Portfolio Management and Analysis Flashcards
6 cards from real Series 65 – Uniform Investment Adviser Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Portfolio Management and Analysis flashcards as text
What is the difference between technical analysis and fundamental analysis?
Answer: Technical analysis uses price and volume data to forecast future prices; fundamental analysis evaluates a company's financial health and intrinsic value
Technical analysts study historical price and volume patterns to predict future price movements, while fundamental analysts evaluate financial statements, management, and economic factors to determine intrinsic value.
What is the time-weighted rate of return (TWR) designed to measure?
Answer: The compound growth rate of a portfolio that eliminates the distorting effects of client cash flows
TWR measures the compound growth of an investment by eliminating the impact of client deposits and withdrawals, making it useful for evaluating a manager's pure investment performance.
What is the difference between systematic and unsystematic risk?
Answer: Systematic risk affects the entire market and cannot be diversified away; unsystematic risk is specific to individual companies and can be reduced through diversification
Systematic (market) risk affects all investments and cannot be diversified away, while unsystematic (company-specific) risk can be reduced by holding a diversified portfolio.
What is a 'benchmark' used for in portfolio management?
Answer: A standard index or reference point used to evaluate the relative performance of a portfolio
A benchmark (typically a market index) serves as the reference point against which a portfolio's performance is compared to assess whether the manager added value.
What is Monte Carlo simulation used for in financial planning?
Answer: To model the probability of various outcomes by running thousands of random scenarios using historical data
Monte Carlo simulation runs thousands of scenarios with random variations in returns and other variables to estimate the probability distribution of portfolio outcomes over time.
Which portfolio management approach is described as 'top-down' investing?
Answer: Beginning with macroeconomic analysis to identify favorable sectors, then selecting individual securities within those sectors
Top-down investing begins with broad macroeconomic and market analysis to identify attractive sectors or regions, then narrows down to individual security selection within those areas.