Reid Williams is responsible for training new analysts and portfolio managers for Grames Investment Advisors. Since Grames specializes in institutional clients, Williams wants to make sure that his new trainees know the needs of various institutional investors. Reid gives an assignment to all of his trainees to identify general differences in asset allocations for different types of institutional investors. One of Williams’ trainees, Phil Nagy, turns in his assignment with the following statements.
Statement 1: A bank is likely to hold more bonds than an insurance company’s surplus portfolio. Statement 2: An endowment is likely to hold more equities than the portfolio that funds an insurance company’s fixed annuities. Statement 3: An endowment is more likely to hold more emerging market equities than an insurance company’s surplus portfolio. Statement 4: A private foundation is likely to have higher cash needs than a pension fund with a low ratio of retired to active lives.
When grading the papers, Williams gives his trainees 25 points for each correct statement. Given the grading criteria, Nagy’s grade on the paper is most likely:
A) 50%. B) 100%. C) 75%.
SPOILER: Are you as good as Nagy?