You propose managing a portfolio of fixed income securities by utilising a passive strategy. Which of the following actions would your strategy involve? A) Buying inflation linked bonds. B) Buying index linked bonds. C) Matching the fixed income securities to a stated performance benchmark. D) Managing the sector-spread to benefit from a positive sloping yield curve.
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You propose managing a portfolio of fixed income securities by utilising a passive strategy. Which of the following actions would your strategy involve?
A) Buying inflation linked bonds.
B) Buying index linked bonds.
C) Matching the fixed income securities to a stated performance benchmark.
D) Managing the sector-spread to benefit from a positive sloping yield curve.
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- A member of a firm’s investment committee is very interested in learning about the management of fixed-income portfolios. He would like to know how fixed-income managers position portfolios to capitalize on their expectations concerning three factors which influence interest rates:a. Changes in the level of interest rates.b. Changes in yield spreads across/between sectors.c. Changes in yield spreads as to a particular instrument.Formulate and describe a fixed-income portfolio management strategy for each of these factors that could be used to exploit a portfolio manager’s expectations about that factor. (Note: Three strategies are required, one for each of the listed factors.)According to the capital asset pricing model (CAPM), fairly priced securities should have __________. Select one: a. A fair return based on the level of systematic risk. b. A beta of 1. c. A return equal to the market return. d. A fair return based on the level of unsystematic risk.Which of the following is TRUE? To construct a capital market line, we use expected return as y-axis and beta as x-axis On the capital market line debt securities are located to the right of the market portfolio To construct a security market line, we use expected return as y-axis and beta as x-axis Market portfolio lays at an intersection of the average indifference curve of a risk-averse investor and the efficient portfolio
- Your investment client asks for information concerning the benefits of active portfolio management. She is particularly interested in the question of whether active managers can be expected to consistently exploit inefficiencies in the capital markets to produce above-average returns without assuming higher risk.The semistrong form of the efficient market hypothesis asserts that all publicly available information is rapidly and correctly reflected in securities prices. This implies that investors cannot expect to derive above-average profits from purchases made after information has become public because security prices already reflect the information’s full effects.a. Identify and explain two examples of empirical evidence that tend to support the EMH implication stated above.b. Identify and explain two examples of empirical evidence that tend to refute the EMH implication stated above.c. Discuss reasons why an investor might choose not to index even if the markets were, in fact,…an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. b) Give a graphical example to present the positioning of: Systematic risk Risk free rate of return Market rate of return, and Risk premium.Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagion
- an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. Give a graphical example to present the positioning of:Market rate of returnIf market is efficient, in managing an equity portfolio, you will adopt a. Indexing strategy b. Stock rotation strategy c. Security selection strategy d. Market timing strategyIn a CAPM world, what do you need to know in order to estimate an asset's expected return? Group of answer choices The risk free rate, the market risk premium, and the asset's standard deviation The risk free rate, the market risk premium, and the asset's beta The corporate bond rate, the expected return on the S&P 500 and the asset's Beta Market sentiment, historical stock returns and the risk free rate
- Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate Investors hold only efficient portfolios of traded securities. Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. Investors have homogeneous risk averse preferences toward taking on risk.2. Which of the following statements is/are correct: Beta accounts for the risk of the securities portfolio for a diversified investor Market rate of return accounts for the risk of the securities portfolio for a marginal investor Equity risk premium is the incremental return expected by a marginal investor from a specific equity instrument to be added into his/her portfolio of securities. Risk-free rate used in CAPM can be a short-term or long-term rate depending on the tenor of the equity instrument Group of answer choices Statements 2 and 3 are correct Statement 2 only Statements 1, 2 and 3 are correct All statements are correctWhich of the following statements are CORRECT? Check all that apply: The aftertax cost of debt decreases when the market price of a bond increases. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. Cost of capital is also known as the minimum expected or required return an investment must offer to be attractive.