Assignment 1

Question 1

Types of risk

Answer 1

• Purchasing Power
• Business
• Interest
• Market
• Specific to company

Question 2

Alpha

Answer 2

Return produced by the portfolio, on average,

independent of the return on the market

Question 3

Alpha

Answer 3

Return produced by the
portfolio, on average,
independent of the
return on the market

Question 4

Alpha

Answer 4

Return produced by the
portfolio, on average,
independent of the
return on the market

Question 5

Beta

Answer 5

Average return on the portfolio per 1 percent

return on the market

Question 6

Internal Rate of Return (IRR)

Answer 6

Rate all that accumulates of the cash flows of a portfolio, including all outlays, to exactly the
market value of the ending balance

Question 7

404(c)

Answer 7

ERISA section that provides
fiduciary protection for
participant investment
selection provided
requirements are met:
– Minimum of 3 diversified
investment options;
– quarterly(or more
frequent) investment
changes;
– participant education

Question 8

Passive Investment Management Style

Answer 8

Broadly diversified buy and‐hold portfolio
aimed at replicating the return on some broad
market index at minimum cost

Question 9

Index Funds

Answer 9

Replicates a particular index such as the &P

500 and is designed to generate a beta of 1.0