Podcast
Questions and Answers
What is the relationship between stock market performance and economic growth expectations?
What is the relationship between stock market performance and economic growth expectations?
- They are negatively correlated.
- They are highly correlated. (correct)
- They are only correlated during financial crises.
- They are not correlated at all.
What typically happens to interest rates during times of economic contraction?
What typically happens to interest rates during times of economic contraction?
- Interest rates drop leading to a decrease in bond prices.
- Interest rates remain unchanged.
- Interest rates drop resulting in increased bond prices. (correct)
- Interest rates increase due to higher demand for loans.
Which of the following asset classes historically generated the highest returns?
Which of the following asset classes historically generated the highest returns?
- Government bonds
- Small company stocks (correct)
- Real estate investment trusts (REITs)
- Large company stocks
How do inflation and taxes impact investment returns?
How do inflation and taxes impact investment returns?
Which method indicates that the risk of equities is small compared to T-bills?
Which method indicates that the risk of equities is small compared to T-bills?
What does the risk-reward trade-off suggest about returns in relation to risk?
What does the risk-reward trade-off suggest about returns in relation to risk?
What is a significant misconception regarding Treasury Bills in regards to returns?
What is a significant misconception regarding Treasury Bills in regards to returns?
What aspect of risk does focusing solely on return variability neglect?
What aspect of risk does focusing solely on return variability neglect?
What effect does trading in the first half of the month have on market returns?
What effect does trading in the first half of the month have on market returns?
Which statement is true regarding the Monday effect?
Which statement is true regarding the Monday effect?
Which of the following statements about P/E ratios is correct?
Which of the following statements about P/E ratios is correct?
What is the relationship between PEG ratios and future rates of return according to studies?
What is the relationship between PEG ratios and future rates of return according to studies?
What key finding does the study with annual rebalancing indicate regarding PEG ratios?
What key finding does the study with annual rebalancing indicate regarding PEG ratios?
What characterizes a price-weighted index?
What characterizes a price-weighted index?
How is the value of a simple price-weighted index calculated?
How is the value of a simple price-weighted index calculated?
What distinguishes a value-weighted index from other types?
What distinguishes a value-weighted index from other types?
What does free-float market capitalization take into account?
What does free-float market capitalization take into account?
Which index is an example of an unweighted index?
Which index is an example of an unweighted index?
What is the initial value assigned to a value-weighted index?
What is the initial value assigned to a value-weighted index?
What aspects must be identified to understand a client's risk tolerance?
What aspects must be identified to understand a client's risk tolerance?
Which of the following best describes a fundamentally weighted index?
Which of the following best describes a fundamentally weighted index?
Which index is primarily based on price-weighted methodology?
Which index is primarily based on price-weighted methodology?
What does a policy statement provide in the context of portfolio management?
What does a policy statement provide in the context of portfolio management?
Which of the following factors is NOT considered when identifying the client's needs?
Which of the following factors is NOT considered when identifying the client's needs?
What is the purpose of using a benchmark portfolio?
What is the purpose of using a benchmark portfolio?
What might an unanticipated change in portfolio value indicate?
What might an unanticipated change in portfolio value indicate?
Which of the following elements contributes to establishing a suitable investment strategy?
Which of the following elements contributes to establishing a suitable investment strategy?
How can a policy statement help prevent unethical behavior by the portfolio manager?
How can a policy statement help prevent unethical behavior by the portfolio manager?
Why is it important to know about the client's liquidity needs?
Why is it important to know about the client's liquidity needs?
What are the categories resulting from combining market-cap groups with value and growth classifications?
What are the categories resulting from combining market-cap groups with value and growth classifications?
Which of the following is NOT a type of growth style index?
Which of the following is NOT a type of growth style index?
What does the FT/S&P Actuaries World Index measure?
What does the FT/S&P Actuaries World Index measure?
Why are global equity indices difficult to compare?
Why are global equity indices difficult to compare?
What is the base date for the FT/S&P Actuaries World Index?
What is the base date for the FT/S&P Actuaries World Index?
Which securities are included in the FT/S&P Actuaries World Index?
Which securities are included in the FT/S&P Actuaries World Index?
Which of these is an example of a Socially Responsible Investment Index?
Which of these is an example of a Socially Responsible Investment Index?
What percentage of the total value of all listed companies in each country does the FT/S&P Actuaries World Index cover?
What percentage of the total value of all listed companies in each country does the FT/S&P Actuaries World Index cover?
Study Notes
Client Identification and Investment Goals
- Understand client types, nature, and existence of separate beneficiaries.
- Determine income requirements, growth expectations, and maintenance of purchasing power.
- Assess risk tolerance including stability of values and appetite for losses.
- Identify liquidity needs, time horizon, tax, and legal considerations.
Policy Statement
- Clarify investor needs and real risks of adverse financial outcomes, alongside emotional reactions.
- Evaluate knowledge about investments and general financial literacy.
- Recognize other capital or income sources and legal restrictions affecting investments.
- Establish a standard for evaluating portfolio performance through appropriate benchmarks aligned with investment goals.
Benchmarking in the Philippines
- Money market funds benchmarked against 91-day T-bills and TD rates.
- Equity funds benchmarked against the Philippine Stock Exchange Index (PSEi).
- Bond funds utilize the BPI Local Bond Index and Bloomberg Sovereign Bond Index for performance comparison.
Asset Allocation
- Stock market performance is influenced by broader economic growth expectations.
- Bonds may experience price increases during economic contractions due to lower interest rates driven by expansionary policies.
- Small company stocks typically yield higher returns and volatility compared to larger firms.
Risk-Reward Trade-Off
- Increased investment risk usually correlates with potential higher returns.
- Price-weighted indexes assign greater weight to stocks with higher prices affecting overall index valuation.
Stock Market Indexes
- Various stock classification methods based on weighting include unweighted, fundamentally weighted, value-weighted, and free-float market capitalization.
- Includes examples of growth and value style indexes, socially responsible investment indexes, and global equity indices.
Global Equity Indices
- FT/S&P Actuaries World Index measures 2,500 securities across 30 countries, accounting for 70% of total company values.
- Market-value weighted index gives emphasis to companies allowing direct foreign investment with results reported in various currencies.
January Anomaly and Calendar Effects
- Notable seasonal phenomena include higher returns in the first half of trading months and negative returns typically experienced on Mondays.
- Specific effects such as ghost month in August and year-end influences impact trading behaviors.
Cross-Sectional Return Prediction
- Low P/E stocks generally perform better in terms of risk-adjusted returns than high P/E stocks, indicating inefficiencies in the semi-strong market hypothesis.
- Mixed results exist regarding the effectiveness of PEG ratios, with some studies suggesting an inverse relationship to future returns, though annual rebalancing shows inconsistent results.
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Description
This quiz focuses on understanding client types and their investment goals, including income requirements and risk tolerance. It covers key considerations such as liquidity needs, time horizons, and legal factors affecting investments. Additionally, it discusses benchmarking investment performance in the Philippines.
