Investment Planning

Question 1

Investment Risk formula

Answer 1

Systematic risk + Unsystematic Risk= total risk

Question 2

Systematic Risk

Answer 2

CANT be eliminated
qualified by the beta statistic

PRIME
Purchasing Power Risk
Reinvestment Risk
Interest Rate Risk
Market Risk
Exchange Rate Risk

Question 3

Unsystematic Risk

Answer 3

can be eliminated through diversity (firm specific risk)

Business Risk
Financial Risk
Default/ Credit Risk
Regulation Risk
Sovereignty Risk

Question 4

Risk

Answer 4

the greater the risk the greater the expected return
risk is measured by standard deviation (SD)
lower SD will provide lower returns with limited downside risk

Question 5

Distribution Curve

Answer 5

analysis of expected returns around average return
illustrates all possible outcomes with avg outcome directly in the middle shown as barX

Question 6

Standard Deviation returns +/-

Answer 6

probability of a return falling within +/- 1 of SD is 68%
probability of a return falling within +/- 2 of SD 95%
probability of a return falling within +/- 3 of SD 99%

Question 7

Skewness
Mesokurtic
Leptokurtic
Platykurtic

Answer 7

tail dictates direction of skewness

M-normal (m mean- normal)
L- Slender (lepto-lypo)
P-Broad (platypus)