Session 10&11&12

Question 1

Endowment fund

Answer 1

An investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations or other specified purposes. Endowment funds are often used by nonprofits, universities, hospitals and churches. They are funded by donations, which are tax deductible for donors.

Question 2

Poison pill

Answer 2

A shareholder rights plan, colloquially known as a “poison pill”, is a type of defensive tactic used by a corporation’s board of directors against a takeover. Typically, such a plan gives shareholders the right to buy more shares at a discount if one shareholder buys a certain percentage or more of the company’s shares.

Question 3

Golden parachute

Answer 3

a large payment or other financial compensation guaranteed to a company executive if they should be dismissed as a result of a merger or takeover.

Question 4

Staggered board of directors

Answer 4

A staggered board of directors or classified board is a prominent practice in US corporate law governing the board of directors of a company, corporation, or other organization, in which only a fraction (often one third) of the members of the board of directors is elected each time instead of en masse (where all directors have one-year terms). Each group of directors falls within a specified “class”—e.g., Class I, Class II, etc.—hence the use of the term “classified” board.

Question 5

Operating leverage

Answer 5

Operating leverage is a measure of how revenue growth translates into growth in operating income. It is a measure of leverage, and of how risky, or volatile, a company’s operating income is.
There are various measures of operating leverage, which can be interpreted analogously to financial leverage.
fixed cost / total cost
contribution margin
…

Question 6

Operating income

Answer 6

soodi ke hanuz interesto tax azash kam nashode

Question 7

Congruent

Answer 7

motejanes

in agreement or harmony.
institutional and departmental objectives are largely congruent

Question 8

Waiver

Answer 8

laghv, ebtal

Incentives would have to include tax waivers , for instance, on appropriate equipment used in production and which were environmentally friendly.

Question 9

Ex dividend date

Answer 9

The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend.

Question 10

Book value of shares

Answer 10

For example, if a corporation without preferred stock has stockholders’ equity on December 31 of $12,421,000 and it has 1,000,000 shares of common stock outstanding on that date, its book value per share is $12.42. Keep in mind that the book value per share will not be the same as the market value per share.

Question 11

Dividends vs share repurchase (buyback)

Answer 11

The basic answer is that share repurchases are great when the share price is undervalued, and not-so-great when the share price is overvalued. To put it into a more useful context, if you would otherwise reinvest your dividends or invest new capital into the company at current stock prices, then share repurchases are useful to you because the company basically does it for you. The alternative is that the company could pay you a higher dividend, but you’d be taxed on that dividend and reinvest it into the company anyway. On the other hand, if you would not reinvest dividends or invest new capital into the company at current prices, then share repurchases are not in alignment with your current outlook, and it would be better for you to receive a higher dividend.

Question 12

Banker’s acceptance

Answer 12

‘Banker’s Acceptance - BA’ A short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker’s acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds.

Question 13

Time deposit

Answer 13

certificate of deposit

Question 14

Repurchase agreement

Answer 14

A repurchase agreement, also known as a repo, currency repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest.

Question 15

Commercial paper

Answer 15

Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of no more than 270 days.
Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations (for example, payroll), and is backed only by an issuing bank or corporation’s promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell their commercial paper at a reasonable price.

Question 16

Money market

Answer 16

A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.

Question 17

Days sales outstanding

Answer 17

A measure of the average number of days that a company takes to collect revenue after a sale has been made.

Question 18

Factor

Answer 18

A financial intermediary that purchases receivables from a company. A factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party.

Question 19

Capital budgeting

Answer 19

process of evaluating capital projects and their portfolios.

*capital project: projects with cash flows over more than 1 year

Question 20

Steps of capital budgeting

Answer 20

1. generate idea
2. analyze project ideas
3. create firm wide capital budget
4. monitor decisions and conduct a post audit

Question 21

Capital budgeting cash flows

Answer 21

incremental after tax cash flows. (incremental:changes in cash flows of firm by undertaking the project

• sunk costs should not be considered
• external effects and gains or losses should be considered (externalities)
• opportunity costs–> like using a warehouse we already have but could use in another way and make money!
• financing costs are already reflected in the required rate of return.

