Portfolio Management

Question 1

4 reviews during portfolio monitoring and revision process

Answer 1

1. General review of the clients objectives and constraints
2. Asset allocation review
3. Securities weightings review
4. Performance review

Question 2

Capital allocation line

Answer 2

Shows risk and return for portfolios invested between a risk free asset and a risky portfolio

Question 3

Variance

Answer 3

Variance is the square of volatility ( standard deviation ) and is used to calculate the expected risk of a portfolio

Question 4

Total risk

Answer 4

Systematic risk + specific risk

Total risk = Systematic risk + Unsystematic risk (measured as variances), where: Systematic risk = Market risk = Non-diversifiable risk Unsystematic risk = Specific risk = Diversifiable risk.

Question 5

Efficient frontier= runs from minimum m risk to maximum return

Answer 5

The efficient frontier runs from the global minimum variance portfolio to the point of maximum return.

Question 6

The portfolio on the efficient frontier with the lowest standard deviation is known as:

Answer 6

The global minimum variance portfolio.

Question 7

Investment policy statement (5 constraints))

Answer 7

1.Liquidity
2. Time Horizon
3. taxes
4. legal and regulatory environment
5 . Unique circumstances