Module 47.3 LOS 47.e: Components of Active Risk and Active return
Active return is the difference in returns between a managed portfolio and its benchmark: Active return = RP – RB Active risk (also …
Module 47.3 LOS 47.f: Uses of Multifactor models, tracking vs factor portfolios
We can use multifactor models for passive management, active management and in rule-based/algorithmic management For passive management, managers often create …
Module 49.1 LOS 49.c: Covariance, Risky Cash Flows and Risk Premiums
The inter-temporal rate of substitution represents the trade-off between real consumption today vs real consumption in the future. For a …
Module 47.1 LOS 47.a and 47.b: The Arbitrage Pricing Theory (APT) and Recognizing Arbitrage Opportunities by Combining Portfolios
The APT is a linear model of expected return that incorporates multiple systematic risk factors, but does not identify what …
Module 50.2 LOS 50.b: The information ratio vs the Sharpe ratio and the optimal risk amount
For review, the Sharpe ratio (SR) is the excess return per unit of risk. It is unaffected by cash inflows or leverage. …
Module 45.1 LOS 45.i: Commodity swaps characteristics
Swaps are off market instruments created by dealers which allow purchasers to increase or decrease their exposure to commodity risk. …
Module 45.2 LOS 45.h: Contrast roll return in markets in contango and markets in backwardation
To hold the value of a long position constant, an investor must buy more contracts if the new longer-dated futures …
Module 44.1 LOS 44.a: How Private Equity Creates Value
PE firms can increase value through their ability to re-engineer a portfolio company to operate more efficiently by leveraging their …
Module 44.1 LOS 44.b: Private Equity Control Mechanisms
Control mechanisms are terms agreed upon between the PE firm and managers of portfolio companies for a PE fund which …
Module 44.2 LOS 44.g: Risks and Costs of Investing in Private Equity
Private equity investing comes from some unique costs and risks. Cost wise, PE funds charge transaction costs, fund set up …