15

Question 1

long term bonds - how long until maturity? low or high risk? low or high price volatility?

Answer 1

> 10 years to maturity
high risk
high price volatility

Question 2

Non-systematic or specific risk

Answer 2

Risk that the price of a specific security or a specific group of securities will change in price to a different degree or in a different direction from the market as a whole.

Question 3

ex-post rate of return

Answer 3

amount you earned on an investment including distributions/price you paid

Question 4

growth equities characteristics

Answer 4

medium risk; average capitalization; potential for above average earnings growth; aggressive management; lower dividend payout; higher PE ratios; likely higher price volatility,

Question 5

ex-ante rate of return

Answer 5

projected rate of return

Question 6

rank securities from lowest expected return AND lowest risk to highest

Answer 6

tbills-bonds-debentures-pref shares-common shares-derivatives

Question 7

systematic risk

Answer 7

can’t be diversified away… risk comes from inflation, business cycle, interest rates

Question 8

non-systematic risk

Answer 8

risk a security or group of securities will change in price by different degree and/or direction than market. can be reduced through diversification.

Question 9

variance

Answer 9

measures extent to which realized returns differ from expected return or mean.

Question 10

standard deviation

Answer 10

square root of the variance. the more volatile an instrument has been in the past, the wider the range of possible future outcomes. greater the standard deviation, the greater the risk.

Question 11

beta

Answer 11

measure that links the risk of an individual equity to the market as a whole. higher the beta, the greater the risk.

Question 12

expected return

Answer 12

r1w1+r2w2+…+rnwn where r is return on a holding and w is holding weight (%) in portfolio

Question 13

how many equity holdings to reduce risk in a portfolio?

Answer 13

32. after this, additional risk reduction is minimal. the portfolio is always left with systematic (aka market) risk.

Question 14

beta 1.0

Answer 14

equity which moves up or down to the same degree as the market

Question 15

beta >1.0

Answer 15

equity which moves up or down more than the market

Question 16

beta <1.0

Answer 16

equity which moves up or down less than the market

Question 17

portfolio management process step 1

Answer 17

investment objectives and constraints

Question 18

portfolio management process step 2

Answer 18

investment policy statement

Question 19

portfolio management process step 3

Answer 19

asset allocation strategy and investment styles

Question 20

portfolio management process step 4

Answer 20

implement asset allocation

Question 21

portfolio management process step 5

Answer 21

monitor economy, markets, portfolio, client

Question 22

portfolio management process step 6

Answer 22

evaluate portfolio performance

Question 23

3 primary investment objectives

Answer 23

1. safety of principal 2. income 3. growth of capital

Question 24

2 secondary investment objectives

Answer 24

4. liquidity 5. tax minimization

Question 25

investment objectives: short-term bonds

Answer 25

safety - best income - very steady growth - very limited

Question 26

investment objectives: long-term bonds

Answer 26

safety - next best income - very steady growth - variable

Question 27

investment objectives: pref stocks

Answer 27

safety - good income - steady growth - variable

Question 28

investment objectives: common stocks

Answer 28

safety - usually least income - variable growth - usually most

Question 29

investment policy statement (IPS)

Answer 29

operating rules, guidelines, investment objectives/constraints, list of acceptable/prohibited investments, method of performance appraisal.