Investment Analysis & Portfolio Management Flashcards
6 cards from real CME-1 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 & Portfolio Management flashcards as text
What does 'systematic risk' (market risk) mean in investment analysis?
Answer: Risk inherent to the entire market that cannot be diversified away
Systematic risk affects all securities in the market simultaneously (e.g., recessions, interest rate changes) and cannot be eliminated through diversification.
What is the Capital Asset Pricing Model (CAPM) used for?
Answer: Estimating the expected return of an asset based on its beta and market risk premium
CAPM determines the expected return of an asset: Expected Return = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate), linking risk to required return.
What does a beta of 1.5 indicate about a stock?
Answer: The stock is expected to move 1.5 times the market's percentage change in the same direction
A beta of 1.5 means the stock is 50% more volatile than the market; when the market rises 10% the stock tends to rise 15%, and vice versa.
What is the Price-to-Earnings (P/E) ratio used for in equity analysis?
Answer: Comparing market price to earnings per share to assess relative valuation
The P/E ratio = Market Price ÷ Earnings Per Share. A higher P/E may indicate growth expectations or overvaluation; a lower P/E may signal value or declining prospects.
What is 'duration' in fixed income analysis?
Answer: A measure of a bond's price sensitivity to changes in interest rates
Duration measures how much a bond's price changes for a given change in interest rates; a higher duration means greater interest rate sensitivity.
What is the efficient frontier in portfolio theory?
Answer: The set of optimal portfolios offering the highest expected return for a given level of risk
The efficient frontier represents the optimal risk-return combinations; portfolios on the frontier maximise return for a given risk level or minimise risk for a given return.
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