Topic 1 The Investment Environment, Asset Allocation, Money Management and Industry Ethi

Question Answer
When looking at a return over a holding period HPR is Holding Period Return
When looking at a return over a holding period HPY is Holding Period Yeild
When looking at Annual HPR or HPY n = number of years of the investment
When looking at average returns AM is Arithmetic Mean Return
When looking at average returns GM is Geometric Mean Return
When rates of the return are the same for all years the AM and GM will be Equal
When rates of return are not the same for all years the AM will always be Higher then the GM
AM is best used as an "expected value" for an individual year
GM is the best measure of an asset;s long-term performance
The portfolio Management Process consists of what four steps Policy Statement, Examine current conditions, Implement Plans, Feedback Loop
Step one of the portfolio management process Policy Statements focus is Investors short-term and long-term needs, familarity with capital market history and expectations
Step two of the portfolio management process Examine current and projected financial, economic, political and social conditions focus is Short term and intermediate-term expected conditions to use in constructing a specific portfolio
Step three of the portfolio management process Implement the plan by constructing the portfolio focus is Meet the investor's needs at minimum risk levels
Step four of the portfolio management process is Feedback Loop this aims to Monitor and update investors needs, environmental conditions, evaluate portfolio performance
The importance of asset allocation relates to an investment strategy which is based on four decisions, what are these four decisions What asset classes to consider for investmentWhat Policy weights to assign to each eligible classWhat allocation ranges are allowed based on policy weightsWhat specific securites to purchase for the portfolio
According to research studies, most (905) of the overall investment return is due to What asset classes to consider for investment and what policy weights to assign to each eligible class not the selection of individual investments
Valuing Investment Company Shares – The NAV for an investment company is analogous to the share price of a corporation's common stock
Valuing Investment Company Shares – The NAV of the fund shares will increase as the value of the underlying assets (the fund security portfolio) increases.
Closed-End Investment Companies are Functions like any other public firmStock trades on the regular secondary marketThe fund generally doesn't issue or redeem shares once it is establishedThe price of the fund is different from its NAV
Open-End Investment Companies are Company continues to sell & repurchase shares after their initial public offerings.Fund stands ready to issue or redeem shares at the net assets value (NAV)Investors who buy/sell shares may pay sales charges (the load)Funds are called mutual funds
When investing in Alternative Assets basic concepts are Hedge Funds and Private Funds
When investing in Alternative Assets Management Structure is structured as a limited partnership rather than as a mutual fund to manage the commingled assets
When investing in Alternative Assets the fund "alpha" has abnormal returns generated by the fund, implying the superior performance by the fund management
Examples of ethical conflicts include Incentive compensation schemesSoft Dollar ArrangementsMarketing Investment Management

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