11/8/24, 3:19 PM
AAMS NotecardsWITH COMPLETE SOLUTIONS GRADED
A+.
Terms in this set (127)
standard deviation Variability around the mean; a measure of total risk; absolute.
Beta Volatility relative to a benchmark; a measure of relative risk; not static
What did the Brinson study evaluate? Security selection, market timing, and asset allocation policy.
What conclusion did the Brinson study More attention should be given to the asset allocation process and less given to
reach? securities selection and market timing.
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, 11/8/24, 3:19 PM
What's the importance of asset allocation in Clients must be active in determining their asset allocation and explicit about
a clients investment strategy? objectives, risk, and liquidity over the long term.
T-Bills average (geometric) rate of returns, 3.3%
as well as inflation, since 1926
Long-term U.S. government bonds average 5.5%
(geometric) rate of returns, as well as
inflation, since 1926
Long-term corporate bonds average 5.9%
(geometric) rate of returns, as well as
inflation, since 1926
Intermediate-term U.S. government bonds 5.1%
average (geometric) rate of returns, as well
as inflation, since 1926
Large-company stocks average 10%
(geometric) rate of returns, as well as
inflation, since 1926
Small-company stocks average (geometric) 11.8%
rate of returns, as well as inflation, since
1926
Inflation average (geometric) rate of 2.9%
returns, as well as inflation, since 1926
The identification of the asset mix that will provide the optimal balance between
Define strategic asset allocation
expected risk and return for a long-term investment horizon.
How is strategic asset allocation With periodic rebalancing by repositioning higher performing assets into lower
maintained? performing assets.
This is the use of securities selection, sector rotation, and market timing to
Define tactical asset allocation
periodically revise the asset mix of a portfolio.
This approach involves a combination of strategic and tactical asset allocation
Define core/satellite 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.
Shareholders receive dividends on a pro rata basis, vote on the election of
What are the characteristics of common
corporate board members, are residual owners of the firm (meaning their interests
stock?
are subordinate to creditors and bond holders), and the shares have no maturity
What are the sources of risk for common A downturn in economic growth, high interest rates, loss of product or service
stock? competitiveness, failures of management, and government action
Dividends are usually fixed, qualified and not tax-deductible to the paying
What are the characteristics of preferred corporation, they're paid ahead of common shares, limited voting rights, and are
stock? generally 70% tax free to owning corporations and can have participating,
cumulative, callable, and convertible features
What are the sources of risk for preferred Interest rate risk, purchasing power risk, business risk, and reinvestment risk
stock?
Issued by corporation, federal and state governments and their agencies and
municipalities, a promise to repay the principal at a specified date in the future, to
What are the characteristics of bonds?
make periodic interest rates at specified dates, usually issued at par value, can
provide taxable or tax-free income, and rated investment or non investment grade
What is the total return of bonds made up Interest and any capital gains or loss
of?
2/6
AAMS NotecardsWITH COMPLETE SOLUTIONS GRADED
A+.
Terms in this set (127)
standard deviation Variability around the mean; a measure of total risk; absolute.
Beta Volatility relative to a benchmark; a measure of relative risk; not static
What did the Brinson study evaluate? Security selection, market timing, and asset allocation policy.
What conclusion did the Brinson study More attention should be given to the asset allocation process and less given to
reach? securities selection and market timing.
1/6
, 11/8/24, 3:19 PM
What's the importance of asset allocation in Clients must be active in determining their asset allocation and explicit about
a clients investment strategy? objectives, risk, and liquidity over the long term.
T-Bills average (geometric) rate of returns, 3.3%
as well as inflation, since 1926
Long-term U.S. government bonds average 5.5%
(geometric) rate of returns, as well as
inflation, since 1926
Long-term corporate bonds average 5.9%
(geometric) rate of returns, as well as
inflation, since 1926
Intermediate-term U.S. government bonds 5.1%
average (geometric) rate of returns, as well
as inflation, since 1926
Large-company stocks average 10%
(geometric) rate of returns, as well as
inflation, since 1926
Small-company stocks average (geometric) 11.8%
rate of returns, as well as inflation, since
1926
Inflation average (geometric) rate of 2.9%
returns, as well as inflation, since 1926
The identification of the asset mix that will provide the optimal balance between
Define strategic asset allocation
expected risk and return for a long-term investment horizon.
How is strategic asset allocation With periodic rebalancing by repositioning higher performing assets into lower
maintained? performing assets.
This is the use of securities selection, sector rotation, and market timing to
Define tactical asset allocation
periodically revise the asset mix of a portfolio.
This approach involves a combination of strategic and tactical asset allocation
Define core/satellite 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.
Shareholders receive dividends on a pro rata basis, vote on the election of
What are the characteristics of common
corporate board members, are residual owners of the firm (meaning their interests
stock?
are subordinate to creditors and bond holders), and the shares have no maturity
What are the sources of risk for common A downturn in economic growth, high interest rates, loss of product or service
stock? competitiveness, failures of management, and government action
Dividends are usually fixed, qualified and not tax-deductible to the paying
What are the characteristics of preferred corporation, they're paid ahead of common shares, limited voting rights, and are
stock? generally 70% tax free to owning corporations and can have participating,
cumulative, callable, and convertible features
What are the sources of risk for preferred Interest rate risk, purchasing power risk, business risk, and reinvestment risk
stock?
Issued by corporation, federal and state governments and their agencies and
municipalities, a promise to repay the principal at a specified date in the future, to
What are the characteristics of bonds?
make periodic interest rates at specified dates, usually issued at par value, can
provide taxable or tax-free income, and rated investment or non investment grade
What is the total return of bonds made up Interest and any capital gains or loss
of?
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