Questions and Answers of Management A Practical Introduction

Using the economic balance sheet approach, the Laws’ economic net worth is closest to:A. $925,000.B. $1,425,000.C. $1,675,000.Raye uses a cost–benefit approach to rebalancing and recommends that
Using an economic balance sheet, which of the Laws’ current financial assets is most concerning from an asset allocation perspective?A. Equities B. Real estate C. Fixed income Raye uses a
Raye believes the previous adviser’s specification for debt is incorrect given that, for purposes of asset allocation, asset classes should be:A. diversifying.B. mutually exclusive.C. relatively
Raye believes the previous adviser’s asset class specifications for equity and derivatives are inappropriate given that, for purposes of asset allocation, asset classes should be:A. diversifying.B.
To address his concern regarding the previous adviser’s asset allocation approach, Raye should assess the Laws’ portfolio using:A. a homogeneous and mutually exclusive asset class–based risk
Raye’s approach to rebalancing global equities is consistent with:A. the Laws’ being risk averse.B. global equities’ having higher transaction costs than other asset classes.C. global
Walker Patel is a portfolio manager at an investment management firm. After successfully implementing mean–variance optimization (MVO), he wants to apply reverse optimization to his portfolio. For
Viktoria Johansson is newly appointed as manager of ABC Corporation’s pension fund. The current market value of the fund’s assets is $$10$ billion, and the present value of the fund’s
Select, for each of Armstrong’s three goals, which sub-portfolio module from Exhibit 1 Abbott should choose in constructing a portfolio. Justify each selection.Select, for each of Armstrong’s
Construct the overall goals-based asset allocation for the Armstrongs given their three goals and Abbott’s suggestion for investing any excess capital. Show your calculations. Construct the overall
Identify the behavioral biases Young is most likely exhibiting.Justify each response.A broker proposes to Young three portfolios, shown in Exhibit 1. The broker also provides Young with asset class
Determine which proposed portfolio most closely meets Young’s desired objectives. Justify your response.The broker suggests that Young rebalance her $5.5 million money market account and the $3.0
Determine which alternative best fits each account. Justify each selection.Ten years later, Young is considering an early-retirement package offer.The package would provide continuing salary and
Identify the primary reason for the broker’s reassessment of Young’s circumstances. Justify your response.Young decides to accept the retirement offer. Having very low liquidity needs, she wants
Determine which of Young’s accounts (education, retirement, reallocated money market, or unexpected needs) is best suited for implementing the broker’s recommendation. Determine which of Young's
Discuss two reasons why the proposed asset allocation is inappropriate for Titan.The Fordhart portfolio has a market value of $2 billion. After his annual meeting with its investment committee,
Discuss two reasons why the proposed asset allocation is inappropriate for Fordhart.Mark DuBord, a financial adviser, works with two university foundations, the Titan State Foundation (Titan) and the
Based on Statement 1, Park should recommend:A. hedge funds.B. private equities.C. commodity futures.Kevin Kroll is the chair of the investment committee responsible for the governance of the Shire
In answering the question raised in Statement 2, Park would most likely recommend:A. bonds.B. hedge funds.C. private equities.Kevin Kroll is the chair of the investment committee responsible for the
A limitation of the existing approach used by the committee to define the opportunity set is that it:A. is difficult to communicate.B. overestimates the portfolio diversification.C. is sensitive to
Based on Exhibit 1 and the proposed asset allocation, the greatest risk associated with the ERIP is:A. liability.B. leverage.C. liquidity.Kevin Kroll is the chair of the investment committee
The suitability concern discussed by Kroll and Park most likely deals with:A. governance.B. transparency.C. investment horizon.Kevin Kroll is the chair of the investment committee responsible for the
Which of Park’s statements regarding the asset allocation approaches is correct?A. Only Statement 3 B. Only Statement 4 C. Both Statement 3 and Statement 4 Kevin Kroll is the chair of the
Based on the forecasted environment, liquidity planning should take into account that general partners may:A. call capital at a slower pace.B. make distributions at a faster pace.C. exercise an
Based on Exhibit 2 and Park’s due diligence, the pension committee should consider investing in:A. Fund A.B. Fund B.C. Fund C.Kevin Kroll is the chair of the investment committee responsible for
Which asset class would best satisfy the Fund’s diversification strategy?A. Private equity B. Private real estate C. Absolute return hedge fund Eileen Gension is a portfolio manager for Zen-Alt
Which of Smittand’s statements regarding short-biased equity strategies is incorrect?A. Statement 1 B. Statement 2 C. Statement 3 Eileen Gension is a portfolio manager for Zen-Alt Investment
Based on Exhibit 2, which alternative portfolio should Gension recommend for the fund given Smittand’s stated three goals?A. Portfolio A B. Portfolio B C. Portfolio C Eileen Gension is a portfolio
