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Questions and Answers

What are the two types of market analysis?

  • Quantitative and Qualitative Analysis
  • Microeconomic and Macroeconomic Analysis
  • Short-term and Long-term Analysis
  • Fundamental and Technical Analysis (correct)

What does fundamental analysis seek to satisfy?

The urge to understand what makes stocks and markets move.

What does the Efficient Market Hypothesis (EMH) suggest?

  • Asset prices already reflect all available information, making it challenging to consistently outperform the market. (correct)
  • It is always possible to consistently outperform the market by employing strategies such as technical analysis or fundamental analysis.
  • It is impossible to consistently outperform the market by employing strategies such as technical analysis or fundamental analysis.
  • Financial markets are inefficient and incorporate all available information into asset prices.

What are the three forms of the Efficient Market Hypothesis (EMH)?

<p>Weak, Semi-strong, and Strong. (D)</p> Signup and view all the answers

What are the two sides of the investment coin?

<p>Risk and Return (A)</p> Signup and view all the answers

What is the goal of CAPM?

<p>To evaluate whether a stock's price is consistent with its predicted return. (C)</p> Signup and view all the answers

What are the main assumptions underlying the CAPM?

<p>There are no transaction costs, there are no taxes, assets are infinitely divisible, unlimited short selling is permissible, all assets are marketable/liquid, investors are price takers whose individual buy and sell transactions do not affect the price, and the single period is the same for all investors. (C)</p> Signup and view all the answers

Which of the following is the best definition of systematic risk?

<p>Risk that affects the entire market, such as changes in interest rates or inflation. (D)</p> Signup and view all the answers

Which of the following is the best definition of unsystematic risk?

<p>Risk that is specific to a particular company or industry. (A)</p> Signup and view all the answers

What are the two types of unsystematic risks?

<p>Business Risk and Financial Risk (B)</p> Signup and view all the answers

What is the best definition of the efficient frontier?

<p>A collection of investment portfolios that, at a given amount of risk, will produce the highest returns. (C)</p> Signup and view all the answers

What are the benefits of Modern Portfolio Theory?

<p>Both A and B (C)</p> Signup and view all the answers

Which of the following is NOT a benefit of Modern Portfolio Theory?

<p>Increased liquidity (C)</p> Signup and view all the answers

The Efficient Frontier is represented by a straight line on a graph.

<p>False (B)</p> Signup and view all the answers

What is the most important factor that influences the location of a portfolio on the Efficient Frontier?

<p>The investor's risk tolerance (D)</p> Signup and view all the answers

Diversifying the assets in your portfolio leads to increased returns and decreased risks.

<p>True (A)</p> Signup and view all the answers

Which of the following is NOT a key principle of Modern Portfolio Theory?

<p>Market timing (A)</p> Signup and view all the answers

Modern Portfolio Theory (MPT) emphasizes diversification, suggesting that by combining assets with varying levels of risk and return, investors can reduce the overall risk of their portfolio without sacrificing returns.

<p>True (A)</p> Signup and view all the answers

The Efficient Frontier is a key concept within MPT, representing the set of optimal portfolios that offer the lowest expected return for a given level of risk.

<p>False (B)</p> Signup and view all the answers

What is the main goal of Modern Portfolio Theory?

<p>To create the most efficient portfolio possible.</p> Signup and view all the answers

Which of the following best describes the relationship between risk and return?

<p>Higher risk generally means higher potential return, but not always. (D)</p> Signup and view all the answers

Which of the following asset classes is typically considered the most risky?

<p>Private assets (E)</p> Signup and view all the answers

What does the CAPM formula calculate?

<p>The expected rate of return for an asset or investment.</p> Signup and view all the answers

What is the risk-free rate in the CAPM formula?

<p>The rate of return on a US Treasury bond. (C)</p> Signup and view all the answers

Which of the following is NOT a component of the CAPM formula?

<p>The standard deviation (C)</p> Signup and view all the answers

Which of the following statements about the CAPM is TRUE?