Question 22

Project sequencing

Answer 22

some projects should be taken in order,

Question 23

Profitability index of a project

Answer 23

PV of all future cash flows / investment at 0

Question 24

NPV profile of a project

Answer 24

plots a project’s NPV as a function of the discount rate (intersects the horizontal axis at IRR)

Question 25

NPV vs IRR

Answer 25

for projects with conventional cash flow patterns (one sign change) they’re the same, but …

Question 26

WACC

Answer 26

weighted average cost of capital

the proper rate at which to discount the cash flows associated with a capital budgeting project. it is the correct discount rate to use to discount the cash flows of projects with risk equal to the average risk of a firm’s projects.

=(Wd)[Kd(1-t)] + (Wps)(Kps) + (Wce)(Kce)

• Wd: percentage of debt in the capital structure
• Wps: percentage of preferred stock in the capital structure
• Wcs: percentage of common stock in the capital structure

***weights are based on the firm’s target capital structure, the weights that firm expects to achieve over time. if not available, an analyst can use the current capital structure to calculate WACC

Question 27

Kd
Kps
Kce

Answer 27

• Kd: the rate at which the firm can issue new debt= YTM on existing debt –> interest paid on corporate debt is tax deductible so we use Kd(1-t)
• Kps: the cost of preferred stock
• Kce: the cost of common equity. it is the required rate of return on common stock and is generally difficult to estimate

***all of these are rates, percentages!!

Question 28

MCC

Answer 28

marginal cost of capital: the cost of raising additional capital (WACC may increase as larger amounts of capital are raised)
–> MCC is an upward sloping curve

=WACC(??)

Question 29

Investment opportunity schedule

Answer 29

the more capital we have we can take on more projects but since we are choosing on the basis of highest IRRs the more we continue the newer added projects would have lower IRRs and decrease the portfolio IRR
–> investment opportunity schedule is a downward sloping curve

Question 30

Optimal capital budget

Answer 30

the intersection of the investment opportunity schedule and MCC

Question 31

Kd calculation

Answer 31

YTM or matrix pricing

Question 32

Kps calculation

Answer 32

Dps/P

Dps: dividends of preferred stock
P: MARKET price of preferred.

Question 33

Kce calculation

Answer 33

1. the capital asset pricing approach:
   Kce= RFR+ Beta[E(Rmkt)-RFR]
2. the dividend discount model approach:
   Kce= (D1/P0) + g
   g= retention rate * ROE
3. bond yield plus risk premium approach: adding a risk premium to the YTM of the firm’s long term debt.
   Kce= YTM+risk premium

Question 34

Project Beta

Answer 34

a measure of project’s systematic or market risk.
*can be used to adjust for differences between a specific project’s risk and the average risk of a firm’s projects.

Calculation:
because a specific project is not represented by a publicly traded security we cannot estimate project’s Beta directly
1. pure play method: Beta of a company or a group of companies that are purely engaged in a business similar to that of the project.
2. pure play beta should get unlettered and then levered again according to our company’s capital structure
—» first: Beta(asset) = Beta(equity) [1/1+{(1-t)D/E}] and t and D/E are from comparable company
second: Beta(project) = Beta(asset)[1+{(1-t)D/E}] and t and D/E are from the subject firm.

Question 35

CRP

Answer 35

Country risk premium
when using CAPM to calculate Kce, the calculated Beta does not adequately capture the market risk for developing countries–> a country premium risk is added to the market risk premium

Kce=Rf+ Beta[E(Rmkt)-Rf+CRP]

Question 36

Correct treatment of floatation costs

Answer 36

floatation cost: fees charged by investment bankers when a company raises external equity capital

Incorrect treatment under growth model:
using P(1-floatation cost) is incorrect because it changes our whole WACC while this cost is not ongoing through the projects life, it's a one time cost

correct treatment:
doesn’t affect cost of capital, just affects the initial cost of the project.

