CFA level 1 (portfolio management)
algorithmic trading - answer the computerized buying and selling of financial
instruments, in accordance with pre-specified rules and guidelines
Dark Pools - answer electronic trading networks where participants can anonymously
buy or sell large blocks of alternative securities
robo-advising - answer suggests assets for a client but does not place the trades
Risk Budgeting - answer- quantifies and allocates the tolerable risk according to specific
metrics
- ex: beta, value at risk, scenario loss, etc...
Planning step.... - answer• Understanding the client's needs
• Preparation of an investment policy statement (IPS)
Execution step... - answer• Asset allocation
• Security analysis
• Portfolio construction
Feedback step... - answer• Portfolio monitoring and rebalancing
• Performance measurement and reporting
_______ impacts an individuals ability to take risk - answer- expected income
- time horizon
*personality impacts their willingness!
A portfolio with the greatest diversification has assets with a correlation of _____ -
answershould be negative! A positive correlation is bad for diversification, and 0 is fine
but not as diversified as a negative correlation
Bollinger Bands - answerconsist of a moving average price plus a higher line
representing the moving average plus a set number of standard deviations from the
average price and a lower line that is the moving average minus the same set number
of standard deviations.
Funds of hedge funds - answerFunds that hold a portfolio of hedge funds.
- Adds a layer of fees because each fund will charge a management fee plus an
incentive fee
- Due diligence expertise!
, - Very diversified!
The most conservative approach to valuing hedge fund positions is.... - answerBid
prices for longs and ask prices for shorts
Pros and cons of collectables as an investment - answerPros: Long term capital
appreciation, portfolio diversification
Con: Doesnt provide current income
Management fees for hedge funds vs private equity... - answer- Hedge funds are based
on only invested capital
- Private equity is based on committed capital!
Macro strategies - answerEmphasize a top-down approach, and trades are made based
on expected movements of economic variables
Relative value strategies - answerFocus on pricing discrepancies between related
securities
Event-driven strategies - answerFocus on short-term events that are expected to affect
individual companies (bottom up)
Green finance is an example of... - answerimpact investing
Dual class firms - answer- Proponents of dual-class structures argue that management
is better able to make long-term strategic investments that may have negative short-
term implications when control is wielded by a small group of shareholders with superior
voting rights.
- Trade at a discount to peers
A company's optimal capital budget most likely occurs at the intersection of the: -
answermarginal cost of capital and investment opportunity schedule.
With a fixed-rate non-callable bond, the before-tax cost of debt is the - answerbond's
yield to maturity.
Purpose of post-audit - answerTo explain any differences between the actual and
predicted results of a capital budgeting project. This can include indicating systematic
errors, improving business operations, and provide concrete ideas for future investment
opportunities
Country Equity Premium - answer(Sovereign yield spread)(Annualized standard
deviation of equity index/Annualized standard deviation of the sovereign bond market in
terms of the developed market currency)
algorithmic trading - answer the computerized buying and selling of financial
instruments, in accordance with pre-specified rules and guidelines
Dark Pools - answer electronic trading networks where participants can anonymously
buy or sell large blocks of alternative securities
robo-advising - answer suggests assets for a client but does not place the trades
Risk Budgeting - answer- quantifies and allocates the tolerable risk according to specific
metrics
- ex: beta, value at risk, scenario loss, etc...
Planning step.... - answer• Understanding the client's needs
• Preparation of an investment policy statement (IPS)
Execution step... - answer• Asset allocation
• Security analysis
• Portfolio construction
Feedback step... - answer• Portfolio monitoring and rebalancing
• Performance measurement and reporting
_______ impacts an individuals ability to take risk - answer- expected income
- time horizon
*personality impacts their willingness!
A portfolio with the greatest diversification has assets with a correlation of _____ -
answershould be negative! A positive correlation is bad for diversification, and 0 is fine
but not as diversified as a negative correlation
Bollinger Bands - answerconsist of a moving average price plus a higher line
representing the moving average plus a set number of standard deviations from the
average price and a lower line that is the moving average minus the same set number
of standard deviations.
Funds of hedge funds - answerFunds that hold a portfolio of hedge funds.
- Adds a layer of fees because each fund will charge a management fee plus an
incentive fee
- Due diligence expertise!
, - Very diversified!
The most conservative approach to valuing hedge fund positions is.... - answerBid
prices for longs and ask prices for shorts
Pros and cons of collectables as an investment - answerPros: Long term capital
appreciation, portfolio diversification
Con: Doesnt provide current income
Management fees for hedge funds vs private equity... - answer- Hedge funds are based
on only invested capital
- Private equity is based on committed capital!
Macro strategies - answerEmphasize a top-down approach, and trades are made based
on expected movements of economic variables
Relative value strategies - answerFocus on pricing discrepancies between related
securities
Event-driven strategies - answerFocus on short-term events that are expected to affect
individual companies (bottom up)
Green finance is an example of... - answerimpact investing
Dual class firms - answer- Proponents of dual-class structures argue that management
is better able to make long-term strategic investments that may have negative short-
term implications when control is wielded by a small group of shareholders with superior
voting rights.
- Trade at a discount to peers
A company's optimal capital budget most likely occurs at the intersection of the: -
answermarginal cost of capital and investment opportunity schedule.
With a fixed-rate non-callable bond, the before-tax cost of debt is the - answerbond's
yield to maturity.
Purpose of post-audit - answerTo explain any differences between the actual and
predicted results of a capital budgeting project. This can include indicating systematic
errors, improving business operations, and provide concrete ideas for future investment
opportunities
Country Equity Premium - answer(Sovereign yield spread)(Annualized standard
deviation of equity index/Annualized standard deviation of the sovereign bond market in
terms of the developed market currency)
