PORTFOLIO MANAGEMENT: AN OVERVIEW

 On this chapter we have now mentioned how a portfolio method to investing might be preferable to easily investing in particular person securities.

 The issue with specializing in particular person securities is that this method could result in the investor “placing all her eggs in a single basket.”

 Portfolios present essential diversification advantages, permitting danger to be diminished with out essentially affecting or compromising return.

 We’ve outlined the differing funding wants of varied forms of particular person and institutional traders. Institutional purchasers embrace outlined profit pension plans, endowments and foundations, banks, insurance coverage firms, funding firms, and sovereign wealth funds.

 Understanding the wants of your consumer and creating an funding coverage assertion signify the primary steps of the portfolio administration course of. These steps are adopted by safety evaluation, portfolio building, monitoring, and efficiency measurement phases.

PROBLEMS^[1]

1. Traders ought to use a portfolio method to:
   1. Scale back danger.
   1. Monitor danger.
   1. Get rid of danger.
2. Which of the next is one of the best purpose for an investor to be involved with the composition of a portfolio?
   1. Danger discount.
   1. Draw back danger safety.
   1. Avoidance of funding disasters.
3. With respect to the formation of portfolios, which of the next statements is most correct?
   1. Portfolios have an effect on danger lower than returns.
   1. Portfolios have an effect on danger greater than returns.
   1. Portfolios have an effect on danger and returns equally.
4. Which of the next establishments will on common have the best want for liquidity?
   1. Banks.
   1. Funding firms.
   1. Non-life insurance coverage firms.
5. Which of the next institutional traders will more than likely have the longest time horizon?
   1. Outlined profit plan.
   1. College endowment.
   1. Life insurance coverage firm.
6. An outlined profit plan with numerous retirees is more likely to have a excessive want for:
   1. Earnings.
   1. Liquidity.
   1. Insurance coverage.
7. Which of the next institutional traders is more than likely to handle investments in mutual funds?
   1. Insurance coverage firms.
   1. Funding firms.
   1. College endowments.
8. With respect to the portfolio administration course of, the asset allocation is set within the:
   1. Planning step.
   1. Suggestions step.
   1. Execution step.

Chapter 4 Portfolio Administration: An Overview 29

• The planning step of the portfolio administration course of is least more likely to embrace an evaluation of the consumer’s:
  • Securities.
  • Constraints.
  • Danger tolerance.
• With respect to the portfolio administration course of, the rebalancing of a portfolio’s composition is more than likely to happen within the:
  • Planning step.

1. An analyst gathers the next info for the asset allocations of three portfolios:

Which of the portfolios is more than likely acceptable for a consumer who has a excessive diploma of danger tolerance?

1. Portfolio 1. B. Portfolio 2. C. Portfolio 3.
2. Which of the next funding merchandise is more than likely to commerce at their web asset worth per share?
   1. Change-traded funds.
   1. Open-end mutual funds.
   1. Closed-end mutual funds.
3. Which of the next monetary merchandise is least more likely to have a capital achieve distribution?
   1. Change-traded funds.
   1. Open-end mutual funds.
   1. Closed-end mutual funds.
4. Which of the next types of pooled investments is topic to the least quantity of regulation?