Chapter Seven

Question 1

What 4 things influence Investment Needs?

Answer 1

Age
Financial ability
Future plans
Needs

Question 2

Up to the age of 35, in what stage of the Investment Life-Cycle are you?

Answer 2

Accumulation phase

Question 3

Between the ages of 35 and 55, in what stage of the Investment Life-Cycle are you?

Answer 3

Consolidation phase

Question 4

After the age of 55, in what stage of the Investment Life-Cycle are you?

Answer 4

Spending/gifting phase

Question 5

What are the long-term and short-term goals of the accumulation phase?

Answer 5

Long-term: retirement, children studies

Short-term: house, car

Question 6

What are the long-term and short-term goals of the consolidation phase?

Answer 6

Long-term: retirement

Short-term: vacations; children studies

Question 7

What are the long-term and short-term goals of the gifting phase?

Answer 7

Long-term: estate planning

Short-term: lifestyle needs; gifts

Question 8

Name the 2 different types of Investment Instruments:

Answer 8

Monetary and non-monetary

Question 9

Name 3 characteristics of Monetary Investments:

Answer 9

Piece of paper, easily guarded, and highly liquid

Question 10

Name 3 characteristics of Non-Monetary Investments:

Answer 10

Physical items, hard to guard, and not very liquid

Question 11

Name 5 types of Monetary Investments:

Answer 11

Warrant, unit trusts, treasury bills, fixed interest securities, and shares

Question 12

Name 5 types of Non-Monetary Investments:

Answer 12

Property, paintings, stamps, coins, and wine

Question 13

What percentage exposure must a persons of 35, 55, and 65 have to shares, respectively?

Answer 13

65%
45%
30%

Question 14

What percentage exposure must a person of 35, 55, and 65 have to bonds, respectively?

Answer 14

5%
20%
30%

Question 15

What percentage exposure must a person of 35, 55, and 65 have to property, respectively?

Answer 15

25%
25%
20%

Question 16

What percentage exposure must a person of 35, 55, and 65 have to cash, respectively?

Answer 16

5%
10%
20%

Question 17

Name the 4 steps of the Portfolio Management Process:

Answer 17

1. Compile policy with objectives and constraints
2. Study the economic/financial circumstances to try and forecast trends
3. Compile portfolio using either a top-down or bottom up method
4. Continuously monitor investment needs/financial market

Question 18

Name 3 reasons why it is important to add objectives to an Investment Policy:

Answer 18

Helps set realistic objectives
Sets a measuring standard
Better informs the investor about risks/costs

Question 19

Name 4 types of constraints that can be added to an Investment Policy:

Answer 19

Available funds
Tax considerations
Investment costs
Needs

Question 20

Briefly explain Top-Down:

Answer 20

Investor starts by determining the state of the economy, as well as expected trends

Question 21

Briefly explain Bottom-Up:

Answer 21

Investor uses technical analysis to purchase a number of shares that have potential according to their graphs

Question 22

Differentiate between Passive and Active Management:

Answer 22

Passive: investor does not continuously monitor investments
Active: investor continuously monitors investments