FA Investment Analysis & Portfolio Management Flashcards
6 cards from real FA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 FA Investment Analysis & Portfolio Management flashcards as text
Which type of risk cannot be eliminated through portfolio diversification?
Answer: Systematic (market) risk
Systematic risk affects the entire market and cannot be diversified away; it includes factors like recessions, interest rate changes, and geopolitical events.
What is the primary purpose of a prospectus when a company issues new securities?
Answer: To provide potential investors with material information about the offering and the company
A prospectus is a legal disclosure document required by the SEC that gives investors the information needed to make an informed investment decision.
In fixed income analysis, when interest rates rise, what happens to existing bond prices?
Answer: Bond prices fall because newer bonds offer higher yields, making existing bonds less attractive
Bond prices and yields move inversely; rising market rates make existing lower-coupon bonds less competitive, so their prices decline to offer an equivalent yield.
Which ratio compares a stock's market price to its book value per share?
Answer: Price-to-Book (P/B) ratio
The P/B ratio shows how much investors are paying relative to the company's net asset value; a P/B below 1 may indicate the stock is undervalued.
What is 'dollar-cost averaging' as an investment strategy?
Answer: Investing a fixed dollar amount at regular intervals regardless of price
Dollar-cost averaging reduces the impact of volatility by buying more shares when prices are low and fewer when prices are high over time.
Which type of order instructs a broker to buy or sell a security only at a specified price or better?
Answer: Limit order
A limit order guarantees the execution price but not the execution itself, protecting the investor from unfavorable price slippage.