CACS Chapter 2 Self Study

Question 1

What is strategic asset allocation:

Answer 1

It is the Long term strategy to meet the investment objectives of a client. That means for the next 3-5 years unless there is a significant change in the market conditions or clients’ si situation the portfolio should be managed broadly in line with the strategic asset allocation

Question 2

What is tactical asset allocation

Answer 2

Refers to the active management of the portfolio with deviations from the strategic asset allocation in order to take advantage of the financial market.

Question 3

What’s the difference between systematic risks and unsystematic risks:

Answer 3

Systematic- The risk that comes from the general economic environment

Unsystematic- idiosyncratic risk which is specific to the security.

Question 4

What does beta measure:

Answer 4

It measures the the volatility of a portfolio’s return relative to the benchmark index or market index.

Question 5

What does a higher sharpe ratio tell us?

Answer 5

The higher a portfolio’s sharpe ratio, the better the return relative to the amount of total risk taken

Question 6

What does a higher treynor ratio tell us?

Answer 6

It tells us if its higher the better a return is relative to teh amount of systemic risk we are taking.

Question 7

What happens after the investment strategy is drawn up ? The PB proceeds to come up with ;

Answer 7

Individual security selection