Question 37

Business risk

Financial risk

Answer 37

1. refers to the uncertainty about operating earnings (EBIT) and results from sales risk and operating risk (fixed cost)
2. refers to the additional variability of EPS compared t EBIT. financial risk increases with greater use of fixed cost financing (debt) in a company’s capital structure.

Question 38

DOL

Answer 38

Degree of operating leverage=
percentage change in EBIT / percentage change in sales=
Q(P-V) / Q(P-V)-F=
S-TVC / S-TVC-F

Q: quantity of sales
P: price
V: variable cost per unit
F: fixed cost

Question 39

DFL

Answer 39

Degree of financial leverage=
percentage change in EPS or net income / percentage change in EBIT=
EBIT / EBIT-I

I: interest rate

Question 40

DTL

Answer 40

Degree of total leverage=
percentage change in EPS or net income / percentage change in sales=
DOL*DFL

Question 41

Break even point

Answer 41

Q= (fixed operating costs + fixed financing costs) / (price - variable cost per unit)

Question 42

Operating breakeven

Answer 42

Q= fixed operating costs / price-variable cost per unit

Question 43

Dividends

Answer 43

1. regular
2. special: sth happened and the company make a one time additional payment
3. liquidating: business has stopped and liquidated and equity owners’ residual interest is paid.

**other things equal, paying a cash dividend decreases liquidity ratios and increases leverage ratios.

Question 44

Stock dividend

Answer 44

every shareholder gets X% new shares.

decreases share value

Question 45

Stock split

Answer 45

divide each existing share into multiple shares.
decreases share value.
a 2 for 1 stock split is equal to a 100% stock dividend.

Question 46

Share repurchase types

Answer 46

1. open market
2. tender offer
3. direct negotiation with a large shareholder

**a share repurchase is economically equivalent to a cash dividend of an equal amount, assuming the tax treatment of the two alternatives is the same.

**in repurchase and dividend cash exits the company! in split and stock dividend it doesn’t

Question 47

Dividend chronology

Answer 47

1. declaration date: board approves payment of the dividend
2. Ex-dividend date: the first day that the share trades without the dividend (2 business dates prior to holder of record date)
3. holder of record: shareholders of record are designated to receive the dividend
4. payment date

Question 48

Tender offer

Answer 48

The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time

Question 49

Effects of share repurchase

Answer 49

1. on EPS, using borrowed funds:
   * E/P equal to after tax cost of borrowing–> no effect on EPS
   * E/P higher than after tax cost of borrowing–> higher EPS
   * E/P lower than after tax cost of borrowing–> lower EPS
2. on book value per share:
   * increase if the share price is less than original BVPS
   * decrease if the share price is greater than original BVPS

Question 50

Primary and secondary sources of liquidity

Answer 50

• primary: sources of cash a company uses in its normal operations. cash from sales, from short term investments and sources of short term funding like trade credit from vendors and lines of credit from banks.
• secondary: asset sales, debt renegotiation, bankruptcy reorganization.

Question 51

Measures of working capital management

Answer 51

• receivables/inventory/payables turnover
• number of days of receivables/inventory/payables

Effectiveness:
Operating cycle: days of inventory + days of receivables.
Cash conversion cycle: operating cycle - days of payables.
**if these measures are too high comparing to peers, it means that company has too much cash tied up in working capital.

Question 52

Commonly used annualized yields for pure discount securities

Answer 52

• used for short term money market instruments used in cash management.
  1. discount basis yield: %discount from face value * (360/T)
  2. money market yield: HPY * (360/T)
  3. bond equivalent yield: HPY * (365/T)

**returns on firm’s short term security investments under a cash management program should be stated as bond equivalent yields.

Question 53

Drags and pulls on liquidity

Answer 53

factors that weaken a company’s liquidity position.

1. drags on liquidity: factors that delay or reduce cash inflows or increase borrowing costs, like uncollected receivables and bad debt and …
2. pulls on liquidity: accelerate cash outflows. like paying vendors sooner than is optimal.

Question 54

Net daily cash position

Answer 54

uninvested cash balances a firm has available to make routine purchases and pay expenses as they come due –> should be managed to have sufficient cash on hand and also avoid keeping excess cash.

to manage daily cash position the firm should analyze it’s typical cash inflows and outflows and prepare forecasts. then the firm can identify the periods its cash position is going to be too high or too low.

