Investment Management - Portfolio Management
2 standard deviations either way cover about __%
95
SML is essentially __
CAPM
The tangent line added after James Tobin added bonds to Markowitz's bullet is known as the ___
CML
As the number of stocks in a portfolio increases, the portfolio's systematic risk:
Can increase or decrease
Economics professor at Yale, collaborated with Markowitz
James Tobin
A top-down security analysis begins by:
Examining economic conditions
Only includes you if you've looked for a job in the past year
U-6
James Tobin adds __ to Markowitz's model
bonds
A portfolio to the right of the market portfolio on the CML is a __ portfolio
borrowing
Netflix moves 1.08% for every 1% move of the market. Therefore the beta of Netflix is
1.08
Risk-free rate is most commonly used as the __
10 year T-Note
Hedge funds most likely:
Are not offered for sale to the general public
Compared to ETF's, open-end mutual funds are typically associated with lower:
Brokerage costs
Compared to investing in a single security, diversification provides investors a way to:
Decrease the volatility of returns
Portfolio diversification is least likely to protect against losses:
During severe market turmoil
__ __ __ was the edgy side of the bullet
Edgy
A long time horizon and low liquidity requirements best describe the investment needs of an:
Endowment
Alpha equation
Expected Return - Required Rate of return
Which of the following is least likely to be considered an appropriate schedule for reviewing and updating an investment policy statement?
Frequently based on the recent performance of the portfolio
Unemployment rates are announced the first __ of every month
Friday
Father of Modern Portfolio Theory (1952)
Harry Markowitz
Low risk-tolerance and high liquidity requirements best describe the typical investment needs of a
Insurance company
Which kind of correlation is best (in a portfolio)?
Negative
CAPM equation
Required ror = rfr + beta(expected return of market - rfr)
Measures beta vs. Expected return
SML
Non-diversifiable risk, can never get rid of it
Systematic Risk
In a defined contribution plan:
The employee accepts the investment risk
In a defined benefit pension plan:
The plan sponsor promises a predetermined retirement income to participants
Official unemployment rate, includes you if you've looked for a job in past 3 months
U-3
What is the risk measure associated with the capital market line (CML)?
Total Risk
Diversifiable risk, can get rid of it by owning more assets
Unsystematic risk
Who came up with CAPM?
William Sharpe
We are all risk-__
averse
Securities that plot on the SML do/do not have value
do
When alpha = 0, stock is in __
equilibrium
If the beta is greater than 1, we want a __ return
higher
Standard deviations will never be perfectly __, since you can only lose 100% and can gain more than 100%
normal
Negative alpha indicates that the stock is __
overvalued
Topin's theory involved __ the market. This was the birth of __ __
owning, passive investment
Standard deviation is much greater on __-cap stocks than compared to counterpart
small
Beta measures __ risk
systematic
Not high risk, high return, but high __ risk, high return
systematic
Total risk equals
systematic + unsystematic
Positive alpha indicates that the stock is __
undervalued