Exam 1 Flashcards
(82 cards)
Measure of Risk
Standard Deviation
Measure of diversifiable risk
Alpha
Measure of non-diversifiable risk
Beta in the Capital Asset Pricing Model
Facilitates U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued and traded in the U.S. as if it were the foreign security itself.
American Depositary Receipts (ADRs)
Major disadvantage of a C Corporation is that
Shareholders (owners) are taxed twice. Must first pay taxes at the corporate level. Shareholders must then pay personal income taxes on any income they receive from the corporation in the form of dividends
Currency risk is particularly ____ for short-term investors
Acute (present or experienced to a severe or intense degree)
The possibility that changes in exchange rates between currencies will undermine the value of foreign investments for U.S. investors
Currency Risk
If an investment advisor’s only client is a private fund (hedge fund) that has less than $150M in AUM that has 100 or fewer investors, what is their registration requirement?
They are an exempt reporting advisor (ERA) and are not required to register with the SEC, but must notice file with the state Administrator(s) and pay a fee
A form of asset allocation that is based on the belief that markets are NOT efficient and that market timing can be beneficial. For example, an investor who believes that interest rates are going to rise soon might reduce the number of fixed-income securities in his portfolio
Tactical asset allocation
A person who believes that the markets are _________ _______ is more likely to use a passive approach to investing, such as strategic asset allocation or indexing. Some proponents of the ______ ______ hypothesis do believe that fundamental analysis can be a useful tool in identifying investments that will outperform the market.
inherently efficient (the efficient market hypothesis)
When bond prices fall, what will happen to the yield-to-maturity and the yield-to-call?
They will both rise
_____ investments offer tax breaks that mutual funds cannot offer. One of the largest tax breaks is the interest deductions on loans
Real estate
An investment adviser representative has been given a client’s username and password in order to access her brokerage account. The client wants the IAR to have the ability to execute trades and withdraw cash to pay the client’s bills. Does this constitute discretion?
Yes, since the IAR is able to withdraw funds and execute trades
Involves an analysis of a company’s financial statements (i.e. balance sheets and income statements) in order to make investment decisions.
Fundamental analysis
Uses pricing trends and patterns to make investment decisions.
Technical analysis
Involves projections of future cash flows (e.g. corporate earnings, bond interest payments) and uses the present value formula to discount them back to their present value
Discounted cash flow modeling
Return calculation that eliminate biases caused by the inflow or outflow of investor money. It is often used to compare the performance of money managers.
Time-weighted
Return calculation that provides a better idea of how an individual investor has done over time by eliminating the biases caused by superior performance in one year or inferior performance in another.
Dollar-weighted
U.S. govt bonds would not be subject to which risks?
Credit risk or currency risk, unless the investor had purchased them with foreign currency
Do passive asset allocation strategies alter a portfolio in anticipation of an economic event?
No - active asset allocation strategies do
Buyers of which option have the right to buy stock at the strike price?
Calls
Buyers of which option have the right to sell stock at the strike price?
Puts
An IA may charge a client an investment advisory fee for rendering investment advice while receiving compensation for effecting securities transactions related to such advice
Only if disclosed to the client
Par
$1000
