portfolio mngmt

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risk premium is made up of 4 elements
- interest rate risk
- purchasing power risk (inflation)
- business risk
- financial risk
risk premium

expected return minus risk-free return
after tax return=actual return after paying income taxes

100%-tax rate, then multiply times the return
15% is for both dividends and capital gains
dividends always taxed at 15%
real return takes into consideration

the inflation rate

real return = total return minus the inflation rate
bond interest rate risk

bond sold prior to maturity
in regards to interest rate risk, if all bonds are being sold prior to maturity and they show yields--

pick the bond with the highest yield
reinvestment risk is on all debt security of 20 years or less and will be

held until maturity

if based on years, and they do not state if the bond is being held or sold, choose any bond under 20 years.
liquidity is also know as

marketability risk
true of false, money market vehicles are considered to be the most liquid

true
what is duration?

the measurement of the sensitivity of bond prices during changes in interest rates
how to find the duration risk or greatest price movement:
- -alwasy pick the longest bond
- two bonds with the saem maturity and which has the greatest price change? pick the lowest coupon
volatility risk is measured by:
- alpha
- beta
- r-squared
- sharpe ratio
- delta
- correlation coefficient
- standard deviation
sharpe ratio

compares risk-adjusted return to volatility as compared to standard deviation
large cap

5 billion or more
market capitalization

price per share x number of outstanding shares
mid cap

1 billion - 5 billion
small cap

250 million - 1 billion
micro cap

250 million or less
russell 2000

small cap
wilshire 5000

all caps
s&p 500

large cap

Author

rockoforu

169496

Card Set

portfolio mngmt

Description

portfolio mgmt and risk

Updated

2012-09-07T22:38:38Z