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CFA 3 > Volume 4 > Flashcards

Volume 4 Flashcards

1
Q

EQUITY hedge funds:

1) Long/short Equity hedge ?

A
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2
Q

EQUITY hedge funds:

2) Dedicated short ?

A
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3
Q

EQUITY hedge funds:

3) Equity Market neutral ?

A

+ as neutral on as many risk factors (style, sector, industry, etc.) as it can (not only market neutral).

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4
Q

EVENT DRIVEN HEDGE FUNDS:

4) Merger-arbitrage ?

A

*Vertical M&A = M&A within the same industry.

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5
Q

EVENT DRIVEN HEDGE FUNDS:

5) Distressed Securities ?

A
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6
Q

RELATIVE VALUE HEDGE FUNDS:

6) Fixed-Income Arbitrage ?

A
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7
Q

RELATIVE VALUE HEDGE FUNDS:

7) Convertible Bond Arbitrage ?

A
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8
Q

OPPORTUNISTIC HEDGE FUNDS:

8) Global Macro ?

A

low vol markets = poor context for these HFs

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9
Q

OPPORTUNISTIC HEDGE FUNDS:

9) Managed Futures ?

A

low vol markets = poor context for these HFs

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10
Q

SPECIALIST FUNDS:

10) Volatility Trading ?
11) Reinsurance/Life Settlement ?

A
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11
Q

MULTI-STRATEGY FUNDS:

12) Fund-of-Funds ?

A
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12
Q

MULTI-STRATEGY FUNDS:

13) Multi-strategy ?

A
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13
Q

Losh: Describe how Factor models may be used to understand Hedge Fund Risk exposures (to risk factors).

A

dummy var to know whether we are in distressed times, or not.

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14
Q

Losi: Evaluate the impact of an allocation to a Hedge Fund Strategy in a traditional investment Portfolio.

A
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15
Q

Losa: Explain the roles that Alternative Investments play in a multi-Asset Portfolio.

ROLES ???

A
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16
Q

Losa: Explain the roles that Alternative Investments play in a multi-Asset Portfolio.

TYPES OF AI ????

A
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17
Q

Losb: Compare AI and bonds as risk mitigators in relation to a long equity position.

A
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18
Q

Losc: Compare traditional and risk-based approaches to defining the investment opportunity set.

TRADI APPROACH ?

A
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19
Q

Losc: Compare traditional and risk-based approaches to defining the investment opportunity set.

RISK-BASED APPROACH ?

A
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20
Q

Losd: Discuss Investment Considerations that are important in allocating different types of Alternative Investment.

A

1) Risk considerations
–> std dev is a poor representation of risk + allocation may fully invest only over time.

2) Return Expectations
–> Lack of historical record + can use risk-factor history.

3) Invest vehicle
–> Liquid Alts = the REAL EASIEST TO ACCESS (even easier than FoF) = more liquid.

7) Other Considerations
–> Outsource an AI investment program or develop in-house expertise (function of size and access to experts).

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21
Q

Lose: Discuss suitability considerations in allocating to AI.

A
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22
Q

Losf: Discuss Approaches to Asset Allocation to AI.

A

1) Monte-Carlo Simulation.
a) Decompose a non-normal return series into 2 or more normal return distributions (input to MVO) = regime switching model.

b) estimate long-term risk profile and return poential of a given MVO allocation.

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23
Q

Losg: Discuss the importance of liquidity planning in allocating to AI.

A

1) Achieving and maintaining allocation.
–> capital is called over a number of years
–> NAV of investment grows as well
–> Distributions occur in mid-later years.

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24
Q

Losh: Discuss Considerations in Monitoring Alternative Investment programs.

A

Monitor the:

A) Investment Program.
–> suitability, investor changes, economic changes.

B) Performance Evaluation.
–> May be best to wait until closer to the end of the fund life to evaluate performance.
–> Strong/weak performance may be due to strong/weak economy.

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25
Q

Losa: Contrast Private Client and Institutional Client Investment concerns.

