CRPC Modules (1-3) Questions with verified answers
4 Rules of thumb for value investing by Benjamin Grham Ans✓✓✓ - Buy stocks
for 2/3rds or less of their net current assets
- Earnings price ratio should be twice the current AAA bond yield
- Dividend yield should be no less than 2/3rds of the AAA bond yield
- Avoid companies that are currently losing money or that have more than 60%
debt-to-total-assets
At a minimum, what five elements should every investment policy contain?
Ans✓✓✓ Goals, Risk, Asset Allocation, Strategies, Periodic Review
Balanced Funds Ans✓✓✓ invest in both stocks and bonds, with the primary
objectives of conserving principal, providing income, and long-term growth
Barbell Strategy Ans✓✓✓ Funds are allocated to bonds with a short term to
maturity as well as to bonds with a long term to maturity.
Core Satellite asset allocation Ans✓✓✓ 70-80% invested in broad index fund or
etfs
- remaining satellite consists of actively managed MFs in niches such as sector
funds or alt investments like hedge funds
Describe the original intent of the Social Security system: Ans✓✓✓ Social
Security was created in 1935 with the intent of protecting families from poverty
after a worker's retirement. It was established as a social insurance program,
where benefits are earned by contributing to the system during the course of
employment by means of a payroll tax, or FICA (Federal Insurance Contribution
Act).
, Describe the purpose of asset allocation Ans✓✓✓ to appoint funds in a way that
meets the client's investment goals and dampens the effects of periodic market
fluctuations
Explain Beta Ans✓✓✓ Bet is the term referring to a security's volatility measured
to the market. The entire markets beta is 1. If security's bet is > 1 it is more
volatile than the market. If < 1 the security is less volatile than the market.
Explain Duration Ans✓✓✓ Duration is a term used to describe the price
sensitivity of a bond or bond portfolio to changes in interest rates. Higher
duration = higher price volatility
Explain Standard Deviation Ans✓✓✓ A statistical measure of total risk that
considers the dispersion of all data points around the average. With investments,
higher standard deviation means higher risk.
Explain the benefits of the buy and hold strategy Ans✓✓✓ this strategy with a
diversified stock portfolio has produced returns at least as good as strategies
based on market timing and trading. Also results in lower transaction costs
Explain the concept of correlation and how it relates to portfolio management
Ans✓✓✓ Correlation pertaining to a portfolio is referring to the degree in which
two securities move relative to each other. Perfect correlation is +1 which means
they move in synch together. -1 is the opposite where these two securities move
opposite and balance each other out. Diversification is the key component
Explain the effect of volatility of security prices and factors that can alleviate
these concerns Ans✓✓✓ Two factors that can alleviate these concerns are time
4 Rules of thumb for value investing by Benjamin Grham Ans✓✓✓ - Buy stocks
for 2/3rds or less of their net current assets
- Earnings price ratio should be twice the current AAA bond yield
- Dividend yield should be no less than 2/3rds of the AAA bond yield
- Avoid companies that are currently losing money or that have more than 60%
debt-to-total-assets
At a minimum, what five elements should every investment policy contain?
Ans✓✓✓ Goals, Risk, Asset Allocation, Strategies, Periodic Review
Balanced Funds Ans✓✓✓ invest in both stocks and bonds, with the primary
objectives of conserving principal, providing income, and long-term growth
Barbell Strategy Ans✓✓✓ Funds are allocated to bonds with a short term to
maturity as well as to bonds with a long term to maturity.
Core Satellite asset allocation Ans✓✓✓ 70-80% invested in broad index fund or
etfs
- remaining satellite consists of actively managed MFs in niches such as sector
funds or alt investments like hedge funds
Describe the original intent of the Social Security system: Ans✓✓✓ Social
Security was created in 1935 with the intent of protecting families from poverty
after a worker's retirement. It was established as a social insurance program,
where benefits are earned by contributing to the system during the course of
employment by means of a payroll tax, or FICA (Federal Insurance Contribution
Act).
, Describe the purpose of asset allocation Ans✓✓✓ to appoint funds in a way that
meets the client's investment goals and dampens the effects of periodic market
fluctuations
Explain Beta Ans✓✓✓ Bet is the term referring to a security's volatility measured
to the market. The entire markets beta is 1. If security's bet is > 1 it is more
volatile than the market. If < 1 the security is less volatile than the market.
Explain Duration Ans✓✓✓ Duration is a term used to describe the price
sensitivity of a bond or bond portfolio to changes in interest rates. Higher
duration = higher price volatility
Explain Standard Deviation Ans✓✓✓ A statistical measure of total risk that
considers the dispersion of all data points around the average. With investments,
higher standard deviation means higher risk.
Explain the benefits of the buy and hold strategy Ans✓✓✓ this strategy with a
diversified stock portfolio has produced returns at least as good as strategies
based on market timing and trading. Also results in lower transaction costs
Explain the concept of correlation and how it relates to portfolio management
Ans✓✓✓ Correlation pertaining to a portfolio is referring to the degree in which
two securities move relative to each other. Perfect correlation is +1 which means
they move in synch together. -1 is the opposite where these two securities move
opposite and balance each other out. Diversification is the key component
Explain the effect of volatility of security prices and factors that can alleviate
these concerns Ans✓✓✓ Two factors that can alleviate these concerns are time
