Video unit 20

Question 1

strategic asset allocation

Answer 1

setting up portfolio for long term
lower investor costs
passive
use index funds and index etfs

Question 2

tactical asset allocation

Answer 2

short term
can generate alpha 
active
try to buy undervalued
higher investment costs

Question 3

market cap breackdown

Answer 3

small 300- 2 bill
mid -2 to 10 bill
large 10 bill plus

Question 4

barbell strategy

Answer 4

short and long term bonds

Question 5

bullet

Answer 5

all bonds mature same date- target

Question 6

laddering

Answer 6

maturity latter

keep rolling over every year

Question 7

is barbell,bullet laddering, active or passive

Answer 7

active

Question 8

capital market theory components

Answer 8

1. investors can borrow at RFR
2. all investors rational. use expected return
3. time horizon equal for all investors
4. no transaction costs or personal income taxes
5. no inflation
6. efficient markets

Question 9

Modern portfolio theory

Answer 9

diversify with negative correlation

Question 10

feasible set

Answer 10

all portfolios that can be constructed for given set of stock

Question 11

efficient portfolio

Answer 11

most return for least risk

least risk for given amount of risk

Question 12

efficient set or efficient frontier

Answer 12

collection of efficient portfolios

Question 13

optimal portfolio is where

Answer 13

where efficient set(portfolio) and investors risk tolerance meet

Question 14

CAPM(capital asset pricing model)

Answer 14

used to determine required rate of return
must be compensated for time value
must use risk free rate
must be compensated for systematic risk
compare beta to market return

Question 15

expected return

Answer 15

RFR +(MR-RFR)* beta

Question 16

efficient market hypothesis says

Answer 16

all investors have same access to same info, can’t beat market

Question 17

forms of efficient hypotheses

Answer 17

week- information everyone knows is price and volume
semi strong-financial statements and economic info
strong- all public and private info

Question 18

what will/ won’t work for efficient hypthesis

Answer 18

weak-
will-fundemental and insder
won’t -technical

semi-
will- insider
won’t- fundamental and technical

strong
will-random walk
won’t- technical and fundamental

Question 19

dollar cost averaging

Answer 19

same amount of money at same interval

Question 20

lower end vs higher of effiecient frontier

Answer 20

the lower end of the efficient frontier includes low-risk and low-return portfolios.

The higher end includes high-risk and high-return portfolios

Question 21

Under the CAPM, securities are priced based on

Answer 21

their systematic risk only, because this risk cannot be eliminated through diversification.