AAMS Notecards
standard deviation - Answer Variability around the mean; a measure of total risk; absolute.
Beta - Answer Volatility relative to a benchmark; a measure of relative risk; not static
What did the Brinson study evaluate? - Answer Security selection, market timing, and asset allocation policy.
What conclusion did the Brinson study reach? - Answer More attention should be given to the asset allocation process and less given to securities selection and market timing.
What's the importance of asset allocation in a clients investment strategy? - Answer Clients must be active in determining their asset allocation and explicit about objectives, risk, and liquidity over the long term.
T-Bills average (geometric) rate of returns, as well as inflation, since 1926 - Answer 3.3%
Long-term U.S. government bonds average (geometric) rate of returns, as well as inflation, since 1926 - Answer 5.5%
Long-term corporate bonds average (geometric) rate of returns, as well as inflation, since 1926 - Answer 5.9% Intermediate-term U.S. government bonds average (geometric) rate of returns, as well as inflation, since
1926 - Answer 5.1%
Large-company stocks average (geometric) rate of returns, as well as inflation, since 1926 - Answer 10%
Small-company stocks average (geometric) rate of returns, as well as inflation, since 1926 - Answer 11.8%
Inflation average (geometric) rate of returns, as well as inflation, since 1926 - Answer 2.9%
Define strategic asset allocation - Answer The identification of the asset mix that will provide the optimal
balance between expected risk and return for a long-term investment horizon.
How is strategic asset allocation maintained? - Answer With periodic rebalancing by repositioning higher
performing assets into lower performing assets.
Define tactical asset allocation - Answer This is the use of securities selection, sector rotation, and market timing to periodically revise the asset mix of a portfolio.
Define core/satellite asset allocation - Answer This approach involves a combination of strategic and tactical asset allocation enabled by dividing a portfolio into a core holding of stocks and bonds, often broad based, low cost index mutual funds or etfs, and a satellite portion.
What are the characteristics of common stock? - Answer Shareholders receive dividends on a pro rata basis, vote on the election of corporate board members, are residual owners of the firm (meaning their interests are subordinate to creditors and bond holders), and the shares have no maturity
What are the sources of risk for common stock? - Answer A downturn in economic growth, high interest rates, loss of product or service competitiveness, failures of management, and government action
What are the characteristics of preferred stock? - Answer Dividends are usually fixed, qualified and not tax-deductible to the paying corporation, they're paid ahead of common shares, limited voting rights,
standard deviation - Answer Variability around the mean; a measure of total risk; absolute.
Beta - Answer Volatility relative to a benchmark; a measure of relative risk; not static
What did the Brinson study evaluate? - Answer Security selection, market timing, and asset allocation policy.
What conclusion did the Brinson study reach? - Answer More attention should be given to the asset allocation process and less given to securities selection and market timing.
What's the importance of asset allocation in a clients investment strategy? - Answer Clients must be active in determining their asset allocation and explicit about objectives, risk, and liquidity over the long term.
T-Bills average (geometric) rate of returns, as well as inflation, since 1926 - Answer 3.3%
Long-term U.S. government bonds average (geometric) rate of returns, as well as inflation, since 1926 - Answer 5.5%
Long-term corporate bonds average (geometric) rate of returns, as well as inflation, since 1926 - Answer 5.9% Intermediate-term U.S. government bonds average (geometric) rate of returns, as well as inflation, since
1926 - Answer 5.1%
Large-company stocks average (geometric) rate of returns, as well as inflation, since 1926 - Answer 10%
Small-company stocks average (geometric) rate of returns, as well as inflation, since 1926 - Answer 11.8%
Inflation average (geometric) rate of returns, as well as inflation, since 1926 - Answer 2.9%
Define strategic asset allocation - Answer The identification of the asset mix that will provide the optimal
balance between expected risk and return for a long-term investment horizon.
How is strategic asset allocation maintained? - Answer With periodic rebalancing by repositioning higher
performing assets into lower performing assets.
Define tactical asset allocation - Answer This is the use of securities selection, sector rotation, and market timing to periodically revise the asset mix of a portfolio.
Define core/satellite asset allocation - Answer This approach involves a combination of strategic and tactical asset allocation enabled by dividing a portfolio into a core holding of stocks and bonds, often broad based, low cost index mutual funds or etfs, and a satellite portion.
What are the characteristics of common stock? - Answer Shareholders receive dividends on a pro rata basis, vote on the election of corporate board members, are residual owners of the firm (meaning their interests are subordinate to creditors and bond holders), and the shares have no maturity
What are the sources of risk for common stock? - Answer A downturn in economic growth, high interest rates, loss of product or service competitiveness, failures of management, and government action
What are the characteristics of preferred stock? - Answer Dividends are usually fixed, qualified and not tax-deductible to the paying corporation, they're paid ahead of common shares, limited voting rights,