Question 55

Cash management investment policy

Answer 55

during periods of excess cash firms invest their cash in short term high credit money market instruments. investment policy statement includes objectives of these actions and policies regarding these investments.

Question 56

Accounts receivable aging schedule

Answer 56

shows the status in each month by showing the dollar value of outstanding receivables in a certain age interval.
March–> less than 31 days: 200– 31 to60: 150, ….

**can also be presented as percentages of total outstanding receivables in that month

Question 57

Weighted average collection period

Answer 57

indicates the average days outstanding per dollar of receivables. (days of receivables is measure of the delay until we get the money of a sale not a dollar, it’s not weighted by the dollar amount of that sale)
check the picture!

Question 58

Receivables management

Answer 58

not too strict to lose sales and not too loose to insure high financing costs.

measures like turnover, average days, aging schedule and weighted average collection period.

Question 59

Inventory management

Answer 59

not too low to lose sales and not too high to tie up capital.

measures like turnover, average days, ..

Question 60

Payables management

Answer 60

• should be managed because they’re a source of working capital to the firm.
• pay not too soon to lose interest and too late to harm relationship.

measures like turnover, average days, trade credit cost, …

Question 61

Trade credit

Answer 61

Trade credit is the credit extended to you by suppliers who let you buy now and pay later

Question 62

Terms on payables (trade credit)

Answer 62

“2/10 net 60”
it means if you pay until 10 days you receive 2% discount and if not, you should pay until 60 days.

**so if we not pay until 10 days, we will be using our trade credit at the cost of losing 2% discount, so:
Cost of trade credit= annualized cost of not taking the discount
(1+[ %discount/1-%discount])^(365/days past discount) - 2

Question 63

Sources of short term funding from banks

Answer 63

1. Lines of credit
2. banker’s acceptance: used by firms that export goods, it’a guarantee from the buyer’s bank that a payment will be made upon receipt of the goods. the firm can then sell this acceptance at a discount in order to generate immediate funds.
3. factoring: the actual sale of receivable’s at a discount. the factor (the buyer) takes on the responsibility for collecting receivables and their credit risk.

Question 64

Non bank sources of short term funding

Answer 64

smaller firms may use non bank financial companies for products like that of a bank but with higher interest.
large, creditworthy companies can issue commercial papers that are usually cheaper for them than bank options.

Question 65

Lines of credit

Answer 65

1. umcommited line of credit: a bank extends an offer of credit for a certain amount but may refuse to lend if circumstances change.
2. committed (regular) line of credit:a bank extends an offer of credit that it commits to for some period of time. banks charge a fee for making such a commitment.
3. revolving line of credit: an even more reliable source of short term financing than a committed line of credit. these are typically for longer terms sometimes as long as years.

Question 66

Corporate governance- Independence

Answer 66

• a majority of board and committee members should be independent (not management), and the board should meet regularly without management present.
• board should have the resources to act independently, like the ability to hire outside consultants without approval from management
• members who serve on the board for a long time may become too closely aligned with management to be considered independent.
• board members should not be from companies that have close business relations with the company, like a supplier or customer.

Question 67

Audit committee

Answer 67

responsible for providing financial information to shareholders. they should:
1. follow proper accounting and auditing procedures
2. appoint an external auditor that is free from management influence
3. have no restrictions on it’s communications with the firm’s internal auditors.
…..

Question 68

Compensation (remuneration) committee

Answer 68

sets the compensation for firm’s executives.

Question 69

Nominations committee

Answer 69

responsible for recruiting new, qualified, independent board members. and also reviewing and assessing the performance of current members.
**+ prepare an executive management succession plan.

Question 70

Takeover defense

Answer 70

are provisions that make a company less attractive to a hostile bidder or more difficult to acquire.

Question 71

Corporate code of ethics

Answer 71

sets the standard for basic principles of integrity, trust and honesty.

