Chapter 1

Question 1

Whart is the difference between equity and fixed income?

Answer 1

Equity is the ownership of a corporation and fixed income is typically the ownership of debt that pays a specific cash flow over a specific period of time

Question 2

What is the difference between primary and derivative assets

Answer 2

Primary assets are the assets themselves; derivative assets are an asset based on the value of other assets.

Question 3

What is asset allocation

Answer 3

Picking which asset classes to buy in portfolio like equity, fixed income, private equity etc.

Question 4

What is security selection

Answer 4

The specific security you purchase in a portfolio

e.g. - Coca Cola, Netflix, Tesla

Question 5

What is the agency problem

Answer 5

Separation of ownership and management

Question 6

What are real assets

Answer 6

Real assets are the assets used to produce goods and services

Question 7

What are financial assets

Answer 7

Financial assets are claims on real assets or the income generated by them

Question 8

What is the difference between investment banks and commercial banks

Answer 8

Investment banks underwrite securities

Commercial banks accept deposits

Question 9

Why do we invest?

Answer 9

We invest to maximize wealth while minimizing volatility of wealth