A

Private clients:

(vs instit)

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26
Q

Losb: Discuss info needed in advising private clients.

Losc: Identify Tax considerations affecting a private client investments.

A
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27
Q

Losd: Identify and formulate client GOALS (not objectives yet) based on client information.

A

pwm = private wealth manager

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28
Q

Lose: Evaluate a private client risk tolerance.

A

tolerance = more subjective.
capacity = more objective.
perception = truly subjective.

RISK TOLERANCE VARIES BY GOAL (different goals for one person) !!!!!!!!!!!!!

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29
Q

Losf: skills needed for a private wealth manager.

A
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30
Q

Losg: Evaluate capital sufficiency in relation to client goals.

A

1) deterministic forecasting = (PF_value @ t=0 ) * (1+E(rp))^time horizon.

TOO SIMPLE, UNREALISTIC.

*La ligne bleue c’est toujours le deterministic forecast (compounded E(rp)), mais on complexifie l’analyse avec une monte carlo simulation en donnant une distribution des proba de return over different time horizons.

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31
Q

Losh: Describe the principles and issues of retirement planning.

Stages of life, contributions & distributions ?

A
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32
Q

Losh: Describe the principles and issues of retirement planning.

Analyzing retirement goals + Behavioral considerations ?

A

PoS = proba of survival.

Monte-Carlo simulation = kind of like capital sufficiency analysis, EXCEPT NOW YOU CAN BRING ON UNPLANNED GOALS in the analysis.

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33
Q

Losi: Discuss the parts of an IPS for a private client.

A

3) PF asset allocation:

Strategic AA = target, +/- bounds (rebalancing targets).
Tactical AA = no targets, only ranges.

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34
Q

Losj: prepare the investment objective sections of an IPS.
Losk: Evaluate and recommend improvements for the IPS of a private client.

A

applied objective (voir longue vidéo ou quizz builder).

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35
Q

Losl: recommend and justify portfolio allocations and investments for a private client.

A
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36
Q

Losm: Describe active practices in portfolio reporting and reviewing.

A
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37
Q

Losn: Evaluate the success of an investment PROGRAM (not the PF performance for the most recent quarter) for private clients.

A

1) Goal achievement:
strategy likely to meet client goals ?

2) Process consistency:
Has the plan been followed ?

3) Portfolio performance:
absolute, relative, downside risk (consistent with risk tolerance ?).

4) Definition of success:
Shared by both manager and client.

38
Q

Loso: Discuss ethical and compliance considerations in advising private clients.

A
39
Q

Losp: Discuss how level of services and ranges of solutions are related to different private clients.

A
40
Q

Losa: Compare taxation of Income, Wealth, and Welath Transfers.

INCOME TAXATION ?

A
41
Q

Losa: Compare taxation of Income, Wealth, and Welath Transfers.

WEALTH TAXATION ?

A
42
Q

Losa: Compare taxation of Income, Wealth, and Welath Transfers.

WEALTH TRANSFERS TAXATION ?

A
43
Q

Losa: Compare taxation of Income, Wealth, and Welath Transfers.

WHAT DO TAXATION ALSO DEPENDS OF ?

A
44
Q

Losb: Describe global considerations of jurisdiction that are relevant to taxation.

A
45
Q

Losc: Discuss & Analyze the tax efficiency of investments.

AFTER-TAX RETURN ?

A

Tax efficiency = Very little of the return is given up as tax.

After-tax return denominated R’.

R’ = R - (tax/PF value)

46
Q

Losc: Discuss & Analyze the tax efficiency of investments.

GEOMETRIC AFTER-TAX RETURN ?

A
47
Q

Losc: Discuss & Analyze the tax efficiency of investments.

AFTER-TAX RETURN POST LIQUIDATION ?

A
48
Q

Losc: Discuss & Analyze the tax efficiency of investments.

AFTER-TAX EXCESS RETURN ?

A

X’ = R’ - B’.

