W2

Question 1

What does “ordinary” mean?

Answer 1

Payments are made at the end of the period.

Question 2

How do you call an annuity where payments are made at the beginningBe of the period.

Answer 2

“Annuity Due”.

Question 3

What is an annuity?

Answer 3

Regular payments.

Question 4

What does BOY mean?

Answer 4

Beginning of the year.

Question 5

What does standard deviation measures?

Answer 5

Risk.

Question 6

What does “SAA” stands for?

Answer 6

Strategic Asset Allocation.

Question 7

Some factors that can impact appropriate asset allocation are:

Answer 7

Time horizon, risk tolerance, Investment objectives, required rate of return, liquidity needs, required income stream and capital market expectation.

Question 8

Another name for mean-variance optimization is:

Answer 8

Modern portfolio theory.

Question 9

What is modern portfolio theory:

Answer 9

Is the idea that the risk of the port. can be minimized, without affecting the return, by choosing assets or asset classes that have negatively correlated price movements.

Question 10

Two common rules of thumb for asset allocation are:

Answer 10

The life-cycle theory and the 100 (or 110) minus age approach.

Question 11

Tactical asset allocation refers to:

Answer 11

The division of the funds based on short-term forecasts using current market conditions.

Question 12

Cyclical-based approach is:

Answer 12

Using the info of an upcoming peak or trough to make adjustments and profit.

Question 13

Value-based approach is:

Answer 13

Identifying undervalued stocks in a given sector, shifting assets towards buying them and making a profit.

Question 14

The 3 managers in value-based approach are:T

Answer 14

Low P/E ratio (focuses in that indicator), conservative-yield (identifies above-average yields that are expected to stay high) and contrarian manager (focuses on the book value and tries to identify when they are trading a t a relatively low price).

Question 15

Asset location refers to:

Answer 15

The optimal placement of assets in different account types.

Question 16

A common asset location strategy is based on:

Answer 16

Investment taxation.

Question 17

Interest earned should be held in:

Answer 17

TFSA (or RRSP).

Question 18

Dividends and capital gains should be held in:

Answer 18

Non-registered accounts.

Question 19

If an investor has liquidity needs, it should be held in a low-yield income-producing investment like:

Answer 19

Placing it in a TFSA or a non-registered.

Question 20

Correlation coefficient measures:

Answer 20

The behaviour of X and Z (are they dependent, independent, do they have inverse correlation?).

Question 21

When the correlation is 1 (or -1), is said that there is a:

Answer 21

Perfect tandem.

Question 22

If the correlation is 0 it is said that:

Answer 22

There is no correlation.

Question 23

The two components on risk are:

Answer 23

Unsystematic risk (depending on what we invest in, we can manage it by balancing the portfolio) and systematic risk (is the market risk, we cannot diversify away from it).

Question 24

Fixed-income Diversification can be:

Answer 24

Active (configuring maturity selection) or passive (Laddered strategy or Barbell approach).

Question 25

Laddered strategy refers to:

Answer 25

Creating a continuous cashflow while reducing the reinvestment risk.

Question 26

Barbell approach refers to:

Answer 26

Holding short-term bonds with some intermediate bonds, ones achieving higher yields and others moderate risk.

Question 27

Investors seeking cash or cash equivalents are usually looking for:

Answer 27

Safety of principal and liquidity.

Question 28

The difference between a bond and a debenture is:

Answer 28

Bonds are backed by assets, debentures aren’t.

Question 29

CDIC covers:

Answer 29

$100,000 per issuer, per depositor, per insured category.