• can be a mitigating factor with regulators.
• should comply with corporate governance standards of the country and stock exchange.
• prohibit business with insiders

Question 72

Some points in voting

Answer 72

• ability to vote proxies is a fundamental right of share holders
• should check if company lets proxy voting
• should check if company limits the ability to vote by requiring attendance
• is the voting confidential (by third party, records get destroyed, …
• does the firm let share owners to nominate someone as a board member?
• does the firm let share owners to propose initiatives for consideration at the annual meeting?
• are board and management actually required to implement any shareholder approved proposals? (advisory or binding proposals)
• are there different classes of common equity? what are rights of each class? what about voting rights in different classes.
• can a share owner seek legal or regulatory action to enforce shareholder rights? (based on home country jurisdiction or company code of ethics)
• are there takeover defense strategies that can be done without shareholder’s approval?

Question 73

Share blocking

Answer 73

prevents shareholders from trading their shares over a period prior to the annual meeting and is considered a restriction on the ability of shareholders to express their opinions and act in their own interest.

Question 74

Cumulative voting

Answer 74

can be bad because a minority powerful group like a founding family can serve it’s own interests.

Question 75

Staggered terms

Answer 75

The staggered election keeps some continuity in the elected body. For example United States Senators have a 6-year term but they are not all elected at the same time. Rather, every two years elections are held for one third of US Senate seats.

*not good in companies because it makes it hard for the investors to change the board of directors. annual elections of all members is the best practice.

Question 76

Portfolio management steps

Answer 76

1. planning: determine client needs and circumstances, return objectives, risk tolerance, preferences, …. . create and then review and update in investment policy statement (IPS) that spells out these needs and circumstances.
2. execution: construct the client portfolio by determining suitable allocations to various asset classes based on the IPS and on expectations about macroeconomic variables (top down analysis) and identify attractively priced securities within an asset class for client portfolios based on valuation estimates from security analysis (bottom up analysis)
3. feedback: monitor and rebalance the portfolio to adjust asset class allocations and securities holdings in response to market performance.

Question 77

Buyout funds

Answer 77

involve taking company private by buying all available shares, usually funded by issuing debt.

Question 78

Return measures in portfolio management

Answer 78

HPR, arithmetic mean return, geometric mean return, money weighted return, time weighted return
Gross return: total return after deducting commissions on trades but before fees for management and administration.

Net return: after management and administration fees

Pretax nominal return: numerical return before tax, without adjusting for inflation

After tax nominal return: just after tax

Real return: the increase in an investor’s purchasing power, roughly nominal return minus inflation

Leveraged return: the gain or loss on an investment as a percentage of an investor’s cash investment.

Question 79

Capital allocation line (CAL)

Answer 79

a straight line from the risk free asset through the optimal risky portfolio, so CAL can be between risk free asset and any portfolio on the efficient frontier.

• between different CALs, the best one for an investor is the one who tangents the highest utility curve, so the one with the highest slope is the best
• if all of the investors have the same estimation of return, risk and correlations for different assets, there would be a single optimal portfolio and CAL for everyone (homogenous expectations assumption)

**Optimal CAL for all investors is named capital market line (CML)

*Standard deviation on this line is equal to Wa(Sigma)a because the risk is exactly equal to the exposure to that of the risky portfolio

Question 80

Expected portfolio return of portfolios on CML

Answer 80

E(Rp)= Rf + (E(Rm)-Rf)/(Sgma)mp

• ba tavajoh be inke ruye yek khat tu fazaye risko returne bazdeh gharar daran rahat mohasebe mishe.
• by looking at this, we see that investor can expect to get one unit of market risk premium in additional return (above the risk free rate) for every unit of market risk, (Sgma)m that the investor is willing to accept.

Question 81

Market risk premium

Answer 81

E(Rm) - Rf

Question 82

total risk components

Answer 82

=systematic risk + unsystematic risk

systematic risk is usually addressed as a ratio to market risk (beta)

*systematic risk is not something constant in all assets, market risk is constant but the systematic risk is the risk caused by the exposure to the market risk factors and is different for each asset

Question 83

Return generating models

Answer 83

used to estimate the expected returns on risky assets based on specific factors

multifactor models: usually use macroeconomic factors and fundamental factors (earnings, firm size, …), general form of a multi factor model with k factors:
E(Ri)-Rf= Bi1E(factor1)+ …+Bik*E(factor k)

• the first factor is often the expected excess return on the market, E(Rm-Rf)
• Betas are factor sensitivities.

