Portfolio Management

Question 1

Linear regression requires the analyst to plot combinations of the asset’s return and the market return, and then

Answer 1

drawing a line through the points such that it minimises the sum of squared deviations from the line.

Question 2

A stock plotted below the Security Market Line:

Answer 2

Is overpriced

Question 3

limitation of the Treynor ratio

Answer 3

It does not work for negative beta assets

Question 4

Smart Beta strategies focus on factors such as

Answer 4

value, momentum or dividend characteristics. Compared to traditional, passive funds they tend to have higher turnover and higher management fees

Question 5

money market mutual fund and bond mutual fund,

Answer 5

> the maturity is as short as overnight and rarely longer than 90 days.
bonds with maturities as short as one year and as long as 30 years.

Question 6

The core portfolio and the satellite portfolio

Answer 6

> does form the majority of assets, and is managed on a passive basis.
The aim is to earn the long term systematic risk premium in a tax efficient manner.

> aims to generate high active return, with no regard for the benchmark.