Methods of Investing in Alternative Investments
Direct Investing. In direct investing, an investor directly invests in an asset without using an intermediary. Thus, direct investing gives investors higher control and flexibility when selecting their investments, financing methods, and approaches. However, direct investing in alternative investments is majorly common with huge and established
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Portfolio Approach to Investing CFA Level 1
(1 days ago) The Modern Portfolio Theory. Although adopting a portfolio approach to investing seems intuitive, there is a theory behind it. The diversification concept follows the work of Harry Markowitz’s 1952 publication and is known as Modern Portfolio Theory (MPT).
Investing in Non-domestic Equity Securities CFA Level 1
(7 days ago) Investing directly in foreign securities may result in less transparency and more volatility as audited financial information may not be provided, and the market may be less liquid. Depository Receipts. A depository receipt is a security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company.
Real Estate Investments
(7 days ago) Direct Real Estate Investing. Private direct investment is when an investor purchases a property and takes on the debt to finance the purchase. The ownership can either be free and clear or through debt. In a free and clear transaction, ownership goes directly to the investor without any hindrances, such as outstanding mortgages.
Advantages and Disadvantages of Investing in Publicly
(Just Now) The most common disadvantages of investing in real estate through publicly traded securities include: Losses and Tax Deductions; Direct investments in real estate allow deductions on losses against real estate taxable income. Besides, direct investments permit the swapping of one property for a similar one.
Cash Flows from Operating, Investing, Financing Activities
(6 days ago) Operating cash flow; and investing cash flow. Solution. The correct answer is C. The first cash outflow is an operating activity. This is because it is related to the production activities of the company. The second cash outflow is an investing activity since it is related to the acquisition of a long-term asset.
Investment Constraints CFA Level 1
(5 days ago) A client may have religious or ethical objections to investing in particular stocks or sectors. These types of considerations are often referred to as ESG (environment, social, governance) factors and investing in accordance with ESG factors is referred to as SRI (socially responsible investing). Question
Non-cash Investing and Financing Activities CFA Level 1
(4 days ago) Solution. The correct answer is C. Issuance of common stock in relation to the conversion of preferred stock is an example of a non-cash activity. A is incorrect. The purchase of equipment is an operating activity. B is incorrect. Investment in another company’s debt is an investing activity. Both options A and C are cash activities that
Description of Alternative Investments
(1 days ago) For example, investing in existing infrastructure projects is a “brownfield” investment. These assets are either being sold or leased by the current owner (often, the government) and have historical data for an investor to analyze.
Alternative vs Traditional Investments Example CFA Level
(6 days ago) Every possible investment choice is either an alternative or a traditional investment. Traditional investments are: long-only, publicly traded investments in stocks; long investments in publicly traded bonds; or. cash. Traditional is not a synonym for “common,” and neither is alternative a synonym for “unusual.”.
Alternative Investments Compensation Structures
(7 days ago) Moreover, this feature forces GPs to be selective when investing committed capital. In hedge funds, the management fee is based on assets under management (AUM). Performance or Incentive Fee and Hurdle Rate. The performance fee is earned only after the fund achieves a return known as a hurdle rate. The hurdle rate is the lowest rate of return
Environmental Factors in Investment Analysis CFA Level 1
(1 days ago) Impact investing seeks to achieve targeted social or environmental objectives along with measurable financial returns through engagement with a company or by directly investing in projects or companies. It can be executed through various asset classes and investment vehicles such as venture capital investing.
Risks and Costs of Investing in Private Equity
(5 days ago) Risks and Costs of Investing in Private Equity. Private equity fund investment is guided by restrictions driven by the high levels of risks experienced in private equity investment. Such an investment is generally subject to disclosure in the private equity fund prospectus. General private equity risk factors.
Fintech Applications to Investment Management AnalystPrep
(7 days ago) Fintech has had a huge impact on investment management. The ability to create computer programs that can learn on their own and improve over time creates new opportunities for investment professionals across the board.
(1 days ago) To start with, the optimal risky asset portfolio using the risk, return and correlation characteristics of the underlying assets dictate the investment decision. Besides, considering an investor’s risk preference, a determination is made on the allocation to the risk-free asset. Plotting the risk-free asset with the risky portfolio on a graph
Factors in Investment Analysis CFA Level 1
(7 days ago) Sustainable Investing (SI) and Responsible Investing (RI) are sometimes used interchangeably with ESG integration. Socially Responsible Investing (SRI) is an investment strategy that is said to incorporate ESG issues. This strategy has however historically been represented by the practice of excluding companies and industries from investment
The Capital Asset Pricing Model (CAPM), the Fama-French
(8 days ago) Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory.
