RPA 2 - Module 1 Flashcards
What are the 4 types of Investment risks?
Purchasing power, business, interest rate, market, specific
What are the 2 Characteristics of investments?
Tax aspects, liquidity
What are the 4-steps of Performance measurement?
Four steps: Definition (set investment objectives) ; Input (reliable
data); Process (use of appropriate statistical methods); Output
(analysis)
What is the definition of Internal rate of return?
Return from date 1 to date 2, ignoring the timing of contributions
and withdrawals
What is the definition of Time‐weighted rate of return?
Calculates return based on subintervals of contributions and
withdrawals.
What is Capital Asset Pricing Model?
Used to analyze the relationship between portfolio returns and the
market returns
What is the Risk‐adjusted rate of return used for?
Used to compare portfolios with different risk levels
What are Money market instruments?
Treasury bills; federal agency issues; certificates of deposit;
commercial paper; money market mutual funds
What are Use of bonds used in
retirement plans for?
Two purposes: 1. To match cash flow needs of plan 2. Generate
higher yield than money market instruments
What are Common stocks categories?
Blue‐chip; growth stocks; income stocks; cyclical stocks; defensive
stocks; interest‐sensitive stocks
What is/are the Appeal of mutual funds?
Greater liquidity; diversification; portfolio specification; daily update
of holdings; ease of meeting asset allocation; ease of tracking past
performance
What is Active investment management?
Selection and monitoring of individual securities with frequent buy
and sales
What is Passive investment management?
Broadly diversified portfolio with buy‐and‐hold strategy
What are Index funds?
Passive investment strategy designed to match a particular market
index
What is Dedication & immunization?
Use of a bond portfolio to match needed cash flow
