CFA Portfolio Management

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CFA Portfolio Management
2012-05-31 12:26:33
CFA Portfolio Management

CFA Portfolio Management
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  1. Markowitz
    Created efficient frontier - set of portfolios with the highest return for a given level of risk
    investors should only be rewarded for market risk

    CAPM (CML) plots E(R) on the y and standard deviation on the x

    SML plots E(R) on the y and Beta on the x

    the equation of the SML is CAPM
  3. Mispriced stocks
    • All stocks should lie on the SML
    • over the line is underpriced

    Expected return (or HPR) > Required return (CAPM) = Buy
  4. Sharpe ratio, Msquared
    • Sharpe: (Rp - Rf)/SIGMAp
    • both measure excess return for unit of total risk
  5. Treynor measure, Jensen's alpha
    measure excess return per unit of systematic risk (beta)
  6. Use calculator to find covariance between 2 stocks
    enter all values into DATA

    use STAT to find Sx, Sy, and r, then multiply
  7. 90% of portfolio variance comes from
    asset allocation
  8. capital allocation line vs capital market line
    CAL: line representing combinations of risk-free and a risky asset

    CML: line representing combinations of risk-free and market portfolio
  9. private equity fund
    purchases all the shares of a public company, takes it private, reorganizes to increase value, the has an IPO to get the funds returns
  10. book value =
    assets - liabilities
  11. global depository receipts
    • issued outside of the U.S. and home country of the issuer
    • denominated in USD
  12. industry experience curve
    illustrates the relationship between cumulative output and cost per unit
  13. diversification ratio
    divide individual stock risk by average risk in the portfolio
  14. classes of stock
    firm's may choose to issue different classes of common stock, with some offering voting rights or higher priority during a liquidation event
  15. participating preference shares
    receive an extra dividend if firm profits exceed a predetermined threshold
  16. enterprise value
    market value of stock + market value of debt (aka bonds) - cash - short term investments
  17. multistage model
    used for unsustainably high growth firms