Exam (elaborations)
FNCE 2820 Final Exam Questions And Answers
- Course
- Institution
FNCE 2820 Final Exam Questions And Answers ...
[Show more]
Content preview
FNCE 2820 Final Exam QuestionsAnd Answers
Risk tolerance - Answer a measure of an investor's
willingness to hold a higher level of risk, given
the expectation of a higher rate of return.
Asset Allocation - Answer Positioning investment dollars in different
asset categories
(e.g., stocks, bonds, real
estate and cash equivalents)
Security Diversification - Answer Diversifying securities held within each of
the asset categories
Five Principles of Investing - Answer 1. Invest for value
2. Invest with a professional
3. Diversify
4. Continually invest
5. Have patience
How we can apply five principles - Answer 1. Seek knowledge (become the professional)
2. Value is linked to risk-adjusted return
3. Focus on long-term portfolio performance
(not short-term volatility)
4. Commit to systematic savings plan
5. Apply two key concepts:
asset allocation
diversification
Long term wealth accumulation - Answer asset allocation decision
Equities - Answer • Large companies (>$10 billion)
,• Mid-cap ($2-10 billion)
• Small-cap (below $2 billion)
• Domestic or foreign shares
Fixed Income (maturities over one year) - Answer • U.S. Government Notes and Bonds
• Municipal debt (state and local)
• Corporate coupon bonds (investment grade, below
investment grade, "junk" bonds)
• Corporate zero-coupon bonds
• Mortgage-backed bonds
• Treasury Inflation Protected Securities (TIPS)
• Foreign bonds
Cash Equivalents (maturities one year and less) - Answer • U.S. Treasury Bills
• Savings bonds
• Certificates of deposit (CDs)
• Money market accounts
Real Estate - Answer • Individual residential property
• Real estate investment trust (REITs)
• Commercial real estate
Life Cycle Investment Strategy - Answer Wealth = financial wealth + human capital
wealth
Initial: low financial wealth, high human capital wealth = greater focus on income
investments
later: high financial wealth, low human capital wealth = more focus on income producing
investments
Age strategy - Answer 110 - age
• Individual, age 20
90% invested in equities and alternatives*
10% invested in bonds and cash equivalents*
,• Individual, age 40
70% invested in equities and alternatives
30% invested in bonds and cash equivalents
• Individual, age 60
50% invested in equities and alternatives
50% invested in bonds and cash equivalents
60/40 approach - Answer Start from 60% growth versus 40% income mix
Adjust to 70/30 or 80/20, if individual factors warrant
Adjust to 50/50 or 40/60, if individual factors warrant
Mutual Funds - Answer • Professional management
• Diversification with only a small $ investment
• Wide range of asset categories
• High liquidity
• Easy to buy (typically low minimum investment)
Types of investors - Answer Conservative investor (50/50, 40/60 or 30/70)
Moderate investor (60/40)
Assertive investor (70/30)
Aggressive investor (80/20)
Open-ended mutual fund - Answer • Unlimited shares
• Investors buy and sell shares directly from the
investment advisor company
• Transactions clear at end of day, based on net asset value (NAV)
• NAV = total value of securities owed (less liabilities)
divided by the number of mutual fund shares
Money market funds - Answer • U.S. Treasury Bills
• U.S. Government
• Corporate
, • Tax exempt
Bond mutual funds - Answer • Government bond funds
• Municipal bond funds
• Mortgage-backed securities funds
• Intermediate- and long-term bond funds
• Investment-grade or high-yield bond funds
• Bond index funds
• Foreign bond funds
Equity (stock) mutual funds - Answer • Large-, mid- or small-cap funds
• Growth- or value-oriented funds
• Growth - invest in stocks with expected above-average
growth
• Value - invest in stocks which appear cheap by traditional
fundamental measures
Capital appreciation funds - Answer Invest in stocks that offer no or low dividends;
expectation
that gain will be in share price appreciation
Sector funds - Answer • Energy sector, capital goods, etc.
• Stock indexes or index-plus funds
Foreign and Regional Funds - Answer • Country funds (e.g., China fund)
• Regional fund (e.g., European fund)
• Emerging markets funds
• Developing markets funds
• International index (e.g., MSCI)
• International growth or value funds
• International large- or small-cap funds
Alternative Funds - Answer • Real estate funds (REITs)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Flat. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $14.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
