Portfolio Management Final Exam
Questions and All Correct Answers.
If you believe interest rates are going down: - Answer Increase Duration
Extend maturity.
Shift towards low/zero coupons.
Invest all available cash
If you believe interest rates are going up: - Answer Decrease Duration
Shorten maturity.
Shift towards high coupons.
Sell off some bonds, allow some bonds to mature, and increase cash. Cash has a zero duration.
Treasury Bond - Answer Your required rate of return needs to compensate for:
"Risk-free" rate = Exp. Inflation + Interest Rate Risk + Reinvestment Risk
Alternative Investments - Answer comprise groups of investments with risk and return
characteristics that differ markedly from those of traditional stock and bond investments.
Features of Alternative Investments - Answer not traditional, lower return correlations,
informationally less efficient, illiquidity, shorting and/or derivatives, Complex investment
strategies, Reporting often lacks transparency.
Vehicles - Answer A. Mutual Funds
B. ETFs
, Strategies - Answer A. Real Estate
B. Commodities
C. Private Equity
D. Long/Short Equity and Market Neutral
E. Fund of Funds
Derivatives - Answer A. Options
B. Futures
C. Forwards
D. Swaps
Limited Partnerships - Answer Most common vehicle for Hedge Funds and Private Equity
Funds.
Investors must be accredited
options - Answer A contract that offers the buyer the right to buy/sell an asset at a specified
exercise price on or before a specified expiration date.
Call option - Answer Option to buy
Put option - Answer Option to sell
Futures - Answer A standardized, exchange-traded contract that call for the delivery of an
asset at a specified maturity date at a specified price. (commodities)
Forwards - Answer A customized contract that call for the delivery of an asset at a specified
maturity date at a specified price.
Not exchange traded, most commonly used for future foreign exchange transactions that need
to be customized by size and date.
Swaps - Answer Contracts between two parties to trade cash flows, corresponding to different
interest rates arrangements.
Questions and All Correct Answers.
If you believe interest rates are going down: - Answer Increase Duration
Extend maturity.
Shift towards low/zero coupons.
Invest all available cash
If you believe interest rates are going up: - Answer Decrease Duration
Shorten maturity.
Shift towards high coupons.
Sell off some bonds, allow some bonds to mature, and increase cash. Cash has a zero duration.
Treasury Bond - Answer Your required rate of return needs to compensate for:
"Risk-free" rate = Exp. Inflation + Interest Rate Risk + Reinvestment Risk
Alternative Investments - Answer comprise groups of investments with risk and return
characteristics that differ markedly from those of traditional stock and bond investments.
Features of Alternative Investments - Answer not traditional, lower return correlations,
informationally less efficient, illiquidity, shorting and/or derivatives, Complex investment
strategies, Reporting often lacks transparency.
Vehicles - Answer A. Mutual Funds
B. ETFs
, Strategies - Answer A. Real Estate
B. Commodities
C. Private Equity
D. Long/Short Equity and Market Neutral
E. Fund of Funds
Derivatives - Answer A. Options
B. Futures
C. Forwards
D. Swaps
Limited Partnerships - Answer Most common vehicle for Hedge Funds and Private Equity
Funds.
Investors must be accredited
options - Answer A contract that offers the buyer the right to buy/sell an asset at a specified
exercise price on or before a specified expiration date.
Call option - Answer Option to buy
Put option - Answer Option to sell
Futures - Answer A standardized, exchange-traded contract that call for the delivery of an
asset at a specified maturity date at a specified price. (commodities)
Forwards - Answer A customized contract that call for the delivery of an asset at a specified
maturity date at a specified price.
Not exchange traded, most commonly used for future foreign exchange transactions that need
to be customized by size and date.
Swaps - Answer Contracts between two parties to trade cash flows, corresponding to different
interest rates arrangements.
