chapter 22: Portfolio Management techniques

Question 1

personal trusts

Answer 1

The institutions that respond to household needs by investing in stock and bond markets

mutual funds

pension funds

endowment funds

life insurance companies

Question 2

Endowment funds

Answer 2

organizations chartered to use their money for specific nonprofit purposes

financed by gifts from one or more sponsors

typically managed by educational, cultural, and charitable organizations or by independent foundations established solely to carry out the fund’s specific purposes

Question 3

the investment objectives of an endowment fund

Answer 3

to produce a steady flow of income subject to only a moderate degree of risk

Question 4

Life insurance companies

Answer 4

try to invest so as to hedge their liabilities

–> liabilities defined by the policies they write

Question 5

A whole-life insurance

Answer 5

combines a death benefit with a kind of savings plan that provides for a gradual buildup of cash value that the policyholder can withdraw at a later point in life, usually at age 65

The interest rate embedded in the schedule of cash value accumulation is a fixed rate

life insurance companies try to hedge this liability by investing in long-term bonds

Question 6

Term insurance

Answer 6

provides death benefits only, with no buildup of cash value