from Mock

CFA Level I
#1

Regarding an individual’s investment policy statement, which of the following is least appropriate as the investment objective? The portfolio seeks: A. current income in the form of dividends and interest. B. 12% annual returns with above-average market risk. C. to match the performance and risk characteristics of the S&P 500 Index. D. long-term capital appreciation with market risk comparable to the MSCI EAFE Index. The answer is confusing

#2

is it B?

#3

b

#4

Objectives are defined in terms of risk and return. Not one over the other. Sounds like answer A would be the right one. Any other opinions?

#5

I would think B, you would want 12% with average or below average risk

#6

I would go with A. Seems very bland. No benchmark nothing. However 2nd is dicey too. Whats above average market risk? Should be more specific than that. 3 and 4 look okay to me.

#7

tony2 Wrote: ------------------------------------------------------- > I would think B, you would want 12% with average > or below average risk Who’s to say what the average, above average, or below average market risk return is? Market risk is defined in terms of Beta. That’s the most we know.

#8

I’m mainly thinking about the markowitz efficient frontier and why would you take a return of 12% with a st dev of 10 if you could get a 12% return with a st dev of 8. could be way off

#9

I would think A. Very ambiguous and no form of measurement. Portfolio manager could provide 10$ in the form of income and divs and still be in line with the investment portfolio statement.

#10

I don’t know what the exact answer is, but the CFAI feed back tells me that: investment objective must be expressed in terms of both risk and return and current income from dividends and interest represents only the investor’s return objective. it does not include reference to risk tolerance or risk limits as provided in the other alternatives… I still have no idea exactly which answer they’re referring to.

#11

tony2 Wrote: ------------------------------------------------------- > I’m mainly thinking about the markowitz efficient > frontier and why would you take a return of 12% > with a st dev of 10 if you could get a 12% return > with a st dev of 8. could be way off Be careful with making so many assumptions. We’re not provided the beta, risk free rate, and SML. We’re not even talking about markowitz. This question stems from the basic format of creating an IPS.

#12

frangoya Wrote: ------------------------------------------------------- > I don’t know what the exact answer is, but the > CFAI feed back tells me that: > investment objective must be expressed in terms of > both risk and return and current income from > dividends and interest represents only the > investor’s return objective. it does not include > reference to risk tolerance or risk limits as > provided in the other alternatives… > > I still have no idea exactly which answer they’re > referring to. Answer A.

#13

ah, never mind then. I suppose that makes sense. Though B seemed like the right answer.

#14

I also said B but after reading over gdiddy’s explanation now see exactly why it is A.

#15

Its definitely A because 1. I marked it A, and got 100% on Port management 2. All other statements but A specify risk and returns (1st step in IPS)…