Which of the following investor characteristics would most likely be a primary concern for the plan’s IC with respect to investing in alternatives?A. Governance B. Transparency C. Investment
With respect to liquidity planning relating to the plan’s new real estate investment, Gension should recommend that the fund set aside appropriate funds and invest them in:A. 100% REITs.B. 100%
Determine which asset class is most likely to meet Pua’s investment objective. Justify your response.Five years after his first meeting with Pua, Greslö monitors a private real estate investment
Discuss the qualitative risk issues that have most likely materialized over the past year.Ingerðria Greslö is an adviser with an investment management company and focuses on asset allocation for
Determine which of the potential investment vehicles best meets the investment considerations for Ælfheah. Justify your response. Explain for each investment not selected why the investment
Determine which approach to determine the asset allocation is most appropriate for Ælfheah.Justify your response.The following year, Ng and the IC review the portfolio’s performance. The IC has
Determine the investment vehicle that would be most appropriate for Ælfheah’s proposed alternative asset class. Justify your response.The Ælfheah Group is a US-based company with a relatively
Determine the asset allocation approach that is most suitable for the Endowment. Justify your response.Calixto reviews the endowment’s future liquidity requirements and analyzes one of its holdings
Calculate the expected NAV of the fund at the end of the current year.Mbalenhle Calixto is a global institutional portfolio manager who prepares for an annual meeting with the investment committee
Which of the following statements regarding exchange-traded funds (ETFs) is correct? ETFs:A. disclose their holdings on a quarterly basis.B. trade in both primary and secondary markets.C. offer a
The list of securities that a particular ETF wants to own, which is disclosed daily by all ETFs, is referred to as the:A. creation unit.B. creation basket.C. redemption basket.
When an authorized participant transacts to create or redeem ETF shares, the related costs are ultimately borne:A. solely by the ETF sponsor.B. solely by the AP.C. proportionally by all existing ETF
Assuming arbitrage costs are minimal, which of the following is most likely to occur when the share price of an ETF is trading at a premium to its intraday NAV?A. New ETF shares will be created by
An ETF’s reported tracking error is typically measured as the:A. standard deviation of the difference in daily returns between an ETF and its benchmark.B. difference in annual return between an ETF
To best assess an ETF’s performance, which reflects the impact of portfolio rebalancing expenses and other fees, an investor should:A. review daily return differences between the ETF and its
An ETF’s tracking error, as traditionally reported, indicates to investors:A. whether the ETF is underperforming or outperforming its underlying index.B. the magnitude by which an ETF’s returns
For a typical ETF, which of the following sources of tracking error is most likely to be the smallest contributor to tracking error?A. Representative sampling B. Fees and expenses incurred by the ETF
Which of the following statements relating to capital gains in ETFs and mutual funds is correct?A. ETFs tend to distribute less in capital gains than mutual funds do.B. Mutual funds may elect not to
Which of the following statements regarding distributions made by ETFs is correct?A. Return-of-capital (ROC) distributions are generally not taxable.B. ETFs generally reinvest any dividends received
Such factors as regulations, competition, and corporate actions relate to:A. fund-closure risk.B. counterparty risk.C. expectation-related risk.
John Smith has invested in an inverse ETF. Smith is a novice investor who is not familiar with inverse ETFs, and therefore, he is unsure how the ETF will perform because of a lack of understanding of
Investors buying ETFs:A. incur management fees that decrease with the length of the holding period.B. are assured of paying a price equal to the NAV if they purchase shares at the market close.C.
Consider an ETF with the following trading costs and management fees:Excluding compound effects, the expected total holding-period cost for investing in the ETF over a nine-month holding period is
The bid–ask spread for very liquid, high-volume ETFs will be least influenced by the:A. market maker’s desired profit spread.B. creation/redemption fees and other direct costs.C. likelihood of
Factor (smart beta) strategy ETFs are least likely to be used by investors:A. to modify portfolio risk.B. for tactical trading purposes.C. to seek outperformance versus a benchmark.
Which of the following statements regarding applications of ETFs in portfolio management is correct?A. Equity ETFs tend to be more active than fixed-income ETFs.B. The range of risk exposures
Which of Stosur’s statements regarding ETF mechanics is correct?A. Statement 1 B. Statement 2 C. Statement 3 Howie Rutledge is a senior portfolio strategist for an endowment fund.Rutledge meets
Given the current pricing of ETF 1, the most likely transaction to occur is that:A. new ETF shares will be created by the APs.B. redemption baskets will be received by APs from the ETF sponsor.C.