Time To Rethink the Classic 60/40 Portfolio
(3 days ago) Investing in real estate, infrastructure, and credit markets are a few possibilities for investors searching for assets they can include in their portfolio. If correctly studied, these assets can give a substantial boost to the portfolio. Diversification has always been a time-and-tested strategy to mitigate the risks of investing. About the Author
(7 days ago) Value Investing. Relative to their net worth, value stocks have low prices: the book value has to be taken to account for the prices to be measured. For growth stocks, as compared to the book value, they are relatively costly. Money is sometimes lost in value investing, despite its generally good performance.
Risk and Return Objectives CFA Level 1
(5 days ago) A. Target a maximum annual portfolio volatility of 1.5x the S&P 500 and returns of ±4% of the S&P 500 annual return. B. Target a maximum portfolio drawdown of 10% with 95% confidence and annual returns of 12%. C. Target a maximum portfolio loss of $100 000 with 95% confidence and annual returns within 2% of the MSCI World Index.
Pricing and Valuation Concepts
(9 days ago) The price of a forward or a futures contract is the prespecified price that the buyer (long position holder) should pay the seller (short position holder) to purchase the underlying asset at the expiration/settlement date. On the other hand, the value of a forward or futures contract is the current monetary value determined after contract inception
(2 days ago) -f. Explain risks and costs of investing in private equity;-g. Explain private equity fund structures, terms, due diligence, and valuation in the context of an analysis of private equity fund returns;-h. Interpret and compare financial performance of private equity funds from the perspective of an investor;-i.
Optimal Capital Budget CFA Level 1
(2 days ago) The correct answer is C. The optimal capital budget is the amount of capital raised and invested and at which the marginal cost of capital is equal to the marginal return from investing. A and B are incorrect because the marginal cost of capital schedule is upward-sloping while the investment opportunity schedule is downward-sloping.
Finance and Operating Leases on Financial Statements
(7 days ago) In addition, a finance lease would increase cash flow from investing activities as all the cash inflows from the lease would be considered as inflows from a financing contract. On the other hand, cash inflows in an operating lease would be considered as operating cash inflows. Reading 28 LOS 28p:
Portfolio Performance Evaluation AnalystPrep
(2 days ago) The objective of investing in hedge funds is to diversify funds and maximize returns. However, to meet the aim of high returns, a higher cost of risk is incurred because hedge funds are invested in risky portfolios. There are several inherent issues in measuring the performance of hedge funds, as discussed below.
Effective Durations of Callable, Putable, and Straight
(5 days ago) Callable bond. The effective duration of a callable bond cannot be greater than that of a straight bond.. As interest rates rise above the coupon rate, the call option becomes out of money. Therefore, straight and callable bonds will have the same effective durations.
(9 days ago) Value investing is an investment strategy in which investors are interested in buying stocks at a price lower than their true worth. Value investing usually does averagely well but may lose money, especially during a financial crisis. Forms of Value Investing
Minimum-Variance Portfolios CFA Level 1
(Just Now) The portion of the minimum-variance curve that lies above and to the right of the global minimum variance portfolio is known as the Markowitz efficient frontier. It contains all portfolios that rational, risk-averse investors would choose. We can also monitor the slope of the efficient frontier, the change in units of return per units of risk.
Contrast Cash Flow
(5 days ago) Under IFRS, dividends received may be classified either as an operating activity or investing activity, while under US GAAP, it can only be reported as an operating activity. Solution. The correct answer is B. Under IFRS, interest paid may be classified either as an operating activity or financing activity.
The Value and Return of an Index CFA Level 1
(Just Now) Value Income End Value Shares Beg. Weight End Weight Security A 500 0 750 1 88.5 % 94.2 % Security B 20 1 21 1 3.5 % 2.6 % Security C 45 1 25 1 8.0 % 3.1 % Total 188.33 265.33 3 1 1 Price Return 40.9 % Total Return 41.2 %. One share of each security is held in the index, and the divisor is set to 3 – the total number of shares.
Cash Flow Statement
(5 days ago) Investing cash flow. Financing cash flow. Operating cash flow. Solution. The correct answer is C. The only difference between the two methods is how they report operating cash flow. The indirect method starts with net income, then deducts/adds non-cash items. The direct method shows cash inflows and outflows directly.
