CH7

Question 1

Investment instruments can be divided into two broad groups
(different asset classes)

Answer 1

1. Financial (monetary) investments and real (non-monetary)
   investments

Question 2

3 general measures most frequently used for the determination of risks are:

(1st)

Answer 2

1. variance or standard deviation of expected returns. ( the greater the variance or std dev the greater the uncertainty the expected return will be realised, therefore the greater the risk)

Question 2

problem with using variance and std dev to measure risk

Answer 2

based on historial data and therefore is a better depiction of the past than the future.

Question 3

The greater the uncertainty of the expected returns

Answer 3

the greater the risk.

Question 4

3 general measures most frequently used for the determination of risks are:

(2nd)

Answer 4

Determination of the range of returns. ( the difference between the highest and lowest expected returns. The bigger the range the bigger the uncertainty of the expected
return ( the greater the risk)

Question 5

3 general measures most frequently used for the determination of risks are:

(3rd)

Answer 5

return lower than the expected return should be viewed. ( semi varaince calculation - only expected returns lower than the mean value will be taken into account.)

Question 5

the ways to measure risk

Answer 5

1. variance and std dev of expected returns
2. range of returns
   v
   ariance of returns lower than the expected return)

Question 6

The manner in which an individual will structure his financial plans will be influenced by:
- their age
- financial ability
-future plans and needs?

Answer 6

True

Question 7

persons investment objectives are influenced by:

Answer 7

1. The stage of life that they are in.

Question 8

how many investment life cycles are there

Answer 8

4

Question 9

What are the investment life cycle phases:

Answer 9

1. Accumulation phase
2. Consolidation phase
3. Spending phase
4. Gifting phase

Question 10

two steps the investment policy must indicate:

Answer 10

1. Investment objectives
2. Investment constraints

Question 10

4 steps in the portfolio management process

Answer 10

1. investment policy
2. Study all economic and financial circumstances
3. Portfolio is compiled
4. Monitor investment needs & financial markets.

Question 10

constraints to investments

Answer 10

1. Availability of funds
2. Liquidity
3. Time horizon
4. Tax considerations
5. legal aspects
6. Investment costs
7. Unique needs and preferences

Question 11

Minimum charge by brokers on a single ordinary share investment

Answer 11

R150

Question 11

Passive portfolio management

Answer 11

Investor is not continuously busy with the management of the portfolio,

or where investor purchases investment instruments that are actively managed by other individuals/ institutions and therefore the investor does not need to do anything.

Question 12

Examples of passive investments

Answer 12

1. Unit trusts
2. Investments trusts
3. Property can be
4. Freight containers.

Question 13

Active portfolio management

Answer 13

investor is constistently busy with monitoring all investments and economic climate so see what to purchases/ sell and when to do it.

Question 14

portfolio manager will at the start of a bull market….

Answer 14

Increase the portfolios exposure to shares.

Question 15

2 processes of portfolio management

Answer 15

1. top down investment process
2. bottom-up investment process

Question 16

bottom up investment process

Answer 16

• use technical analysis to purchase a number of shares and other investments that have a good growth potential according to their graphs