CISI Risk - Chapter 6 Flashcards
What is nominal returns
Returns unadjusted for inflation
What are Real Returns
Returns after stripping out inflation
Nominal return equation?
(1+ Real Rate of Return) X (1+inflation rate) = 1+ Nom rate of return
Real Return equation
1+Nominal Rate
————————- = 1 + Real Rate
1+Inflation Rate
What are total returns
Income + asset value
Holding period returns
Total return over a time period
What are the four components to Property risk
Location
Effect of the use
Credit worthiness of tenants
Length of lease
What does Low standard deviation imply?
Low risk
What is compounded interest
Interest earned by keeping it in the asset, instead of withdrawing to spend/invest elsewhere
What is the compounded interest formula
S = X (1 + r)^n
What asset class has returned the most since 2011?
Equities
Even though equities returned the highest % return since 1980, why might cash deposits be a better investment?
Lower Volatility
If the US dollar fluctuates on the US stock market - What type of risk is this
Market risk
If the US dollar fluctuates on the GBP value, what type of risk is?
Currency
What is interest rate risk?
Interest rates move against the investor
What is issuer risk
Firm of the seller of bonds or other loans/investments collapses during holding
What market are bonds traded on?
Secondary
2 Advantages of fixed income bonds?
Coupons are paid before equity dividends.
Bond dividends are consistant