Adaptive test 1 Flashcards
CPPI eliminates what
exposure to risk assets, but this is not a hard floor
Risk strategy that sets a hard sllor for downside protection
Buying Puts
How do you find approx. value of a property using the income approach
take net operating income / by cap rate
Cost of illiquid alternative investments versus liquid alts usually is what
higher
Capitalization descriptors help investors understand what of an investment
Market value
Investor is reviewing free cash flow from equity models seeks dividends. Notices that a company pays dividends without free cash flow, it is likely coming from what
different source than net income or new debt
If the arithmetic mean and the median of data set are extremely far apart, an advisor can assume that the data are
skew toward the mean
A useful tool to review the movement of one variable to the movement of another variable in a data set is a
scatterplot
The core goal of attribution analysis is to determine the effectiveness and ability of
Fund managers and portfolios
A limitation of the Treynor ratio is that the ratio
ranks funds with similar risk the same
Omegan Ratio defined
the probability-weighted ratio of gains versus losses for some threshold return target
can change the Omega ratio
investors risk tolerance
Sharpe ratio
The average return above the risk-free rate per unit of total risk
Reward to variability
sharpe ratio
A limitation to Jensen’s alpha is that it is predicated on
one factor model
If a consultant adds enough securities to a portfolio, the consultant eventually will be left with exposure to which risk
interest rate risk
A consultant’s vendor firm rewards the consultant for business that has been directed their way with a family trip to Costa Rica
has the responsibility to disclose the trip to his clients
A consultant does not control policies of the firm. With regard to IWI’s Performance Reporting Standards, the consultant
must use best efforts and submit a written request for the firm to comply
When making comments to the media and general public, a consultant holding themself out with any IWI certification must
disclose beneficial compensation if relevant
If a consultant believes a situation could lead to a conflict of interest, the consultant should
notify firm in writing
An ex-client of a consultant asks for assistance on a tax basis question that came up while a client of the consultant. The consultant should
Maintain professionalism and offer information that is allowable by the consultant’s firm.
Consultants must disclose fully to clients
services provided and compensation received
Additional compensation and benefits from third parties must be disclosed to
employers in advance
Returns reported by IWI members should be computed and communicated in compliance with
The IWI Performance Reporting Guidelines
According to margin lending guidelines, when the value of an equity falls below the maintenance margin, an investor may be required to
deposit funds into the portfolio
Investors who need to fund a series of future expenses should engage in
cash flow matching
A client’s current financial position can be used to analyze
potential estate issues
Foundations usually are bound by the dual mandate of
Spending and growth
In the allocation of assets, after making capital market assumptions, a manager should
identify candidate portfolios
Risk tolerance is an investors
willingness and ability to take risk
The tenet of buying low and selling high is reflected in the asset allocation strategy of
constant mix
The IPS monitoring goals of the client in the IPS are usually
clearly outlined and at regular intervals
UPAIA helps trustees balance the need for
Creating income and preserving principal
The UPMIFA covers
spending when endowments are considered underwater
IPS reviews should be reviewed
annually and when directed by clients.
What should not be included in IPS
Specific investments
All investors should be profiled
individually
UPIA introducted what
Delegation of management strategies.
With institutional clients, a unique element to the IPS is that the benchmark may be:
linked to a liability
UPAIA was designed to carry out the wishes of the
Trust creator
UPMIFA addresses the need to what
preserve purchasing power of the principal
Liability policies inside of the IPS frequently address the constraint of
liquidity
For endowments that have spending policies, the spending policy should be thought of as
a rule to follow in the IPS
A trustee’s ability to add derivatives as a portfolio option in an IPS is due to
UPIA
A consultant believes greenhouse emissions will lead to imminent changes in a foreign government that can have far-reaching consequences. This risk is best categorized as a
Macro risk
Example of Maco risk
Governmental
Absolute strategies diversify out what
beta and allow investors to focus on manager alpha
A consultant using volatility as a primary basis for allocation decisions is utilizing
Risk parity strategies
An investor believes Treynor ratios should be the basis of asset allocation decisions. The strategy can be best described as
Risk based
A consultant is determining the effect of adding a specific asset to a portfolio. The consultant concludes that adding this asset would not be prudent for a specific client. The consultant’s process is most likely
risk based
An investor believes that passive strategies are best suited for a portfolio. When it comes to asset allocation, this investor should use
strategic asset allocation or buy and hold
Investors may use collars when they believe
The downside risk is great and they are willing to give up upside gain
A consultant advises clients to adjust portfolio targets for short periods to capitalize on recently presented economic data. The strategy intends to revert to original allocations once the opportunity disappears. This asset allocation strategy is:
tactical
A collar strategy can be effective for investor who want to what
reduce the cost of their downside protection
A decrease in ratings can lead to
higher borrowing costs
Commodity hedges can address
political and regulatory changes, seasonal variations, weather, technology, and market conditions
An investor buys a protective put and simultaneously the stock the investor owns drops. When selling the put, this investor is
Subject to capital gains.
Merger arbitrage strategies are considered to be
risk based
commodity risk is the only relevant risk when
during production
Traditional asset allocation strategies are based primarily on the tenets of
MPT
Treasury STRIPS would not avoid
interest rate risk
An investor speculating on the direction of interest rates may want to hedge a portfolio using
swaps
Risk budgeting usually is accomplished using
passive investments
Rising domestic currencies require a
hedge for international holdings
Example of non diversifiable risk
interest rate risk
Regression based analysis for performance evaluation involves attribution based on
CAPM
An investor reviewing a sample population data set would want to observe
small standard errors
Economists studying forces that drive price levels within segments of the economy study all of the following, except:
Net exports
investments are appropriate for early cycle investing
consumer discretionary
Home country bias can lead investors to
Miscalulate risk and return in the capital markets
A consultant using volatility as a primary basis for allocation decisions is utilizing:
risk parity strategies
Duration has an indirect relationship with
interest rates
The smaller the standard error
the more favorable that the sample represents the population
Shareholder equity can be found on a
balance sheet