Evaluating the Cash Flow Quality of a Company
(5 days ago) If ABC Inc. maintained the classification of its short-term investing activities, the company’s operating cash flows for the fiscal year 2018 would have been $246,132 $ 246, 132 thousand (= $292,446–$46,314) ( = $ 292, 446 – $ 46, 314). Consequently, a decline of 5% from the fiscal year 2017 to the fiscal year 2018 would have been shown.
Mean-Variance Portfolio Theory
(4 days ago) This implies that investing in assets/securities whose returns are uncorrelated lowers the variance of a portfolio, which is the goal of diversification. Example 1: Standard Deviation of a Portfolio Consider a two-asset portfolio where asset A has an allocation of 80% and a standard deviation of 16%, and asset B has an allocation of 20% and a
Basic Forms of Real Estate Investments
(7 days ago) The first dimension tells us whether the investment is made in the private or public market. The public market involves indirectly investing in real estate through ROEC, REITS, or MBS. In contrast, the private market involves direct investment in an asset, such as developing or buying real estate properties that directly claim the asset.
Reported and Common-size Cash Flow Statements
(6 days ago) Evaluation of the Primary Determinants of Investing Cash Flow. Each line item in the investing activity section should be evaluated. The evaluation should identify how much cash is being invested in property, plant, and equipment, how much is invested in stocks and bonds, and how much is used to make acquisitions.
Country Risk Premium
(Just Now) The equity risk premium for a company in a developing country is 5.5%, and its country risk premium is 3%. If the company’s beta is 1.6 and the risk-free rate of interest is 4.4%, use the Capital Asset Pricing Model to compute the company’s cost of equity.
Market Efficiency and Behavioral Finance
(4 days ago) Option C is incorrect: An investor would not be capable of earning abnormal returns by investing in an actively managed fund in a semi-strong efficient market. However, the actively managed fund may still be a rational choice to achieve other financial goals, such as to keep the stream of cash flows of a retired investor constant.
Convert Cash Flows from the Indirect to Direct Method
(9 days ago) Investing. Operating. Financing. Solution. The correct answer is B. Only the operating cash flow section of the cash flow statement can be prepared using the direct or the indirect method. The investing and financing sections of the statement are prepared using one method, by directly listing the investing/financing cash inflows and outflows.
Fixed-rate Bonds, Money Market Instruments CFA Level 1
(6 days ago) So, the price of the floating rate is 99.511 per 100 of par value. The FRN is priced at a discount since the quoted margin (0.0025) is less than the discount margin (0.0050). Using the formula, you can be asked to compute the discount margin, when you are provided with the price of the FRN.
Operating versus Non-operating Items CFA Level 1
(1 days ago) Under IFRS, operating activities include all transactions and other events that are not defined as investing or financing activities. Non-operating items include revenue and expense items that are generated during the regular course of business operations.
The Present Value of Growth Opportunities (PVGO)
(Just Now) Increases in shareholder wealth occur when reinvested earnings earn more than the opportunity cost of funds. Companies with no prospects for investing in positive NPV projects are referred to as no-growth companies. They should distribute their earnings to shareholders as dividends to redirect capital to more attractive areas.
Risk and Return of Equity Securities CFA Level 1
(8 days ago) There are two main sources of total return for equity securities – capital appreciation and dividend income: Total Return = P 1–P 0 +D P 0 Total Return = P 1 – P 0 + D P 0. Where: P 1 = Sale price (or price at t = 1) P 0 = Purchase price (or price at t = 0) D = Dividend income paid to the investor between t = 0 and t = 1.
(7 days ago) Behavioral finance examines investor behavior to understand how people make decisions, individually and collectively. Behavioral finance does not assume that investors always act rationally but instead that people can be negatively affected by behavioral biases. Market efficiency does not require all market participants to act rationally as
Types and Categories of Alternative Investments
(3 days ago) For example, investing in existing infrastructure projects is a “brownfield” investment. These assets are either being sold or leased by the current owner (often, the government) and have historical data for an investor to analyze.
VaR and Risk Budgeting in Investment Management
(7 days ago) Active management risk is minimal for well-managed funds, as explained by diversification through a prudent choice of various styles or many fund managers and investing in indexed or closely indexed funds. Funding Risk. Funding risk is the possibility of loss arising when the value of assets is insufficient to cover the liabilities of the fund.
Alternative Formats of Balance Sheet Presentation
(9 days ago) Alternative Balance Sheet Presentation Formats. US GAAP uses the title ‘Balance Sheet’, while IFRS uses the title ‘Statement of Financial Position’. This difference in name notwithstanding, both statements report on the three basic elements i.e. assets, liabilities, and equity. IFRS and US GAAP both require that the balance sheet