Investments

Question 1

What is the purpose of Securities Act 1933

Answer 1

To regulate Primary Markets and new issuers

Question 2

What is the purpose of Securities Act of 1934

Answer 2

To regulate Secondary markets and exchanges

Question 3

What is the purpose of the Investment Company Act 1940

Answer 3

For SEC to regulate investment companies as Open, Close and Unit Investment Trusts

Question 4

What is the purpose of Investment Advisor Act 1940

Answer 4

Have Investment Advisors register with the SEC or State

Question 5

What is the purpose for Securities Investros Protection Act of 1970

Answer 5

Established SPIC to protect investors from Brokerage firms failures. Does not cover bad investment decisions

Question 6

What was the pjs pose of Insider Trading and Securities Fraud Enforcement Act 1988

Answer 6

Defines an insider as anyone with info that is not available to the public. Insiders cannot trade on that info.

Question 7

What are the characteristics of T bills

Answer 7

Issued up to 52 weeks.
Denominations of $100 up to 5 million
Larger amount up for competitive bid

Question 8

What are the characteristics of commercial paper

Answer 8

Maturity up to 270 days or less
Uses to finance between companies
Does not have to register with the SEC
Denominations of $100k sold at discount

Question 9

What’s re the characteristics of bankers acceptance

Answer 9

For imports/exports
Maturities up to 9 months
Can be held up to maturity or traded

Question 10

What are the characteristic of Eurodollar

Answer 10

Deposits in foreign banks that are denominated in U.S. dollars

Question 11

What is the IPS and what it encompasses

Answer 11

Investment policy statement
RRTTLLU
Risk, return, time horizon, taxes, liquidity, law and regulation and unique circumstances of the client

Question 12

What is Affect Heuristic

Answer 12

Judging something based in non-financial issues

Question 13

Anchoring

Answer 13

Reference point event though there may be no logical relevance or is not pertinent to the issue in question

Question 14

Availability Heuristic

Answer 14

This may cause investors to overweight recent events of patterns while paying little attention to longer term trends

Question 15

Bounded rationality

Answer 15

Their rationality is limited by the available information

Question 16

Bounded rationality

Answer 16

Their rationality is limited by the availabile info

Question 17

Confirmation Bias

Answer 17

People tend to filter info and focus on info supporting their opinions

Question 18

Disposition effect

Answer 18

Investors create mental accounts when they purchase stocks and continue to mark their value to purchase prices even after market prices changed

Question 19

Familiarity Bias

Answer 19

Investors tend to overestimate or underestimate risk of investments which they are unfamiliar/familiar with

Question 20

Gambler’s Fallacy

Answer 20

Investors often have incorrect understanding of probabilities with lead to faulty predictions

Question 21

Herding

Answer 21

People tend to follow the masses

Question 22

Hindsight bias

Answer 22

People tend to use the past to predict the future

Question 23

Ilusión of control bias

Answer 23

Tendency of people to overestimate their ability to control events

Question 24

Overconfidence Bias

Answer 24

Investor only listens to their selves

Question 25

Prospect theory

Answer 25

Giving to much weight to recent events

Question 26

Similarity heuristic

Answer 26

Rescisiones made when an apparently similar situations occurs even though the situations may have very different outcomes

Question 27

Naïve Diversification

Answer 27

When inversor thinking diversifying enough is when they are using all their possible options

Question 28

Representativeness

Answer 28

Thinking a good company without regard to investment analysis

Question 29

What are the risks that are systematic

Answer 29

``` PRIME Purchasing Power Reinvestment Risk Interest Rates Market risk Exchange rate risk ```

Question 30

What are the unsystematic risks?

Answer 30

ABCDEFG | Accounting risk, Business risk, Country risk, Default risk, Executive risk, Financial Risk, Government/regulation risk

Question 31

What does the CML use as measure of risk

Answer 31

Standard deviation = total risk

Question 32

When is appropriate to use treynor or alpha?

Answer 32

When the portfolio is well-diversified which beans you may use B.

Question 33

How do you know when a portfolio is a well-diversified portfolio

Answer 33

You find the r-squared= correlation tot be power of 2 and if it’s equal or higher of .70 it is a well diversified portfolio

Question 34

When is appropriate to use Sharpe ratio

Answer 34

When it is not a well-diversified portfolio because it uses total risk (standard deviation)

Question 35

How do Mutual funds report returns?

Answer 35

Using time-weighted average

Question 36

What is arbitrage pricing

Answer 36

It’s a multi-factor middles that attempts to explain based on factors. Anytime a factor has. Value of 0, it has no impact Attempts to take advantage or price Imbalance Inputs are inflation, risk premium, expected return. beta and STD are not factors

Question 37

What is the dividend payout ratio

Answer 37

= common stock dividend / earnings per share

Question 38

What is used in fundamental analysis

Answer 38

Ratio analysis, financial statement analysis

Question 39

What does it involve technical analysis

Answer 39

Determining resistance levels and support levels, monitoring supply and demand, analysis of trading volume

Question 40

What is charting

Answer 40

Plotting hair rocks stick prices to determine trading pattern and adding 50, 100 and 200 day moving average with historical pricing

Question 41

What is short interest

Answer 41

When short selling is done so pent up demand will come back to purchase stocks back

Question 42

What is the Dow Theory

Answer 42

Signals an end to a bull or bear market. It does not indicate when it will happen just confirms that it had ended

Question 43

What is the breadth of the market?

Answer 43

Measure the number of stock that increase in value versus the number of stocks that decline in value

Question 44

What is strategic asset allocation

Answer 44

Assessing various assets mixes and their likely outcomes and redone every few years. It is an active allocation strategy

Question 45

What is tactical waste allocation?

Answer 45

It is an active asset allocation strategy abs done frequently. Determines expected returns for assets clases and then rebalances to take advantage of expected returns

Question 46

Are US treasury securities tax exempted at what level?

Answer 46

State and local

Question 47

What rating are investment grade and junk bonds from Moody’s bong rating agency?

Answer 47

Aaa - Baa good | Ba and below junk

Question 48

What’s re the rating for investment grade and junk bonds for Standards and Poors bond rating agency?

Answer 48

AAA - BBB good | BB and below are junk

Question 49

Name the types of muni bonds and their characteristics

Answer 49

General obligation bond (backed by the US Gov) Revenue bind (backed by revenue of a project) Private activity bond (stadiums)

Question 50

Name the two insurancecompanies that insure muni bonds

Answer 50

American municipal bond assurance corp | Municipal bond insurance association corp

Question 51

Characteristics of bind duration

Answer 51

The bigger the duration the more price sensitive or volatile the bind is to interest rates Duration is the moment in time where the investor is immunized from interest reinvestment risk Bond portfolio should ah e the matching duration tot he tile horizon of the investor to effectively immunize the investor