AAMS Module 2 Solved 100% Correct
68% of returns - ANSWER-1 standard deviation
95% of returns - ANSWER-2 standard deviations
99% of returns - ANSWER-3 standard deviations
Beta - ANSWER-Measures volatility, systematic risk, and relative risk
Beta formula - ANSWER-standard deviation of security/standard deviation of market X
correlation coefficient
Capital market line - ANSWER-Graphical representation of the relationship between risk
and return, where risk is measured by standard deviation; the CML includes the concept
of a risk free rate of return
CAPM - ANSWER-Capital Asset pricing model. Calculates the required return for an
individual stock or portfolio
Common misinterpretation of the investment pyramid - ANSWER-The idea that the
larger base indicates that a larger proportion of the client's funds should be invested in
the lower tier financial instruments and that other investment instruments should be
funded in increasingly smaller proportions
correlation coefficient - ANSWER-measures the degree to which an investment's return
varies from (or moves in concert with) another investment's return
Dollar cost averaging - ANSWER-person invests a set dollar amount on a regular,
ongoing basis
Excess return - ANSWER-measure of the portfolio's return over and above what the
client could have earned had he or she simply invested in risk free assets
Exchange rate risk - ANSWER-Risk of having both their principal and return diminished
by changes in the relative values of US and foreign currencies.
Market Risk - ANSWER-Stems from factors independent of any particular security.
Includes political events, broad economic and social changes, and the mood of the
investing public.
Purchasing power (inflation) risk - ANSWER-Risk of one's purchasing power decreasing
as a result of inflation
68% of returns - ANSWER-1 standard deviation
95% of returns - ANSWER-2 standard deviations
99% of returns - ANSWER-3 standard deviations
Beta - ANSWER-Measures volatility, systematic risk, and relative risk
Beta formula - ANSWER-standard deviation of security/standard deviation of market X
correlation coefficient
Capital market line - ANSWER-Graphical representation of the relationship between risk
and return, where risk is measured by standard deviation; the CML includes the concept
of a risk free rate of return
CAPM - ANSWER-Capital Asset pricing model. Calculates the required return for an
individual stock or portfolio
Common misinterpretation of the investment pyramid - ANSWER-The idea that the
larger base indicates that a larger proportion of the client's funds should be invested in
the lower tier financial instruments and that other investment instruments should be
funded in increasingly smaller proportions
correlation coefficient - ANSWER-measures the degree to which an investment's return
varies from (or moves in concert with) another investment's return
Dollar cost averaging - ANSWER-person invests a set dollar amount on a regular,
ongoing basis
Excess return - ANSWER-measure of the portfolio's return over and above what the
client could have earned had he or she simply invested in risk free assets
Exchange rate risk - ANSWER-Risk of having both their principal and return diminished
by changes in the relative values of US and foreign currencies.
Market Risk - ANSWER-Stems from factors independent of any particular security.
Includes political events, broad economic and social changes, and the mood of the
investing public.
Purchasing power (inflation) risk - ANSWER-Risk of one's purchasing power decreasing
as a result of inflation
