SOA Exam IFM Questions with Complete Solutions 100% Verified| Latest Update Graded A+
Without news results in an overreaction, an initial jump in prices and then it falling back down
Performance fund managers:
Median mutual fund
Does industry have positive value?
Active management performance?
Are past performances good at predicting future ones? Median mutual funds destroy value
Industry still has positive value since those that create value hold more money
Active management does not result in more profit
Superior past performance is not a good predictor
Market Portfolio Inefficiency (4 reasons why this can happen) Proxy Error: Lack of
competitive price data, market proxy cannot be made
Behavioral Biases: systematic biases to hold inefficient ports
Alternative Risk Preferences: some preferences other than volatility and expected return
,Non-Tradeable Wealth: Investors are exposed to risks outside of portfolio. May choose to invest
less in their respective sectors. Human capital risk
Behavioral factors that result in Under-diversification Familiarity bias: favoring investments
in familiar companies
Relative Wealth Concerns: caring more about how they are doing compared to their peers
Behavioral issues that result in Excessive Trading and Overconfidence Overconfidence Bias:
overestimation of market knowledge. More often Men
Sensation seeking: making more trades to feel a rush
Systematic Trading Biases (3 Biases) Disposition Effect: hold onto losers and sell winners
Investor Attention, Mood, Experience: influenced by attention-grabbing news/events, the
weather, sports events, stock experiences in the past (generational)
Herd Behavior: Information cascade effect (believe peers), relative wealth concerns
(outperform peers), investment manager reputations
Which of the following is coherent, often not coherent, and is definitely not coherent
VaR
TVaR
, Variance and Semi-Variance TVaR is always coherent
VaR is usually not coherent
Variance and Semi-Variance definitely not coherent
Pre-Money vs Post-Money Pre-Money valuation is the value right before more funds are
added
Post-Money valuation is the value after more funds are added
Advantages and Disadvantages of a Company doing an IPO (2 each) Greater Liquidity and
Better Access to Capital
Dispersed Equity holdings and compliance with SEC is costly and time-consuming
Best-Efforts vs Firm Commitment vs Auction IPOs Best Efforts is where you get the full-faith
of the underwriters to sell at the best price, not any necessary financial commitments
Firm Commitment is where all shares are sold at the offer price after Underwriter buys them for
a slight discount
Auction IPOs is where shares are sold directly through an auction system
IPO puzzles (4 puzzles) Average IPO price is too low
New Issues are more cyclical
Without news results in an overreaction, an initial jump in prices and then it falling back down
Performance fund managers:
Median mutual fund
Does industry have positive value?
Active management performance?
Are past performances good at predicting future ones? Median mutual funds destroy value
Industry still has positive value since those that create value hold more money
Active management does not result in more profit
Superior past performance is not a good predictor
Market Portfolio Inefficiency (4 reasons why this can happen) Proxy Error: Lack of
competitive price data, market proxy cannot be made
Behavioral Biases: systematic biases to hold inefficient ports
Alternative Risk Preferences: some preferences other than volatility and expected return
,Non-Tradeable Wealth: Investors are exposed to risks outside of portfolio. May choose to invest
less in their respective sectors. Human capital risk
Behavioral factors that result in Under-diversification Familiarity bias: favoring investments
in familiar companies
Relative Wealth Concerns: caring more about how they are doing compared to their peers
Behavioral issues that result in Excessive Trading and Overconfidence Overconfidence Bias:
overestimation of market knowledge. More often Men
Sensation seeking: making more trades to feel a rush
Systematic Trading Biases (3 Biases) Disposition Effect: hold onto losers and sell winners
Investor Attention, Mood, Experience: influenced by attention-grabbing news/events, the
weather, sports events, stock experiences in the past (generational)
Herd Behavior: Information cascade effect (believe peers), relative wealth concerns
(outperform peers), investment manager reputations
Which of the following is coherent, often not coherent, and is definitely not coherent
VaR
TVaR
, Variance and Semi-Variance TVaR is always coherent
VaR is usually not coherent
Variance and Semi-Variance definitely not coherent
Pre-Money vs Post-Money Pre-Money valuation is the value right before more funds are
added
Post-Money valuation is the value after more funds are added
Advantages and Disadvantages of a Company doing an IPO (2 each) Greater Liquidity and
Better Access to Capital
Dispersed Equity holdings and compliance with SEC is costly and time-consuming
Best-Efforts vs Firm Commitment vs Auction IPOs Best Efforts is where you get the full-faith
of the underwriters to sell at the best price, not any necessary financial commitments
Firm Commitment is where all shares are sold at the offer price after Underwriter buys them for
a slight discount
Auction IPOs is where shares are sold directly through an auction system
IPO puzzles (4 puzzles) Average IPO price is too low
New Issues are more cyclical
