Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

CFA > SAMPLES > Flashcards

SAMPLES Flashcards

(71 cards)

Start Studying
1
Q

have current annual expense and inflation, what is required return based on?

A

expense * ( 1 + inflation ) and use it as PMT in calculator

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

have long term plans to donate X million, how to determine required return?

A

consider donations in real dollars as FV using calculator

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what constraint is impacted for individual investors if they are board members and own a part of company

A

legal regulatory - timing and disclosure of sales should be considered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

low stock basis to be included in which constraint on IPS?

A

taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

real estate owned but not considered as asset base. in which contraint of IPS to be mentioned ?

A

unique circumstances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

do not mess University’s operating budget with the budget of

A

endowment !!!!!!!!!!!!!!!!!!!!!!!!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

do not forget to include in liquidity requirement for institutions (in addition to spending) the

A

investment management expense !

spending + expense (compounding not needed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

adoption of 3 yr average spending rule will impact ability to take risk ?

A

yes, it will allow taking more risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

rising rates impact on liquidity requirements from annuities ?

A

rising liquidity needs to meet higher payments to new clients

higher liquidity needs to meet surrender demands

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

smaller duration impact on ability to take risk?

A

smaller ability to take risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

impact on surplus in risking interest environment

A

negative - if duration of assets is larger than liabilities = valuation risk

negative - if large exposure to mortgages (smaller prepayment CF) = CF volatility risk

negative - higher probability of defaults = credit risk

positive - reinvesting at higher rates = reinvestment risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Corridor - fixed range of ±10% of the target weight of 50% of equities — what is the range?

A

50 +/-5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

MAKE SURE TO HOLBATE AT ALL

A

NUMBERS FROM TEST CONDITIONS !!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

two formula version for information ratio

A

net of fees and gross of fees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

bias of buying historical top performers

A

representativeness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

bias of not selling recent lossers

A

regret avoidance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

when having investors with liabilities keep in TOP of mind

A

ALM !!!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

investment rating, which is better ? BBB or BB

A

BBB is better quality !!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

for mortgage backed securities ALWAYS keep in mind

A

PREPAYMENT and REINVESTMENT risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

when interest compounded continuously do not forget to use

A

‘e’ in claculation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

impact of convenience yield on non-arbitrage range

A

lower range of the non-arbitrage band is decreased by convenience yield

this is because shorting physical will force the short to compensate the commodity lender for the lost convenience yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

shares are held by institutions which frequently provide liquidity for

A

(electronic)crossing network orders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Higher volumes toward the end of the day would make a

A

front-loaded implementation shortfall strategy (ISS) less suitable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

dont mess what values when calculating rebalancing (CPPI, constant mix)

