CIC Investment Policy & Planning 3

Question 1

The capital market expectations component of an IPS is used primarily to:

Accepted Answer

Set forward-looking estimates of risk and return for asset classes

Answer

Capital market expectations are forecasts of asset class returns, risks, and correlations used as inputs for portfolio construction and strategic asset allocation.

Question 2

A university endowment's IPS typically includes a 'spending rule' because:

Accepted Answer

Distributions must be balanced against portfolio growth to preserve purchasing power in perpetuity

Answer

Endowments have an infinite time horizon and must balance current spending needs against preserving real capital for future generations.

Question 3

Which of the following best describes 'strategic asset allocation' as defined in an IPS?

Accepted Answer

Long-term target weights for asset classes aligned with the client's risk/return objectives

Answer

Strategic asset allocation establishes the long-term policy portfolio weights for each asset class based on the client's objectives and constraints.

Question 4

An investor with a 30-year retirement savings horizon and stable employment would most appropriately have which IPS characteristic?

Accepted Answer

Higher equity allocation and moderate-to-high risk tolerance

Answer

Long time horizons and stable income allow investors to tolerate volatility and pursue growth-oriented strategies with higher equity exposure.

Question 5

Which of the following is NOT typically included as a major section of an Investment Policy Statement?

Accepted Answer

Specific buy and sell recommendations for securities

Answer

An IPS sets policy and guidelines but does not specify individual security buy/sell recommendations, which are left to portfolio management discretion.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Investment Policy & Planning 3