Core Curriculum Chapter 11

Question 1

DIRECT VS INDIRECT REAL ESTATE - What is the difference?

Answer 1

Direct investing involves owning property, while indirect investing includes REITs and real estate funds.

Question 2

LEVERAGE - What is the risk of borrowing to invest?

Answer 2

Increased debt servicing costs, interest rate risk, and potential forced liquidation.

Question 3

COMMODITIES - How do investors gain exposure?

Answer 3

Through futures contracts, ETFs, or physical assets like gold.

Question 4

PORTFOLIO CONSTRUCTION - What are the key principles?

Answer 4

Diversification, correlation analysis, and balancing risk vs return.

Question 5

ASSET ALLOCATION - What are the three main categories?

Answer 5

Cash, income (bonds, GICs, annuities), and growth (stocks, real estate, alternatives).

Question 6

INVESTMENT RESEARCH - Who are some key contributors to financial theory?

Answer 6

Harry Markowitz (MPT), Benjamin Graham (Value Investing), William Sharpe (CAPM, Sharpe Ratio), and Eugene Fama (Efficient Market Hypothesis, Factor Investing).

Question 7

PRINCIPAL PROTECTED NOTES (PPNs) - How do they work?

Answer 7

Market-linked investment products that protect the principal while offering variable returns.

Question 8

SHORT SELLING - What is its purpose?

Answer 8

Profiting from declining stock prices by selling borrowed shares and repurchasing them at a lower price.

Question 9

MARGIN TRADING - How does it work?

Answer 9

Borrowing money from a brokerage to trade securities, increasing potential gains but also risk.

Question 10

MUTUAL FUNDS VS ETFs - How do they differ?

Answer 10

Mutual funds are actively managed and trade at NAV, while ETFs are passively managed and trade on exchanges.

Question 11

HEDGE FUNDS - What is unique about them?

Answer 11

Actively managed, high-risk funds using leverage, short selling, and derivatives.

Question 12

SEGREGATED FUNDS - What is a key advantage?

Answer 12

Insurance-backed investments offering death benefit guarantees.