Investment

Question 1

Deducting Investment Interest Expense

Answer 1

• Less of investment income or investment expenses
• investment income doesn’t include tax-exempt interest?

Question 2

Value of Property using Capitialization Rate

Answer 2

= net income/capitialization rate
where: net income = annualized gross rents less ( vacancy and operating expenses)

Question 3

Bond Conversion Value

Answer 3

= (Par/Conversion Price) x Market Price of stock

Question 4

Unit Investment Trusts

Answer 4

• no day-to-day management
• passive, assets are frozen
• no securties purchased or sold
• self-liquidating

Question 5

Futures Contracts

Answer 5

• Long future is held by those who want to buy
• short future is held by those who want to sell

Question 6

Systemic Risk

Answer 6

PRIME
* Purchasing power
* Reinvestment rate
* Interest rate
* Market
* Exchange rate

Question 7

Unsystematic Risk

Answer 7

• Business
• Financial

Question 8

Standard Deviation

Answer 8

Variability of returns, in a nondiversified portfolio, measuring total risk

Question 9

Beta

Answer 9

volatility of returns, in a diversified protfolio,
measuring systematic risk

Question 10

Risk Adjusted Return

Answer 10

Can be used to standardize mutal funds for risk
= divide return by beta

Question 11

Coeffeicient of Variation

Answer 11

= std. dev./avg. return
lower is better

Question 12

After-Tax Rate of Return

Answer 12

= return * (1 - tax)

Question 13

Which index is price weighted?

Answer 13

DJIA

Investment 8-1 Quiz, Q2

Question 14

Sharpe Ratio

Answer 14

• assumes non-diversified portfolio
• ratio of excess return to std. dev.
• meaningless unless compared to market or other MF

Question 15

Jensen Ratio

Answer 15

• Alpha (formula is provided)
• measures contribution of a portfolio manager

Question 16

Markowitz model

Answer 16

uses std. dev. as a risk measurement (covariance, correlation coefficient, and return)
does NOT use Beta