Chapter 5 - Section 1 - Prudent Investor Act Provisions

Question 1

The ___________ was established to protect investors and their interests involved in a trust of fiduciary relationship. It requires a practical approach to investing trust assets.

Answer 1

Uniform Prudent Investor Act (UPIA). Also called the Prudent Man rule.

Question 2

A key feature of ______________________ is its emphasis on the trade-off between risk and reward. The higher the investment risk, the greater the potential return, and conversely, the lower the risk, the lower the expected return.

Answer 2

Modern Portfolio Theory

Question 3

Under UPIA, trustees must consider the entire investment portfolio rather than individual investments when making decisions.

Answer 3

True

Question 4

True or False: There are no specific categories of investments deemed imprudent; suitability is based on the trust’s objectives and beneficiaries’ needs.

Answer 4

True

Question 5

The needs to the heirs of a beneficiary of the trust would be a consideration of the trustee when making investment decisions.

Answer 5

False. They would not.

Question 6

A trustee is not liable to a beneficiary for individual investment losses to the extent that the trustee acted in reasonable reliance on the provisions of the act.

Answer 6

True

Question 7

A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

Answer 7

True

Question 8

The UPIA also permits fiduciaries to delegate investment responsibilities to competent third parties (e.g., accountants and attorneys).

Answer 8

True

Question 9

According to the UPIA, a trustee should consider the following when investing or managing a trust: possible effects of inflation/deflation, general economic conditions, how each investment fits the overall trust portfolio and expected total return of each investment.

Answer 9

True

Question 10

A trustee cannot invest in any kind of property or type of investment consistent with the standards of the act.

Answer 10

False. They may invest in any kind of property or type of investment.