<p>The CAPM is a useful tool for understanding the relationship between risk and return and helps investors make informed investment decisions. (B)</p> Signup and view all the answers

The CAPM is a widely accepted financial theory that helps investors make informed investment decisions, but like any model, has limitations.

<p>True (A)</p> Signup and view all the answers

What is the goal of Modern Portfolio Theory?

<p>To maximize returns for a given level of risk.</p> Signup and view all the answers

Why does Modern Portfolio Theory emphasize diversification?

<p>To reduce the risk of a portfolio without sacrificing returns. (A)</p> Signup and view all the answers

What is the main goal of diversification in Modern Portfolio Theory?

<p>To reduce the risk of a portfolio without sacrificing returns. (B)</p> Signup and view all the answers

The Efficient Frontier is a visual representation of the set of optimal portfolios that offer the highest expected return for a given level of risk.

<p>True (A)</p> Signup and view all the answers

What does the Efficient Frontier signify?

<p>That there is a range of optimal portfolios, each with a different balance of risk and return. (C)</p> Signup and view all the answers

The Efficient Frontier is a theoretical concept, and it may not be possible to find the exact efficient frontier for a real-world portfolio in the sense that each investor will have different risk tolerance, needs and so on.

<p>True (A)</p> Signup and view all the answers

The Efficient Frontier is only useful for individual investors, not for institutional investors.

<p>False (B)</p> Signup and view all the answers

The relationship between risk and return is a fundamental concept in finance and investment.

<p>True (A)</p> Signup and view all the answers

Flashcards

Investment Funds

Pools of money collected from investors to invest in various assets.

Mutual Funds

Investment funds that pool money from many investors to buy a diversified portfolio of stocks or bonds.

Exchange Traded Funds (ETFs)

Investment funds traded on exchanges like stocks, tracking a specific index or sector.

Hedge Funds

Investment funds that use various strategies, often complex and aggressive, to generate returns.

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Portfolio Diversification

Reducing risk by investing in a variety of assets, not putting all eggs in one basket.

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Asset Allocation

Distributing investments among different asset classes (stocks, bonds, etc.) based on risk tolerance and goals.

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Study Notes

Module Information

  • Module Title: Investment Funds
  • Module Number: 6
  • Course: BA_CAPITAL MKT FM - BSBA FM
  • Team: Team Chipmunks
  • Authors: Bico, Emmanuel D., Garcia, Angeline D., Til-Adan, Charie Mae V.

Table of Contents

  • Learning Objectives

  • Introduction

  • Discussion of Main Topics and Subtopics

  • Investment Funds

    • How Investment Funds Work?
    • Types of Funds
      • Mutual Funds
        • Why invest in mutual funds?
        • How do you typically earn a return from a mutual fund?
        • Various Types of Mutual Funds
        • Advantages in Investing in Mutual Funds
        • Disadvantages in Investing in Mutual Funds
      • Exchange Traded Funds (ETFs)
        • Investing in ETFs
        • Types of ETFs
        • Advantages of ETFs
        • Disadvantages of ETFs
      • Hedge Funds
        • What do hedge funds invest in?,
        • Key Features of Hedge Funds
        • Structure of Hedge Funds
        • Advantages of Hedge Funds
        • Disadvantages of Hedge Funds

  • Portfolio Diversification

    • Benefits of Diversification
    • Types of Diversification

  • Asset Allocation

    • Why Is Asset Allocation Important?
    • Key Principles of Asset Allocation

  • Types of Asset Allocation Strategies

  • Factors Influencing Asset Allocation

  • Portfolio Diversification

    • Differences Between Diversification and Asset Allocation

  • Fund Performance Evaluation

    • Key Components of Fund Performance Evaluation
    • Importance of Fund Performance Evaluation

  • How NAV relates to evaluating fund performance

  • Conclusion

  • References

Learning Objectives

  • Define investment funds and how they work
  • Differentiate investment fund types (mutual funds, ETFs, hedge funds)
  • Explore portfolio diversification
  • Learn about asset allocation
  • Analyze the differences between diversification and asset allocation
  • Understand net asset value (NAV) and fund performance evaluation

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Related Documents

Investment Funds (Module 6) PDF

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