Which ETF in Exhibit 1 is most likely to have the lowest tracking error?A. ETF 2 B. ETF 3 C. ETF 4 Howie Rutledge is a senior portfolio strategist for an endowment fund.Rutledge meets with recently
Stosur’s statement about quoted bid–ask spreads is incorrect with respect to the:A. amount of the ongoing order flow in the ETF.B. costs and risks for the ETF liquidity providers.C. amount of
Which ETF in Exhibit 2 is most likely to trade at the largest premium or discount relative to NAV?A. ETF 5 B. ETF 6 C. ETF 7 Howie Rutledge is a senior portfolio strategist for an endowment
Excluding the compounding effect, the expected total holding period cost for investing in the ETF over a nine-month holding period is closest to:A. 0.54%.B. 0.62%.C. 0.64%.Howie Rutledge is a senior
Identify which asset class(es) Bookman is most likely to note as in need of rebalancing band policy adjustment. Justify your selection(s).The investment committee also asks Bookman to investigate
Discuss the elements of Bookman’s analysis and the conclusions he will draw from it.\Joe Bookman is a portfolio manager at State Tech University Foundation and is discussing the $900 million
Determine if Heard’s statements are correct. Justify your response.Laura Powers is a senior investment analyst at Brotley University Foundation and works for the university endowment. Powers is
Discuss Smith’s method for estimating the increase in return expectations derived from increasing the endowment allocation to private equity.Rob Smith, as portfolio manager at Pell Tech University
Discuss two reasons why the increased risk profile is appropriate. Justify your response.Rob Smith, as portfolio manager at Pell Tech University Foundation, is responsible for the university’s $3.5
Discuss the relevance of the endowment’s spending policy to Brodka’s expressed concerns.Frank Grides is a portfolio manager for Kemney University Foundation and manages the liquidity profile of
Discuss actions that Grides should take to alleviate Brodka’s concerns.Frank Grides is a portfolio manager for Kemney University Foundation and manages the liquidity profile of the university
Identify the ethical concerns posed by Dixon’s actions and conduct.Mason Dixon, CFA, a portfolio manager with Langhorne Advisors (Langhorne), has just completed the request for proposal (RFP) for
Recommend the most cost-effective strategy. Justify your response with calculations of the total levered cost of each implementation option.In its quarterly policy and performance review, the
Compare the efficiency of the ETF and total return swap TAA implementation alternatives from the perspectives of capital commitment, liquidity, and tracking error.Clive Staples is a consultant with
Determine the most appropriate rebalancing choice for the Foundation’s investment team. Justify your response.The Lemont Family Foundation follows a systematic quarterly rebalancing policy based on
A European charity has an asset allocation at the beginning of the year consisting of the asset classes and weights shown in Exhibit 11.As Exhibit 11 reveals, the charity has a policy that the asset
Wakuluk most likely seeks to mitigate which of the following biases in developing capital market forecasts?A. Availability B. Time period C. Survivorship Neshie Wakuluk is an investment strategist
Wakuluk’s approach to economic forecasting:A. is flexible and limited in complexity.B. can give a false sense of precision and provide false signals.C. imposes no consistency of analysis across
Wakuluk is most likely to make significant adjustments to her estimate of the future growth trend for which of the following countries?A. Country Y only B. Country Z only C. Countries Y and Z Neshie
Based on Exhibit 1 and Wakuluk’s assumptions about short-term rates and expected inflation, short-term rates in Country X are most likely to be:A. low and bottoming.B. approaching a peak.C. above
Based on Exhibit 1, what capital market effect is Country Z most likely to experience in the short-term?A. Cyclical assets attract investors.B. Monetary policy becomes restrictive.C. The yield curve
Based on Observation 1, fiscal and monetary policies in Country Y will most likely lead to:A. low nominal rates.B. high nominal rates.C. either high or low nominal rates.Neshie Wakuluk is an
Based on Observation 2, what impact will the policy changes have on the trend rate of growth for Country Y?A. Negative B. Neutral C. Positive Neshie Wakuluk is an investment strategist who develops
Based on Observation 3, Wakuluk most likely expects Country Y’s yield curve in the near term to:A. invert.B. flatten.C. steepen.Neshie Wakuluk is an investment strategist who develops capital
Explain what additional step(s) Wuyan should have taken in the process of setting capital market expectations.Wuyan reports that after repeatedly searching the most recent 10 years of data, she
Discuss how each of the following forecasting challenges evident in Wuyan’s report and in Tommanson’s comments affects the setting of capital market expectations:i. Status quo bias ii.
Calculate the implied contribution to Cambo’s US equity return forecast from the expected change in the P/E.At the investment committee meeting, the firm’s chief economist predicts that the
Discuss, based on the chief economist’s prediction, the implications for the following:i. Bond yields ii. Equity returns iii. Short-term interest rates Discuss, based on the chief economist’s
Discuss strengths and weaknesses of the economic forecasting approaches used by Cambo and the chief economist. Discuss strengths and weaknesses of the economic forecasting approaches used by Cambo
Discuss the implications of Hadpret’s inflation forecast on the expected returns of the fund’s holdings of:i. cash.ii. bonds.iii. equities.iv. real estate.Discuss the implications of Hadpret’s
Discuss the relationship between the shape of the yield curve and the monetary and fiscal policy mix projected by Hadpret.Currently, Eastland’s currency is fixed relative to the currency of the
Discuss how interest rate and exchange rate linkages between Eastland and Northland might change under each scenario.Discuss how interest rate and exchange rate linkages between Eastland and
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When PepsiCo acquired Tropicana, a maker of orange juice, the firm's strategy was growth bya. related diversificationc. vertical integrationb. concentrationd. cooperation
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