The First Step a Pension Fund Should Take Before Beginning

question 51

Multiple Choice

The first step a pension fund should take before beginning to invest is to

• A) establish investment objectives.
• B) develop a list of investment managers with superior records to interview.
• C) establish asset allocation guidelines.
• D) decide between active and passive management.

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Definitions:

Cost of Equity

The theoretical disbursement a firm makes to its equity stakeholders as remuneration for the risk they bear by putting their capital into the business.

Dividend Growth Model

A valuation model that estimates the price of a company's stock based on the expected dividends and their growth rate.

After-tax Cost

The cost of an investment or expense after the effects of income tax have been taken into account.

Required Return

The minimum return that investors expect or require from an investment to compensate for its risk.