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Home Page Flashcards CFA Level 2 - Portfolio Management - Flashcards

CFA Level 2 – Portfolio Management – Flashcards

Mary Browning
8 July 2022
16 test answers

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question
Mean - variance analysis assumption
answer
1)All investors are risk averse; they prefer less risk to more for the same level of expected return 2)Expected returns for all assets are known. 3)The variances and covariances of all asset returns are known. 4)Investors need only know the expected returns, variances, and covariances of returns to determine optimal portfolios. They can ignore skewness, kurtosis, and other attributes of a distribution. 5)There are no transaction costs or taxes.
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APT Assumption
answer
No arbitrage, can diversified all un-systematic risk, many assets available, factor model describe return
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Investment Constraints
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(LLUTT): L (liquidity) - L (legal) - U (unique circumstance) - T (tax) - T (time)
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arbitrage portfolio given expected returns of individual portfolio and their factor sensitivity
answer
arbitrage portfolio must have zero sensitivity to the factor. so we need to find the weight of each individualmportfolio with the long portfolio weight sum to 1 and the short portfoliomweight sum to -1. the arbitrage profit is weight x expexted return of all portfolio. rêmmber that weight x sensitivity of long port = sensitivity of short port
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factor risk/price of risk
answer
expected return= risk free+factor sens x price of risk solve this to get price of risk
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question
liquidity requirements incl what
answer
does not incl wht is planned
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question
estimate beta of a stock from its cov with market and mkt variance
answer
cov with mkt/mkt variance
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question
std deviation in perfect timing port
answer
misleading. perfect timing port will perform at least as well of t bills
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question
TB model result in what kind of port
answer
result in combination of active port indentified by the model and market (passive) port
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question
what is CAL
answer
expected return on how to allocate risky/risky free assets
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question
what is CML
answer
when all investors share same expectation, CAL becomes CML
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question
tracking risk
answer
sample std deviation x (Return of port - return of benchmark)
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question
information ratio
answer
(avg port return - avg benchmark return) / tracking risk
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question
active risk square
answer
variance x (port return - benchmark return) active risk square =active factor risk + active specific risk
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question
FMCAR
answer
numerator:exposure factor( exposure factor1 x cov1+exposure factor2 x cov2) denominator:active risk square for a single factor: active factor risk/ active rik square
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question
active factor risk
answer
(active sensitivity of factor - benchmark) ^2 x factor variance
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Question
What is the right structure for an essay
Answer
A paragraph is a related group of sentences that develops one main idea. Each paragraph in the body of the essay should contain:
  • a topic sentence that states the main or controlling idea
  • supporting sentences to explain and develop the point you’re making
  • evidence from your reading or an example from the subject area that supports your point
  • analysis of the implication/significance/impact of the evidence finished off with a critical conclusion you have drawn from the evidence.