Portfolio Analysis

Question 1

Blue chip companies

Answer 1

highest quality proven earnings and dividends

Question 2

Growth companies

Answer 2

in period of above average growth; do not have proven track record

Question 3

Emerging Growth

Answer 3

brand-new; high risk, high reward

Question 4

Income

Answer 4

mature companies with high dividend payouts

Question 5

Cyclical

Answer 5

Stocks whose fortunes track the business cycle closely

Question 6

Counter-cyclical

Answer 6

Fortunes operate in reverse of business cycle; example would be grain and gold

Question 7

Defensive

Answer 7

companies remain unaffected during business downturns

Question 8

Speculative

Answer 8

do very well during cycle upturns

Question 9

Special situation

Answer 9

company going through a takeover, bankruptcy, etc

Question 10

Risk Premium

Answer 10

Amount of increased return over the “risk free” rate ie 1 year treasury bond

Question 11

Active return

Answer 11

difference between return achieved vs benchmark return

Question 12

Passive return

Answer 12

Return earned simply be investing in a benchmark fund

Question 13

Annualized returns

Answer 13

Returns always annualized - ie 10% return for 6 months is 20% return for the year

Question 14

What is the biggest risk for a long-term horizon portfolio?

Answer 14

Inflation; equity is better choice

Question 15

What 3 categories are in a traditional portfolio?

Answer 15

US Government Treasury Bills
Long Term Corporate Bonds
Large Company Stocks

Question 16

9 Asset Classes: Low Risk to High Risk

Answer 16

Treasury Bills
Treasury/Agency Bonds
International Bonds
Large Cap Stocks
Mid Cap Stocks
Small Cap Stocks
International Stocks
REITs
Micro Cap Stocks

Question 17

Market Capitalization Levels

Answer 17

Micro-Cap:

Question 18

What is wrong with a buy and hold approach to investing?

Answer 18

maximizes equities held when entering bear market and minimizes equities held when entering bull market

Question 19

Growth investing

Answer 19

companies potential for growth prioritized

Question 20

Value investing

Answer 20

looks for companies that are currently undervalued

Question 21

Constant dollar plan

Answer 21

Fixed amount kept in equity securities; excess goes to buy debt…if value falls below fixed amount debt is sold

Question 22

Constant ratio plan

Answer 22

fixed percentage of all assets kept in equity

Question 23

Systematic risk

Answer 23

risk of general market decline (Market Risk)

Question 24

Non-systematic risk

Answer 24

risk of a single investment going sour; mitigated by diversification

Question 25

Capital Asset Pricing Model

Answer 25

breaks down investments return into risk free and risk premium components

Question 26

3 versions of efficient market theory

Answer 26

weak form: stocks only reflect historic information

Semi-strong form: stocks reflect public information

Strong form: stocks reflect all information

Question 27

Beta

Answer 27

measures price volatitlity compared to the market as a whole

Question 28

What kind of risk would a portfolio with a beta of 1 have?

Answer 28

Only systemic

Question 29

Alpha

Answer 29

Measure of how over or under a stock performed teh marked