The Scope and Purpose Section of an Investment Policy Statement

question 24

Multiple Choice

The scope and purpose section of an Investment Policy Statement for individual investors typically consists of defining the

• A) return, distribution, and risk requirements.
• B) process for review of the IPS.
• C) appropriate metrics for risk measurement.
• D) relevant constraints.
• E) context, investor, and structure.

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Definitions:

Factor Sensitivities

Refers to the responsiveness of an asset's return to changes in underlying factors, often used in the context of multifactor models to evaluate investment risk.

Multifactor APT

A model that describes the returns of an asset as dependent on various macroeconomic or market factors, extending the Arbitrage Pricing Theory (APT).

Macro Factors

Economic, social, political, and environmental variables that affect the performance of the global and regional economy.

Risk Premiums

Additional returns expected by investors for taking on higher risk compared to a risk-free asset, to compensate for the increased uncertainty.