Prudent Investor (STALLA EXAM 2)

SPOILER - STALLA PRACTICE #2 Vignette: Garner manages an irrevocable trust that has two benificiaries … (blah blah blah) 1) How is the PI rule different than the PM Rule? Garner will… a) Wrong b) Diversfy the portfolio c) Preserving principal as well as income B is the correct answer. Isn’t C correct, too? (My logic: PM - preserve capital. PI preserve real value of capital. You need to generate income for this.) 2) Under the new PI rule Garner ,ust a) Wrong b) Be loyal to the beneficiaries of the trust c) Use best execution in the context of other services provided by brokers Correct answer C What about B? 3,4) Striaght forward 5) Jenny and Steve provide Garner with instructions to invest entirely in covertible prefered stocks … Garner thinks this isn’t a good diea. Garner should a) Wrong b) Ignore J + S c) Invest according to J + S as they are the sole beneficaries of the fund Correct answer B Why? Isn’t this inconsistent with all the other ethics rules, too? THANKS!

  1. Preserving income was one of the main points of the PM rule. The PI rule takes other things into consideration (taxes, inflation, etc.) 2. I guessed B on this as well. I’m guessing it relates to the PI guideline of using your own judgment (loyalty, prudence, blah blah blah) 5. I guessed C on this one, it probably relates to the explanation I gave for question 2.

I forgot to mention, I saw alot of inconsistencies with the answer key and the answer choices, it could be an error on Stalla’s part. I didn’t adjust my final scores to reflect this, though.

From the ansers 2) Garner has an obligation to be loyal to the trust, rather than to the beneficiaries of the trust… 5) … Beneficiaries to a trust have no authority over a truste… Confused…