Chapter 15

Question 1

Unique Risk

Answer 1

Sensitivity of a security’s price to new information leading to changes in demand

Question 2

Default Risk

Answer 2

The unique risk that a bone coupon will not be paid

Question 3

Market Risk / Systematic Risk

Answer 3

Changes in the overall market affecting an entire class of securities

Question 4

Exchange Rate Risk

Answer 4

Changes in the relative value of the currencies of countries of investment

Question 5

Interest Rate Risk

Answer 5

Changes in the interest rates leading to changes in fixed-income securities prices

Question 6

Alpha

Answer 6

The measure of the manager’s performance. If positive the manager had produced more return than predicted by the manager’s beta

Question 7

Value Investing

Answer 7

Conservative approach to money. Want to buy a firm or equity fund of less than what the assets in place are worth.
Long-term horizon needed for success

Philosophies of Equity Investing

Question 8

Growth Investing

Answer 8

Concerned about future prospects of a firm than it’s present price. Seek companies in sectors entering a period of expansion

** Philosophies of Equity Investing**

Question 9

Sector Rotation

Answer 9

A portfolio managers attempt to profit through timing. Based on the belief that different industries will preform well during certain stages of the economic cycle

** Philosophies of Equity Investing**

Question 10

Momentum Investing

Answer 10

High risk high reward strategy.

** Philosophies of Equity Investing**

Question 11

Growth at a Reasonable Price

Answer 11

Value approach to buying earnings growth. Seek companies with projections of growth and have increasing return of equity. Avoid stocks with high price/earnings ratios

** Philosophies of Equity Investing**

Question 12

Interest Rate Anticipation

Answer 12

Moving between long-term government bands and very short-term T-Bills, based on a forecast of interest rates over a certain time horizon

Philosophies of Fixed-Income Investing

Question 13

Security Selection

Answer 13

Involves fundamental and credit analysis and quantitative valuation of individual securities

Philosophies of Fixed-Income Investing

Question 14

Sector Trading

Answer 14

Vary the weights of different types of bonds held within a portfolio

Philosophies of Fixed-Income Investing

Question 15

Style Analysis

Answer 15

A report that captured the changes in a money manager’s investment patterns over a measurement period

Question 16

Reward-to-Risk Ratio Calculation

Answer 16

Fund’s Return / Fund’s standard Deviation