Risk and Reward of AI

Question 1

Operating expenses

Answer 1

are non-capital outlays that support rental of the property and can be
classified as fixed or variable.

Question 2

Gates

Answer 2

are fund restrictions on investor withdrawals.

Question 3

Asset pricing model

Answer 3

is a framework for specifying the return or price of an asset based on its risk, as well as future cash flows and payoffs.

Question 4

Capital asset pricing model (CAPM)

Answer 4

provides one of the easiest and most widely understood examples of single-factor asset pricing by demonstrating that the risk of the overall market index is the only risk that offers a risk premium.

Question 5

Market risk

Answer 5

refers to exposure to directional moves in general market price levels.

Question 6

Closed-end mutual fund

Answer 6

structures provide investors with relatively liquid access to the returns
of underlying assets even when the underlying assets are illiquid.

Question 7

Analytical solutions

Answer 7

arise when the model can be exactly solved using a finite set of common mathematical operations.

Question 8

Passive investing

Answer 8

tends to focus on buying and holding securities in an effort to match the risk and return of a target, such as a highly diversified index.

Question 9

Asset allocation

Answer 9

refers both to the process followed by a portfolio manager to determine the distribution of an investor’s assets to various asset classes and to the resulting portfolio weights.

Question 10

Real assets

Answer 10

are investments in which the underlying assets involve direct ownership of nonfinancial assets rather than ownership through financial assets, such as the securities of manufacturing or service enterprises.

Question 11

Private equity

Answer 11

includes both equity and debt positions that, among other things, are not publicly traded.

Question 12

Hedge funds

Answer 12

are a privately organized investment vehicle that uses its less regulated nature to generate investment opportunities that are substantially distinct from those offered by traditional investment vehicles, which are subject to regulations such as those restricting their use of derivatives and leverage.

Question 13

idiosyncratic risk

Answer 13

is a firm or fund specific risk that is uncorrelated with the market performance

Question 14

risk-factors analysis

Answer 14

1) recognizes the problem of correlation b/n some asset classes
2) organizes and simplifies a range of factors important for investor.

Question 15

risk-factors a linked to economic variables such as

Answer 15

interest rate
inflation
credit 
economic growth 
liquidity

Question 16

Beta

Answer 16

• response of an asset to the systematic risk of the market

- tendency of a stock price to move in relationship to the performance of the entire market

Question 17

persistent alpha

Answer 17

is positive over several non-overlapping time periods

Question 18

investment opportunity evaluation elements

Answer 18

1) return are persistent across various scenarios and market environment
2) understand return distributions
3) economic reasoning behind returns