CFA Level 3 Sample Question:

Susan Leighton, treasurer for U.S.-based Donner Life Insurance, has just joined the

board of a charitable organization that has a large endowment portfolio. She is researching

how the investment policy for an endowment differs from that of life insurance companies

and has thus far reached the following conclusions:

1. Both endowments and life insurance companies have aggressive return requirements.

2. Endowments are less willing to assume risk than life insurance companies because of

donor concerns about volatility and loss of principal.

3. Endowments are less able to assume risk than life insurance companies because of

expectations that endowments should provide stable funding for charitable operations.

4. Endowments have lower liquidity requirements than life insurance companies because

endowment spending needs are met through a combination of current income and

capital appreciation.

S. Both endowments and life insurance companies are subject to stringent legal and

regulatory oversight.

Evaluate each of Leighton's statements in terms of accuracy and justify your conclusions.