QUESTIONS 7, 8, AND 9, INCLUDING GUIDELINE ANSWERS, 2001 CFA LEVEL...

2. Questions 7, 8, and 9, including Guideline Answers, 2001 CFA Level III Examination,

reprinted in Exams and Guideline Answers, 2001, 2002, and 2003 (AIMR, 2003)

Purpose:

To test the candidate’s: (1) understanding of the investment policy statement for an individual

investor, (2) ability to assess and differentiate between an investor’s ability and willingness to

assume risk, and (3) ability to calculate an investor’s required return.

LOS: The candidate should be able to

1A. “The Portfolio Management Process and the Investment Policy Statement” (Study

Session 9)

d) distinguish among the types of investment constraints;

f) explain the elements of an investment policy statement;

n) discuss the determination of the risk objective and the return objective;

o) discuss the liquidity requirement and the types of time horizons.

1B. “Managing Individual Investor Portfolios” (Study Session 9)

i) discuss each of the major objectives that are part of an individual investor’s

investment policy statement;

j) distinguish between an individual investor’s ability to take risk and willingness to

take risk;

k) discuss each of the major constraints that are part of an individual investor’s

l) formulate an investment policy statement for an individual investor.