CRPC MOD 2- Principles and Strategies When investing for
Retirement Questions with verified answers
3 ways bonds are measured. Ans✓✓✓ 1. Current yield- Bonds annual interest
dividend by its current price
2. YTM- yield to maturity
3. YTC- yield to call
4 Major asset classes to make up an investment portfolio Ans✓✓✓ 1. Cash
equivalents
2. Stock
3. Fixed income
4. Cash
5. Real Estate
A bond has a duration of eight years. If market interest rates rise by 1%, the
percentage price change of the bond is approximately Ans✓✓✓ an 8% decline
: % Change in Price= -8% X 1%= -8%
Beta Ans✓✓✓ Measures the volatility of a stock (or portfolio) relative to the
market.
Beta only measures systematic risk!
B<1 = Stock is less risky
, B>1= Stock is more risky
The stock market has a beta of 1.0 since it is the benchmark
Contrarian strategy Ans✓✓✓ to buy when others are despondently selling, and
to sell when others are avidly buying - John Templeton
Core- Satellite: Ans✓✓✓ Combination of Strategic and Tactical that divides a
portfolio into two components.
You have the initial core holding of stocks/ bonds and the remaining portfolio is a
satellite with active management
Correlation Coefficient Ans✓✓✓ Correlation is the degree to which the return of
two securities move relative to one another.
Correlations range from +1.0 to -1.0 and negative correlations are very rare. A
coefficient of 0 indicates that the two assets have no relationship. (Uncorrelated)
+1.0 Perfectly positive correlation means that these two investments move up
and down together in perfect harmony and subsequently no diversification is
achieved.
The lower the correlation, the more diversified.
Dollar Cost Averaging (DCA) Ans✓✓✓ Strategy for investing equal dollar amounts
regularly over specific time periods.
Retirement Questions with verified answers
3 ways bonds are measured. Ans✓✓✓ 1. Current yield- Bonds annual interest
dividend by its current price
2. YTM- yield to maturity
3. YTC- yield to call
4 Major asset classes to make up an investment portfolio Ans✓✓✓ 1. Cash
equivalents
2. Stock
3. Fixed income
4. Cash
5. Real Estate
A bond has a duration of eight years. If market interest rates rise by 1%, the
percentage price change of the bond is approximately Ans✓✓✓ an 8% decline
: % Change in Price= -8% X 1%= -8%
Beta Ans✓✓✓ Measures the volatility of a stock (or portfolio) relative to the
market.
Beta only measures systematic risk!
B<1 = Stock is less risky
, B>1= Stock is more risky
The stock market has a beta of 1.0 since it is the benchmark
Contrarian strategy Ans✓✓✓ to buy when others are despondently selling, and
to sell when others are avidly buying - John Templeton
Core- Satellite: Ans✓✓✓ Combination of Strategic and Tactical that divides a
portfolio into two components.
You have the initial core holding of stocks/ bonds and the remaining portfolio is a
satellite with active management
Correlation Coefficient Ans✓✓✓ Correlation is the degree to which the return of
two securities move relative to one another.
Correlations range from +1.0 to -1.0 and negative correlations are very rare. A
coefficient of 0 indicates that the two assets have no relationship. (Uncorrelated)
+1.0 Perfectly positive correlation means that these two investments move up
and down together in perfect harmony and subsequently no diversification is
achieved.
The lower the correlation, the more diversified.
Dollar Cost Averaging (DCA) Ans✓✓✓ Strategy for investing equal dollar amounts
regularly over specific time periods.
