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CISI - Portfolio Construction Theory in Wealth Management > Summer 2022 Exam > Flashcards

Summer 2022 Exam Flashcards

1
Q

The intercept of the regression of a stock’s returns against the market’s returns is known as?

A

Alpha

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2
Q

What textbook type of equity investment style would be most expected to outperform if the bond yield curve is upward sloping and steepening?

A

Value investing

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3
Q

All of the following assets are exempt from capital gains tax (CGT) except?

a. Gilts
b. Qualifying corporate bonds
c. Goodwill
d. Personal injury compensation

A

Goodwill

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4
Q

The Taylor rule is a macroeconomic measure used to inform investors and policymakers about?

A

Short-term interest rates

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5
Q

All of the following are well known investment factors except?

a. Size
b. Low volatility
c. Quality
d. Brand recognition

A

d. Brand recognition

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6
Q

An investor tends always to argue that there is significant potential value in shares that her fund already owns and that she has previously selected. Her behaviour is most likely consistent with which bias?

A

. Confirmation bias

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7
Q

All of the following investment instruments are exempt from UK stamp duty andstamp duty reserve tax (SDRT) except?

a. Convertible loan stock (bonds)
b. Bearer stocks
c. Right issues to existing owners
d. Exchange traded funds

A

a. Convertible loan stock (bonds)

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8
Q

The gross redemption yield of any bond is a function of all of the following except?

A

a. Unexpected rate of inflation

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9
Q

A structured product linked to the FTSE 100 Index contains two component parts. If one component is a call option to provide the market participation, the second component is most likely to be a:

A

b. Gilt

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10
Q

Disposal of a holding in a non-reporting fund is liable to be taxed as?

A

b. Income

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11
Q

Corporate bond A has a modified duration of 2.3 and corporate bond B a modified duration of 1.7. Relative to corporate bond B, corporate bond A’s price is?

A

More sensitive to interest rate changes

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12
Q

Corporate bond A is issued by, and secured on, a parent company. Corporate bond B is issued by, and secured on, a subsidiary operating company of the parent. Relative to corporate bond A, corporate bond B is lower down the company organisational structure and most likely to be considere?

A

Structurally senior

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13
Q

The revenue of an equity type of real estate investment trust (REIT) mostly comes from?

A

Income from lease and rent

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14
Q

What textbook type of equity investment style would be most expected to outperform if the bond yield curve is flat or downward sloping?

A

Growth investing

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15
Q

The policy effect when measuring bond portfolio performance refers to?

A

The difference in portfolio duration and index duration

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16
Q

A security’s current beta is 0.8, while for a long period the beta was 1.1. Empirical evidence on equity betas suggests that the beta in one to two years’ time is likely to be?

A

Greater than 0.8 and less than 1

17
Q

Compared to the geometric mean return of a security, the arithmetic mean return
for the same security is:

A

Higher or the same but never lowe

18
Q

Her Majesty’s Revenue and Customs (HMRC) taxes exchange-traded fund (ETF) distributions in all of the following ways except?

a. Where cash deposits represent more than 60% of the assets, the distributions are taxed as interest at the investor’s marginal rate
b. Where floating rate bond securities represent more than 60% of the assets, the distributions are taxed as dividends at the investor’s marginal rate
c. Where fixed interest securities represent more than 60% of the assets, the distributions are taxed as interest at the investor’s marginal rate
d. Where fixed interest securities represent less than 60% of the assets, the distributions are taxed as dividends at the investor’s marginal rate

A

b. Where floating rate bond securities represent more than 60% of the assets, the distributions are taxed as dividends at the investor’s marginal rate

19
Q

Briefly describe a situation when it is appropriate to inform an investor about a fund’s arithmetic mean return rather than its geometric mean return (3)

A
  • when investors can withdraw anytime
  • if capital is swapped between funds a lot
  • Compounding of returns not relevant
20
Q

Is there stamp duty for buying CFDs and Spread Bets?

A

Both exempt

21
Q

Are gains on CFDs and Spread Bets liable to CGT? (3)

A
  • CFDs yes
  • But losses can be used to reduce CGT
  • Spread bets no CGT
22
Q

Is there dividend tax on Spread Bets?

A
  • Spread bets yes
  • About 80 - 80%
23
Q

Is there dividend tax on CFDS?

A
  • Dividend and capital gain usually added as one entry
  • if separate entry, income tax is liable
  • Can use dividend allowance
24
Q

List six elements that contribute to size of the equity multiple in the price-earnings ratio

E I E I E I

A
  • Earnings growth
  • Inflation
  • Economic growth
  • Interest rate
  • Economic conditions
  • Investor sentiment
25
Q

What is the meaning of VaR? (3)

A
  • VaR estimates potential loss
  • at a specific probability
  • so 100% of loss at only that probability
26
Q

What is the meaning of CVaR? (3)

A
  • the average loss if VaR is exceeded
  • the mean loss in the remainder of the distribution tail
  • starting at VaR
27
Q

Give four of the principal active decisions involved in ‘passive’ investment management.

B R A T

A
  • Benchmark
  • Rebalancing
  • Asset mix
  • Trade strategy
28
Q

Evaluate the four principal biases and risks an investor is subject to when investing in a market capitalisation-weighted index

A
  • Positive momentum bias
  • Large stocks concentration
  • ESG
  • Sector CONCENTRATION
29
Q

What is positive momentum bias?

A

When you follow a bullish trend

30
Q

Give three merits of Risk parity as an asset allocation technique

A
  • Focus on diversification, risk concentration and risk control
  • Smooth and stable performance
  • Close to max Sharpre ratio
31
Q

Give three challenges of risk parity as an asset allocation technique

A
  • leverage too expensive in high-interest rate environment
  • Tax repercussions from holding a lot of fixed income
  • When to rebalance

CISI - Portfolio Construction Theory in Wealth Management (15 decks)

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