Question

Q. A benchmark index is reconstituted when the index: 1. list has changed. 2. constituents have stock splits. 3. security weights have changed.
Q. Which of the following institutional investors most likely must spend a target percentage of the portfolio annually? 1. Endowments 2. Life insurance firms 3. Property and casualty insurance firms
Q. A bank may require collateral to limit its exposure to: 1. credit risk. 2. market risk. 3. compliance risk.

Answer 1

Answer:

1.list has changed

2.life insurance firms

3.credit risk

Explanation:

Answer 2

A benchmark is reconstituted when the list has changed.

• Index reconstitution means when the market index is revalued and this happens when a list has changed.
• Endowment funds are most likely to be spent on the target percentage of the portfolio annually. These institutional buyers invest in the stocks on behalf of their clients.
• A bank may require collateral to limit its exposure to credit risk. It is the maximum potential loss a bank can bear if any customer defaults in payment.
• To reflect the updated market price and style, the stocks are sorted, added, and removed. This process ensures the balance of the indexes.
• These stocks are likely to see gap-up openings as the investor's confidence changes.

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