Investment Analysis and Portfolio Management Flashcards
6 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Analysis and Portfolio Management flashcards as text
Which portfolio theory was developed by Harry Markowitz to optimize risk-return trade-offs?
Answer: Modern Portfolio Theory
Modern Portfolio Theory, developed by Markowitz in 1952, shows how investors can construct portfolios to maximize expected return for a given level of risk.
The Sharpe ratio measures a portfolio's excess return per unit of which type of risk?
Answer: Total risk
The Sharpe ratio divides excess return over the risk-free rate by the portfolio's standard deviation, representing total risk.
Beta measures a security's sensitivity to movements in which benchmark?
Answer: The overall market index
Beta quantifies how much a security's returns move relative to a broad market index such as the S&P 500.
Which valuation model discounts all expected future dividends to estimate a stock's intrinsic value?
Answer: Dividend Discount Model
The Dividend Discount Model values a stock as the present value of all its expected future dividends.
Duration measures a bond's sensitivity to changes in which variable?
Answer: Interest rates
Duration quantifies the approximate percentage price change in a bond for a 1% change in interest rates.
Which asset allocation strategy periodically restores a portfolio to its target weights?
Answer: Rebalancing
Rebalancing involves buying or selling assets to return the portfolio to its originally intended strategic allocation.