Investment Analysis and Portfolio Management Flashcards
6 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Analysis and Portfolio Management flashcards as text
The Capital Market Line (CML) represents portfolios combining the risk-free asset with which other portfolio?
Answer: Market portfolio
The CML connects the risk-free rate to the market portfolio, representing the best possible risk-return combinations for diversified investors.
Which measure adjusts portfolio performance for systematic risk rather than total risk?
Answer: Treynor ratio
The Treynor ratio divides excess return by beta, making it appropriate for evaluating portfolios that are components of a larger diversified fund.
An efficient frontier depicts portfolios that offer the highest expected return for each level of which factor?
Answer: Return volatility
The efficient frontier plots the set of portfolios delivering maximum expected return for every given level of return volatility (standard deviation).
Which bond immunization technique matches the duration of assets to the duration of liabilities?
Answer: Duration matching
Duration matching (classical immunization) ensures that a portfolio's asset and liability durations are equal, protecting against parallel interest rate shifts.
In factor investing, the value factor refers to buying stocks with which characteristic?
Answer: Low price-to-book ratios
The value factor targets stocks trading at low price-to-book (or price-to-earnings) ratios relative to the market, historically delivering a premium.
Which risk metric measures the expected loss in a portfolio beyond a given confidence level threshold?
Answer: Expected Shortfall
Expected Shortfall (CVaR) measures the average loss in the worst-case tail scenarios beyond the VaR threshold, providing a more complete picture of tail risk.