B’ = benchmark after-tax return

49
Q

Losc: Discuss & Analyze the tax efficiency of investments.

ALPHA TAX ?

A
50
Q

Losc: Discuss & Analyze the tax efficiency of investments.

TAX EFFICIENCY RATIO (ter) ?

A

ter = after-tax return / pre-tax return.

HIGHER = MORE EFFICIENT.

51
Q

Losd: Analyze the impact of taxes on capital accumulation and decumulation in taxable, tax-exempt, and tax-deferred accounts.

ACCUMULATION ?

A
52
Q

Losd: Analyze the impact of taxes on capital accumulation and decumulation in taxable, tax-exempt, and tax-deferred accounts.

DECUMULATION ?

A
53
Q

Losd: Analyze the impact of taxes on capital accumulation and decumulation in taxable, tax-exempt, and tax-deferred accounts.

CHARITABLE GIFTING ?

A
54
Q

Lose: Explain Portfolio tax management strategies and their applications (avoidance).

Tax avoidance VS evasion ?

A
55
Q

Lose: Explain Portfolio tax management strategies and their applications.

STRATEGIES ?

A
56
Q

Lose: Explain Portfolio tax management strategies and their applications.

Investment Vehicles ?

A
57
Q

Lose: Explain Portfolio tax management strategies and their applications.

Investment Vehicles: Mutual funds potential capital gains exposure ?

A

= potential capital gains exposure
= net gains(losses) / total net assets.

58
Q

Lose: Explain Portfolio tax management strategies and their applications.

TAX-LOSS HARVESTING ?

A
59
Q

Lose: Explain Portfolio tax management strategies and their applications.

QUANTITATIVE TAX MGMT ?

A
60
Q

Losf: Discuss risks and tax objectives in managing concentrated single asset positions.

RISKS ??

A
61
Q

Losf: Discuss risks and tax objectives in managing concentrated single asset positions.

TAX-OBJECTIVES ??

A
62
Q

Losg: Describe strategies for managing concentrated positions in public equities. (1+2)

A

1) Sell and diversify = heavily taxed, donc pas ouf si on est vieux et pas de temps à perdre.

St div = staged diversification.

63
Q

Losg: Describe strategies for managing concentrated positions in public equities. (3+4+5)

A

can also use swaps for heding position risk (equity monetization).

Pdiv = diversified PF.

CP = concentrated position.

64
Q

Losh: Describe strategies for managing concentrated positions in privately owned businesses, and real estate.

PRIVATELY OWNED BUSINESS ?

A

+ a) IPO
b) Sale to a 3rd party
c) Sale to an insider
d) Divest non-core Assets
e) Personal Line of Credit (against company shares) –> Invest the money in a Diversified PF (NO-TAX LIAB).

For a leveraged Recap, you have a tax liability given that you only borrow against a minority position = partially.

*ESOP = employee stock option plan.

65
Q

Losh: Describe strategies for managing concentrated positions in privately owned businesses, and real estate.

REAL ESTATE ?

A

NRIAT = net rental income after tax.
It = interest tax shield.

66
Q

Losi: Discuss objectives, both tax and non-tax objectives in planning the transfer of wealth.

A
67
Q

Losj: Discuss strategies for achieving estate bequest & lifetime gift objectives in Common Law and Civil law regimes.

lifetime gifts & CivilVSCommon Law ????

A
68
Q

Losj: Discuss strategies for achieving estate bequest & lifetime gift objectives in Common Law and Civil law regimes.

Bequests and efficiency of gifts vs bequests ????????????????,

A
69
Q

Losj: Discuss strategies for achieving estate bequest & lifetime gift objectives in Common Law and Civil law regimes.

ESTATE PLANNING TOOLS: TRUST STRUCTURE ????

A

irrevocable = no tax liability on grantor, but trustee pays the taxes.

70
Q

Losj: Discuss strategies for achieving estate bequest & lifetime gift objectives in Common Law and Civil law regimes.

ESTATE PLANNING TOOLS: TRUST TYPES ????

A
71
Q

Losj: Discuss strategies for achieving estate bequest & lifetime gift objectives in Common Law and Civil law regimes.

ESTATE PLANNING TOOLS: FOUNDATIONS, LIFE INSURANCE, COMPANIES ????

A

Foundation = actually owns the assets unlike a trust which is just a juridical relationship.

72
Q

Losk: Describe considerations related to managing wealth across multiple generations (=CONTINUITY!!).

A
73
Q

Losk: Describe considerations related to managing wealth across multiple generations (=CONTINUITY!!).

Divorce & Incapacity ?

A
74
Q

Losa: Compare the characteristics of human capital and financial capital as components of an individual Total wealth.

HUMAN CAPITAL ???

A
75
Q

Losa: Compare the characteristics of human capital and financial capital as components of an individual Total wealth.

FINANCIAL CAPITAL ???

A
76
Q

Losb: Discuss relationships among Human Capital, Financial Capital, and net wealth.

NET WORTH VS NET WEALTH ????

A

mNPV = mortality weighted Net Present Value of future pension benefits (bt = benefits @ t).

77
Q

Losc: Discuss Financial stages of Life for individual.

A

Until the Pre-Retirement phase; life insurance + disability insurance is the solution to hedge risk because if the main income earner is lost, the whole family loses big time.

78
Q

Losd: Describe an economic Balance Sheet (to find net wealth, alors que net worth c’est via traditional balance sheet) .

NET WEALTH ??

A
79
Q

Losd: Describe an economic Balance Sheet (to find net wealth, alors que net worth c’est via traditional balance sheet) .

Capital types courbes (de croissance/décroissance) ???

A
80
Q

Lose: Discuss risks in relation to Human and Financial Capital.

A

+5) Liability Risk = legal liability.

6) Health Risk = illness/injury/long-term care costs (it reduces Human Capital).

81
Q

Losf: Describe types of (life) Insurance relative to personal financial planning.

USES OF LIFE INSURANCE ???

A
82
Q

Losf: Describe types of (life) Insurance relative to personal financial planning.

TYPES OF LIFE INSURANCE ???

A
83
Q

Losg: Describe the basic elements of a life insurance policy, and how insurers price a life insurance policy.

PRICING ELEMENTS ???

A

loading = sales commissions, profit margin, etc.

84
Q

Losg: Describe the basic elements of a life insurance policy, and how insurers price a life insurance policy.

CASH VALUE & POLICY RESERVES (WHOLE LIFE INSURANCES) ???

A

insurance value = how much the insurance company would have to pay out =/= payoff

85
Q

Losg: Describe the basic elements of a life insurance policy, and how insurers price a life insurance policy.

CALCULATING LIFE INSURANCE NEEDS ????

A

1) Human Life Value method = replace income.

2) Needs Analysis method = cover financial needs of survivor(s).

86
Q

Losf: Describe types of Insurance relative to personal financial planning.

TYPES OF OTHER NON-LIFE INSURANCE ???

A
87
Q

Losh: Discuss the use of Annuities in personal financial planning.

PARTIES TO AN ANNUITY ???

A
88
Q

Losi: Discuss the relative advantages & disadvantages of fixed and variable annuities.

A

+3) Advanced Life Deferred Annuity.
–> Hybrid between deferred & immediate fixed annuity (pure longevity insurance)

= BUY NOW, MAKE PMTS MUCH LATER IN LIFE.

89
Q

Losi: Discuss the relative advantages & disadvantages of fixed and variable annuities.

PMTS & TAXATION ISSUES ON ANNUITY PMTS ??? DISADVANTAGES ???

A
90
Q

Losj: Analyze and critique an insurance program (strategies with regard to risk).

A
91
Q

Losk: Discuss how allocation policy may be influenced by the risk characteristics of human capital.

A
92
Q

LosL: Recommend and justify appropriate strategies for asset allocation, and risk reduction, when given an investor profile (and its key inputs).

A

CFA 3 (5 decks)

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