Chapter 13

Question 1

Why is a portfolio perspective of an investor’s holding important?

Answer 1

When added to a portfolio of assets, the risk of an individual asset may be diversified away

Economic fundamentals (inflation) impact the returns of many assets

Question 2

What are the 4 steps in the portfolio management process?

Answer 2

1) Plan the portfolio - determine return objectives
2) Develop and implement the strategy
3) Monitor the portfolio
4) Adjust the portfolio

Question 3

What is the difference between a passive investment strategy and an active investment strategy?

Answer 3

Passive: identical or similar to that of the benchmark index. (dont search out mis-priced securities)
Active: Seek returns in excess of a specified benchmark.