CTFA Investment Management for Trust Accounts 3

Question 1

Which environmental, social, and governance (ESG) investment approach screens out industries or companies that conflict with specific values?

Accepted Answer

Negative screening (exclusionary screening)

Answer

Best-in-class screening

Answer

ESG integration

Answer

Thematic investing

Question 2

A trustee's duty to diversify investments can be overridden in which circumstance?

Accepted Answer

When the trust document expressly permits retention of a concentrated position

Answer

When the trustee personally believes the concentrated stock will outperform the market

Answer

When the income beneficiary requests the concentrated position be maintained

Answer

When the concentrated position has been held for more than 10 years

Question 3

What is the primary purpose of a total return investment approach in trust management?

Accepted Answer

To manage the trust for both income and capital appreciation to balance current distributions and long-term growth

Answer

To maximize current income distributions at the expense of capital preservation

Answer

To invest only in income-producing assets such as bonds and dividend stocks

Answer

To minimize taxes by focusing exclusively on unrealized capital gains

Question 4

Which measure is used to evaluate a bond fund manager's ability to add value above the benchmark after fees?

Accepted Answer

Alpha

Answer

Beta

Answer

Standard deviation

Answer

Treynor ratio

Question 5

In trust investment management, what is the function of an asset allocation policy statement?

Accepted Answer

To establish target allocations and ranges for each asset class based on the trust's objectives, risk tolerance, and time horizon

Answer

To enumerate the specific securities the trustee is required to purchase for the trust

Answer

To set the maximum management fee the trustee can charge for investment services

Answer

To document the trust's distribution policy and annual payout rate

Question 6

What is the reinvestment risk associated with holding fixed-income securities in a trust portfolio?

Accepted Answer

The risk that interest payments will be reinvested at lower rates if interest rates decline

Answer

The risk that the bond issuer will default on scheduled interest payments

Answer

The risk that rising interest rates will reduce the market value of existing bonds

Answer

The risk that the bond will be called before maturity at a premium price