Why Should the Investment Manager Not Simply Take the Period-Ending

question 16

Multiple Choice

Why should the investment manager not simply take the period-ending portfolio value,divide it by the previous period-ending portfolio value,and then subtract 1 to determine the realized yield?

• A)because this would be confusing to explain to the manager's superiors
• B)because these calculations are almost always done by dealers and brokers
• C)because funds may have been withdrawn during the period
• D)because this always inflates the actual yields and is misleading

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Definitions:

Credit Risk

The risk that the bond will not make all of its promised payments; default risk.

Swap Market

A market in which individuals, businesses, and institutions exchange financial instruments, like interest rates or currencies.

Fixed Rate

An interest rate that remains constant over the life of a loan or investment.

Portfolio's Beta

A measurement of the volatility or systematic risk of a portfolio in comparison to the market as a whole.