BSW2605 Portfolio Management Final Exam

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If you believe interest rates are going down: - ANSWER Increase Duration Extend maturity. Shift towards low/zero coupons. Invest all available cash If you believe interest rates are going ... up: - ANSWER Decrease Duration Shorten maturity. Shift towards high coupons. Sell off some bonds, allow some bonds to mature, and increase cash. Cash has a zero duration. Treasury Bond - ANSWER Your required rate of return needs to compensate for: "Risk-free" rate = Exp. Inflation + Interest Rate Risk + Reinvestment Risk Alternative Investments - ANSWER comprise groups of investments with risk and return characteristics that differ markedly from those of traditional stock and bond investments. Features of Alternative Investments - ANSWER not traditional, lower return correlations, informationally less efficient, illiquidity, shorting and/or derivatives, Complex investment strategies, Reporting often lacks transparency. Vehicles - ANSWER A. Mutual Funds B. ETFs C. Separate Accounts D. Limited Partnerships Strategies - ANSWER A. Real Estate B. Commodities C. Private Equity D. Long/Short Equity and Market Neutral E. Fund of Funds Derivatives - ANSWER A. Options B. Futures C. Forwards D. Swaps Limited Partnerships - ANSWER Most common vehicle for Hedge Funds and Private Equity Funds. Investors must be accredited options - ANSWER A contract that offers the buyer the right to buy/sell an asset at a specified exercise price on or before a specified expiration date. Call option - ANSWER Option to buy Put option - ANSWER Option to sell Futures - ANSWER A standardized, exchange-traded contract that call for the delivery of an asset at a specified maturity date at a specified price. (commodities) Forwards - ANSWER A customized contract that call for the delivery of an asset at a specified maturity date at a specified price. Not exchange traded, most commonly used for future foreign exchange transactions that need to be customized by size and date. Swaps - ANSWER Contracts between two parties to trade cash flows, corresponding to different interest rates arrangements. REITS - ANSWER Real Estate Investment Trust (REIT) A company that owns and usually operates, income-producing real estate. Commodity - ANSWER A commodity is a tangible asset that is typically relatively homogeneous in nature. Because of their relative homogeneity, commodities lend themselves to being the subject of standardized contracts to buy and sell. Ways to invest in commodities - ANSWER Direct and indirect Venture Capital - ANSWER A. Early-stage financing Seed capital - small amounts to form company and prove idea Start-up - commercialization of product pre-revenue First stage - additional funds if needed (and merited) B. Later-stage financing Financing promising companies needing funds to expand sales C. Exit Merger, acquisition or IPO Long-short equity - ANSWER hold sizeable stakes in both long and short positions in equities and related derivatives. At least 75% of the assets are in equity securities or derivatives. Market Neutral - ANSWER attempt to reduce the systematic risk to factors such as sectors, market-cap ranges, investment styles, currencies, and/or countries by matching [Show More]

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