A

calculate the necessary trade based on new equity value (not historical) !!!!!!!!!!!!!!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
when analyzing fixed income managers where to find value added from predicting interest
in interest rate MANAGEMENT effect | NOT in interest rate effect
26
The Interest Rate Management Effect - 3 components
(returns due to - duration, - convexity, and - yield-curve shape change
27
expected interest rate effect is based on
the implied forward rates in the term structure of Treasury securities calculated at the beginning of the period.
28
unexpected interest rate effect is the
difference between the actual realized return of the portfolio and the expected interest rate effect. e.g. unexpected change in yields or a twist in the yield curve
29
when calculating outcome from hedging, use
amount of currency hedged, not number of futures in calculation of profit from hedge
30
implied assets of individuals at retirement age reach
zero level
31
implied liabilities for individuals at retirement reach
maximum then gradually decline along their life expectancy
32
3 yr average vs geometric
A single extraordinary return 3 years ago could still result in a large change in spending in the current year.
33
operating asset beta =
(total asset beta - weighted pension beta) / operating asset weight total asset beta = old $ beta of capital equity X new weight of equity in capital (after inclusion of pension liabilities)
34
when 2 numbers seem applicable, first thing to do is to
read condition and exhibits in VERY detail
35
grinold croner model is trying to determine
Equity compounded annual growth rate
36
when looking at taylor rule result, do compare it with
EXISTING INTEREST RATE (NOT NEUTRAL)
37
contrarian style seek
low P/B | little or no earnings
38
roll yield declines with
decline in convenience yields | increase in interest rates
39
in individual IPS if something happens in 1 year it is a must to have
additional stage in multistage long term horizon
40
limitations of cyclical indicator approach
- false signals - currency of data and revisions - economic sectors not reported - changes in relationships among economic variables
41
why corporate bonds are good for contingent immunitaiton ?
they are bad (expensive) given - higher cost due to default risk - subject to credit SPREAD risk - less liquid
42
what rate to use in discounting of liabilities in immunization
internal rate of return on the immunized postfolio (not zero coupon rate)
43
ultimate goal while verifying beta hedging
determining if resulting beta from asset+hedge is close to target beta
44
benchmark quality - two indicators of quality
relative beta closer to 1 | tracking error closer to 0
45
managers value added function of (normal, market, actual) =
actual - normal portfolio
46
if investor buys something regardless P/E, the type of investor may be
market oriented (not value not growth)
47
A shrinkage estimator is a
weighted average of correlation (or covariance) matrices created from at least two different correlation (or covariance) matrices generated from different sourc
48
what the hell is functional duration ?
key rate duration !!!!! lol
49
return requirement calculation - TRAPS FOR MORONS LIKE ME
1. make sure all expenses are for the next year (apply inflation as needed) 2. add/multuply inflation rate to the required preinflation rate to make sure return will offset inflation - DO THIS REGARDLESS OF INFLATION CONSIDERED IN STEP ONE !!!!
50
for couples time horizon, do not forget to
add extra stage for living alone after death of spouse
51
why using historical data in monte carlo good idea?
not good, better to also include capital market expectations
52
impact on maintaining the real value of portfolio for investor who decides to take less risk
less risk => less return => lower portfolio growth.
53
as donations increase >
a lower proportion of invested assets is required to meet current spending needs, so endowment can assume greater risk
54
H model
V = D/(R-GL) * ( 1+GL + N/2* (GS- GL) )
55
when calculating monthly VAR watch the
periods of time used... is return or standdev MONTHLY ? dont be moron to miss this.
56
interest rate management = components
duration, convexity, and yield curve slope changes
57
contraint impaired if investor outlives the retirement annuity
new stage in the time horizon
58
in IPS liquidity needs usually focus on
near term needs (not those happening in 10+ years at retirement, etc)
59
correlation - asset only vs ALM
in AO - investments needs to have low corelation among them in ALM - investments needs to have high correlation to liabilities
60
DC benefits for employer
- no responsibility to set objectives and constraints - no risk of investment results - future pension obligations are more stable and predictable. - no pension liabilities on balance sheet - fiduciary duties limited to providing a wide range of investment choices and periodically evaluating them
61
DC benefits for employees
- can choose a risk and return objective reflecting his or her own personal financial circumstances, goals, and attitudes toward risk. - assets are more readily portable. - employees are immediately vested. - do not present early termination risk, i.e., the risk that the plan is terminated by the plan sponsor. - can re-balance and re-allocate investments. - reduce participants’ exposure to employer's financial condition. - account balances legally belong to participants
62
duration of the call (based on delta and underlying) =
delta call option X duration underlying X price underlying / price of call option
63
if both duration (or beta) and $ exposure need to be adjusted via futures, avoid
double adjustment (i.e. lower duration 2 times for the portion of $ exposure which need to be reduced !!!!!! )
64
order of transactions --- fair dealing vs priority of transactions
fair dealing - order of transactions for different clients | priority of transactions - order of transactions own vs clients
65
steps in risk management
(1) set policies and procedures, (2) define risk tolerance, (3) identify risks, (4) measure risks (5) adjust the level of risk.
66
in correlation calculations, do not mess
variante with standard deviation !!!
67
bond yield plus risk premium
10yr treasury + equity risk premium
68
is weights not given when you calculate standdev for a sum of 2 risks, seek to replace weights with
betazzzzzzz
69
when comparing value of different options strategies, you must
actually calculate each profit - to make sure everything is right !!!
70
PAY FIXED + COLLAR --- WHAT TO NOT FORGET WHEN CALCULATING EFFECTIVE RATE
CONSTANT ADDED TO LIBOR FROM THE FLOATING RATE
71
WHEN CALCULATING NUMBER OF CTD FUTURES NEEDED, USE THE PRICE OF
CTD BOND, NOT FUTURES CONTRACT PRICE

CFA (17 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions