A. Portfolio Management: An Overview

Question 0

Defined benefit

Answer 0

An annual amount

Question 1

Defined benefit pension plans

Answer 1

Companies pay employees a defined benefit. Companies bear the investment risk.

Question 2

Institutional Clients

Answer 2

Defined benefit pension plans
Endowments and foundations
Banks 
Insurance companies
Investment Companies
Sovereign Wealth Funds

Question 3

Endowments and foundations

Answer 3

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Question 4

Banks

Answer 4

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Question 5

Insurance Companies

Answer 5

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Question 6

Investment Companies

Answer 6

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Question 7

Sovereign wealth funds

Answer 7

Bonds???

Question 8

The first steps of the portfolio management process

Answer 8

Understand the needs of your clients

Create an investment policy statement

Question 9

Second steps of the portfolio management process

Answer 9

Security Analysis
Portfolio Construction
Monitoring
Performance Measurement Stages

Question 10

Investment products to use in portfolio creation

Answer 10

Mutual Funds
ETF’s
Hedge Funds
Private Equity Funds

Question 11

The financial needs of defined benefit pension plan investors

Answer 11

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Question 12

The financial needs of endowments and foundations

Answer 12

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Question 13

The financial needs of banks

Answer 13

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Question 14

The financial needs of insurance companies

Answer 14

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Question 15

The financial needs of hedge funds

Answer 15

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Question 16

The financial needs of Investment companies

Answer 16

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Question 17

The financial needs of sovereign wealth funds

Answer 17

???

Question 18

Defined contribution pension plan

Answer 18

Contributions are defined by the employee and company. The employee bears the risk.

Question 19

Mutual funds

Answer 19

Professionally managed investment pool

Investors: pro-rata claims on income and value

Question 20

Pooled investment products

Answer 20

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Question 21

Portfolio approach provides investors with a way to reduce the risk associated with their wealth without necessarily decreasing their expected rate of return

Answer 21

Evaluating individual securities in relation to their contribution to the investment characteristics of the whole portfolio

Question 22

What do portfolios offer?

Answer 22

Equivalent expected returns with lower overall volatility of returns

Question 23

A measure that represents volatility of returns

Answer 23

Standard deviation

Question 24

Standard deviation

Answer 24

A measure of dispersion in the same units as the original data The positive square root of the variance

Question 25

The probability weighted average

Answer 25

The expected value

Question 26

Variance

Answer 26

The expected value (the probability-weighted average( of squared deviations from a random variables expected value

Question 27

Dispersion

Answer 27

The variability around the central tendency

Question 28

Volatility

Answer 28

The standard deviation of the continuously compounded returns on the underlying asset

Question 29

Trade off between risk and reward in laymens

Answer 29

Return per unit of risk

Question 30

Invest shares as equally weighted in laymens

Answer 30

Invest the same dollar amount in each security for each quarter

Question 31

Equally weighted portfolio returns are the average returns of the individual shares and

Answer 31

The SD of an equally weighted portfolio is not simply the average of the SD of individual shares

Question 32

Equally weighted portfolios

Answer 32

Returns are averaged but SD's are not

Question 33

Critical ideas about portfolios

Answer 33

Portfolios affect risk more than returns

Question 34

Portfolio characteristics

Answer 34

Help avoid effects of downside risk associated with investing in a single companies shares

Question 35

A simple measure of the value of diversification

Answer 35

Diversification ratio

Question 36

Diversification ratio

Answer 36

Calculated as the ratio of the standard deviation of the equally weighted portfolio to the standard deviation of the randomly selected security.

Question 37

The diversification ratio of the portfolios SD to the individual assets SD meausures...

Answer 37

The risk reduction benefits of an equal weighting method

Question 38

Simple portfolio construction method

Answer 38

Equal weighting

Question 39

Lower diversification ratio indicates

Answer 39

Greater Risk reduction

Question 40

The composition of portfolios matters

Answer 40

Rather, the risk to return profile

Question 41

Portfolios aren't necessarily for downside protection

Answer 41

Because correlations and complements can move out of the investors favor so diversification benefits may be small a la 2009. Rather, diversification does not provide the same level of risk reduction during turmoil.

Question 42

Why do portfolios reduce risk?

Answer 42

Because combining securities whose returns do not move together provides diversification

Question 43

Risk reduction

Answer 43

Aka volatility reduction