best judged by the: A) nancial pro le of the investor B) subjective nature of the prospective investments C) psychological pro le of the investor en tre Clients can bene t from an investment policy statement which: in Question #90 of 95 A) provides for legal recourse due to portfolio underperformance B) dictates how to spend extra liquidity adjustments m Question #91 of 95 bo ok c C) provides long-term investment discipline deterring short-term knee-jerk portfolio o Which two constraints greatly impact an individual's investment policy statement? w w A) Time horizon and tax considerations B) Legal/regulatory and liquidity concerns w C) Legal/regulatory and unique circumstances Question #92 of 95 Desired return objectives are those return levels associated with: A) secondary goals B) vacation home goals C) major goals https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 41/43 10/11/2018 Learning Management System Question #93 of 95 Tony Mitchell, a college professor, is considering investing in a mutual fund His number one priority is long-term capital appreciation He will take above-average risk in exchange for the possibility of outperforming the market Tony is 30 years old and expects to be at the university until age 70 Which fund is more appropriate for Mitchell given a risk free rate of 3%? Mutual Fund A Mutual Fund B Growth and Income Five year return 14% Five year return 12% Standard deviation = 12 Standard Deviation = Consists of 40% growth stocks, 60% preferred stocks Consists of 60% growth stocks and 40% high dividend stocks bo ok c A) A, because of its higher ve year return en tre in Balanced B) A, because it has a better risk/return relationship m C) B, because it has a better risk/return relationship .o Question #94 of 95 w w The process of elimination can be used to arrive at an individual's asset allocation Which of the following is likely to be the lowest priority in selecting an acceptable portfolio? w A) Liquidity constraint B) Sharpe ratio C) Return objective Question #95 of 95 In creating an investment policy statement, a portfolio manager needs to be aware that an investor's psychological pro le may impact: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 42/43 10/11/2018 Learning Management System A) the investor’s risk tolerance only B) neither the investor’s risk tolerance nor their return objective w w w o m bo ok c en tre in C) the investor’s risk tolerance and return objective https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83413831/print 43/43 ... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 138 31/print 16/ 43 10/ 11/2018 Learning Management System B) Cautious investor C) Individualist investor Question #33 of 95 What is the Analees... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 138 31/print 33 / 43 10/ 11/2018 Learning Management System C) Recommend investor education and a reassessment of portfolio objectives since the investor? ??s... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 138 31/print 39 / 43 10/ 11/2018 Learning Management System C) places individuals into categories according to sources of wealth and level of risk