STEP Portfolio Management & Strategy 2

Question 1

Under the Uniform Prudent Investor Act (UPIA), which factor is NOT explicitly listed as relevant to a trustee's investment decisions?

Accepted Answer

The beneficiary's personal tax bracket

Answer

The UPIA lists general economic conditions, expected tax consequences, and portfolio role as relevant factors, but does not single out a beneficiary's personal tax bracket as a listed consideration.

Question 2

A trustee holds a highly concentrated position in a single stock inherited by the trust. The Prudent Investor Rule generally requires the trustee to:

Accepted Answer

Diversify the holding within a reasonable time unless special circumstances justify retention

Answer

The UPIA requires trustees to diversify trust assets within a reasonable time after acceptance unless the trustee reasonably determines that retention is in the beneficiaries' best interests.

Question 3

Which portfolio strategy is most appropriate when a trust has income beneficiaries who require regular distributions and remainder beneficiaries focused on long-term capital growth?

Accepted Answer

Total return approach with a distribution policy

Answer

A total return approach balances current income needs with long-term growth by distributing a set percentage of total portfolio value, serving both income and remainder beneficiaries.

Question 4

Which of the following best describes 'systematic risk' in portfolio management?

Accepted Answer

Risk inherent to the entire market that cannot be diversified away

Answer

Systematic (or market) risk affects all investments and cannot be eliminated through diversification; it includes factors like interest rate changes, recessions, and geopolitical events.

Question 5

A trust's Investment Policy Statement (IPS) specifies a 60/40 equity-to-bond allocation. After a strong equity market rally, the portfolio drifts to 72/28. The trustee should:

Accepted Answer

Rebalance to restore the 60/40 target allocation

Answer

Rebalancing restores the portfolio to its policy target allocation, maintaining the intended risk profile and adhering to the IPS as required by fiduciary duty.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Portfolio Management & Strategy 2