AWMA
Benefits of Buy and hold - ANS-returns at least as good as strategies based on
technical analysis, low transactional costs, the deferral of capital gains taxes on profits,
not missing the best days of the market
Capital Market Line - ANS-A graphical representation of the relationship between risk
and return, where risk is measured by standard deviation; the CML includes the concept
of a risk-free rate of return
convergence trading - ANS-includes fixed-income arbitrage, convertible bond arbitrage,
equity market-neutral, and relative value arbitrage
corporate restructuring - ANS-includes distressed securities, merger arbitrage, event
driven, and regulation D offerings
distressed debt - ANS-investing in the debt of companies that are in trouble or failing.
performance is tied to the individual circumstances on the company itself.
Framing - ANS-Framing is the notion that it matters how a concept is presented to an
individual. For example, assume a meal at a restaurant normally is priced at $10. The
restaurant might offer an "early bird special" where that price is $8 before 6 p.m., and
thereby get more business if people think they are getting a discount. Now assume,
instead, the price of the meal is $8 but after 6 p.m. there is a $2 surcharge
How are Treynor and Sharpe indexes best used? - ANS-Both are used to compare the
risk - adjusted returns on diff funds. The higher the risk-adjusted return, the better. The
key diff is that Treynor uses Beta as its risk measure, so Treynor can only be used with
fully diversified portfolios. Sharpe, uses Standard deviation (total risk) as its measure of
risk so can only be used with either fully diversified or nondiversified portfolios
Jenson Performance index - ANS-Used in comparing performance money managers on
a risk-adjusted basis and can be used by itself. A number above 0.00 indicates the
manager had better performance than would be expected given the risk he took... vice
versa
Leveraged Buyouts (LBOs) - ANS-to take a company private in order to repackage and
restructure the company and then return the company to the public market at a higher
price through and IPO. Or - to break up the company into several parts and sell off the
diff parts of the business to different bidders (cut and run)
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