The approach in which the investment policy should "identify acceptable ranges for investments in different types of instruments, including cash, equities, bonds and debentures, and real property is known as:
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A. B. C. D.A
The correct answer is A. Prudent Person Approach.
The Prudent Person Approach is a standard used in investment management that requires fiduciaries to act with the care, skill, and caution that a prudent person would exercise under similar circumstances. This approach is often used in creating an investment policy statement (IPS) which serves as a roadmap for how investments should be made.
One of the key components of an IPS is the establishment of asset allocation ranges for different types of instruments, including cash, equities, bonds and debentures, and real property. The asset allocation ranges should be established based on the investor's goals, risk tolerance, and time horizon. For example, a more aggressive investor may have a higher allocation to equities, while a more conservative investor may have a higher allocation to cash and bonds.
By establishing asset allocation ranges, the investment policy provides guidance for how investments should be made, and helps ensure that investments are consistent with the investor's goals and objectives. Additionally, the investment policy should establish criteria for selecting and monitoring investment managers and provide guidelines for how investments should be reviewed and evaluated over time.
In summary, the Prudent Person Approach requires fiduciaries to act with care, skill, and caution in managing investments, including establishing asset allocation ranges for different types of instruments as part of an investment policy statement.