Question 84

Mama French model

Answer 84

-a return generating model that uses three factors: 1. firm size 2. firm book value to market value ratio and 3. the return on the market portfolio minus the risk free rate

**Carhart adds a 4th factor that measures price momentum using prior period returns.

Question 85

Single factor models

Answer 85

simplest return generating models using only E(Rm) - Rf

single index model:
E(Ri)-Rf = Bi[E(Rm)-Rf)

Bi= Cov(i,m)/SgmaM^2 = Cor(i,m) Sgma(i)/Sgma(m)
B is a measure of how sensitive the return on asset i is to the return on the overall market portfolio.

Question 86

Where did beta come from?

Answer 86

it’s the slope of regression line between excess return of the asset over RFR and the excess return of the market over RFR

• ***In a single index model or market model we just assume that there’s a linear relationship between excess return of the asset and the excess return of the market, then the parameters can be estimated using regression. but where did this assumption of linear relationship come from????
• —> it’s based on modern portfolio theory, every asset has returns only to the extent of it’s systematic risk and there’s a linear relationship between more exposure to systematic risk and more return, so if the excess return of market doubles, the excess return of the asset doubles as well.

Question 87

SML

Answer 87

Securities market line

plot of E(Ri) and Beta(i)

Question 88

CML vs SML

Answer 88

CML: between E(R) and Sigma

• only efficient portfolios are plotted on CML
• E(Rp)= RFR+[E(Rm)-RFR]*[Sgma(p)/Sgma(m)]

SML: between E(R) and Beta

Question 89

Estimate required return

Answer 89

CAPM estimates expected return but in equilibrium expected return is equal to required return, so we can use CAPM

Question 90

Sharpe ratio

Answer 90

sharpe ratios of all portfolios on the CML (or portfolios on a CAL) are the same. and it’s the slope of the line

Question 91

M squared (M^2)

Answer 91

=(Rp-Rf)Sm/Sp - (Rm-Rf)

**leverage the portfolio until it has a total risk equal to that of the market, then …

*gives the same orders as sharpe

Question 92

Measures of risk adjusted return based on systematic risk

Answer 92

1. Treynor measure: Rp_Rf / Beta(p)

2. Jensen’s alpha: Rp-[Rf+Beta(p)[Rm-Rf]]

Question 93

Risk objectives in an IPS

Answer 93

1. absolute risk objectives: in absolute terms, not related anything external, like “no greater than 5%probability of returns below -5%
2. relative risk objectives: relate to a benchmark, like “returns will not be less than 12 month LIBOR”

Question 94

Willingness vs ability to take risk

Answer 94

the portfolio manager should find out investor’s both ability (like long horizons) and willingness (personality factors) to take risk and chooses a risk level that matches the lowest.

Question 95

RRTTLLU

Answer 95

important points of portfolio construction.

Risk, Return, Time horizon, Tax situation, liquidity, Legal restrictions and the unique constraints of a specific investor.

Question 96

Strategic asset allocation

Answer 96

after determining IPS, we should choose appropriate asset classes and their weights

*correlation of assets within an asset class should be high and correlations between asset classes should be low.

Question 97

Asset classes

Answer 97

1. Equities
2. Bonds
3. Cash
4. Alternative investments

*each of these can be further divided by being domestic or foreign, large or small, traded in emerging or developed markets

Question 98

Tactical asset allocation

Answer 98

varying from strategic asset allocation weights (passive investment- based on efficient frontier) in order to take advantage of perceived short term opportunities.

*active strategy

Question 99

Security selection

Answer 99

deviations from index weights on individual securities within an asset class

*active strategy

Question 100

Core satellite approach

Answer 100

invests the portion of the portfolio in passively managed indexes and the rest in active strategies