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Practice questions - MFIN5600 Practice questions Chapter 1...

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MFIN5600 Practice questionsChapter 11. Characterize each of the investment objectives given below as one of the following: anabsolute risk objective, a relative risk objective, an absolute return objective, or a relative returnobjective.a)Achieve a rate of return of 8% a year.b)Limit the standard deviation of portfolio returns to 20% a year or less.c)Achieve returns in the top quartile of the portfolio’s peer universe (the set of portfolioswith similar investment objectives and characteristics).d)Maintain a 10% or smaller probability that the portfolio’s return falls below the thresholdlevel of 5% per annum over a one-year time horizon.e)Achieve a tracking risk of no more than 4% per annum with respect to the portfolio’sbenchmark.2. Maple College Endowment fundCase FactsType of investorInstitutional; endowmentPurposeProvide annual scholarships currently totalling $39.5 millionAsset base$1 billionStated return desire6%, calculated as spending rate of 4% plus previously expectedcollegetuition inflation of 2%Other return factorsRevised expectation of college tuition inflation is 3%Tax concernsTax exempti. Choose the word at the right that best describes the client’s:a)Risk ToleranceBelow AverageAboveAverageb)Liquidity RequirementSignificantNot Significantc)Time HorizonSingle StageMultistage
d)Overall Time HorizonShort to Intermediate TermLong Terme)Tax concernsSignificantNot Significantii. Discuss appropriate client objectives:a)Riskb)ReturnChapter 3LightSpeed ConnectionsHugh Donovan is chief financial officer (CFO) of LightSpeed Connections (LSC), arapidly growing U.S technology company with a traditional defined-benefit pension plan.Because of LSC’s young workforce, Donovan believes the pension plan has no liquidity needsand can thus invest aggressively to maximize returns. He also believes that U.S. Treasury billsand bonds, yielding 5.4% and 6.1%, respectively, have no place in a portfolio with such longtime horizon. His strategy, which has produced excellent returns for the past two years, hasbeen to invest the portfolio as follows:

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Term
Spring
Professor
NabilM.Alghalith
Tags
investment policy statement, pension plan, sharpe ratio, time horizon, LSC

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