Part 5 Flashcards

1
Q

Government uses government policy to balance

A
  • Level of inflation
  • Exchange rate
  • Economic growth
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2
Q

Main factors affecting bond yields

A
  • Inflation
  • Short term interest rates
  • Fiscal deficit
  • Exchange rate
  • Institutional cashflow
  • Alternative investments
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3
Q

Factors affecting equity levels

A
  • Expectations of real interest rates and inflation
  • Investors’ perceptions of the riskiness of equity investments
  • The real level of economic growth in the economy
  • Expectations of currency movements
  • Supply factors
  • Political climate
  • Overseas equity markets
  • Institutional cashflow
  • Taxation
  • Alternative investments
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4
Q

Factors affection the property market

A
  • Occupation market (economic growth, structural changes)
  • Development cycles (planning permissions, development time lags)
  • Investment market (inflation, real interest rates)
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5
Q

Inelastic supply of property is caused by

A
  • Time required to develop new properties
  • Planning permission rules and limited physical space in some areas
  • Fixity of location
  • High transaction costs
  • Segmented markets
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6
Q

Demand for an asset will change if:

A
  • Its characteristics change (risk and return)

* External factors change (investors’ income, investors’ preferences, alternative investments)

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7
Q

Investors’ preferences will change as a result of

A
  • A change in their liabilities
  • A change in the regulatory regime
  • A change in the tax regime
  • Uncertainty in the political climate
  • Sentiment or fashion altering
  • Marketing
  • Education
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8
Q

Methods of valuing assets

A
  • Historical value
  • Written up or written down historical value
  • Market value
  • Smoothed market value
  • Fair value
  • Discounted cashflow method
  • Stochastic models
  • Arbitrage pricing theories
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9
Q

Bond risk premium compensates for

A
  • Inflation risk
  • Marketability
  • Risk of default
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10
Q

Equity risk premium compensates for

A
  • Marketability
  • Risk of default
  • Volatility of share prices and dividends
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11
Q

Property risk premium compensates for

A
  • Risk of default and voids
  • Large, indivisible unit size
  • Marketability
  • Possible deterioration and obsolescence
  • High dealing and management expenses
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12
Q

Ways of assessing cheapness/dearness of asset classes

A
  • Yield norms
  • Index levels and price charts
  • Yield ratios
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13
Q

Main sources of variability of asset values in a portfolio

A
  • Short-term market movements

* A change in asset mix

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14
Q

Advantages of notional portfolio valuation

A
  • Speed of calculation
  • Valuation result not influenced by strategic investment strategy
  • Investment strategy not influenced by valuation result
  • Stability of valuation results
  • Consistency with method used to value liabilities
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15
Q

Disadvantages of notional valuation

A
  • Lack of realism

* Difficult to communicate why assets aren’t valued using market value

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