FIN 431, Spring 2012Exam 1 ReviewCh. 1Process of Portfolio Management•Outline the process:Learn the principles of finance.:A solid grounding in the basic principles of finance. The mananagement of money. Set portfolio objectives. Formulate an investment strategy.: Have a plan for revising the portfolio when appropriate. Evaluate the portfolio performance.:1stdid the porfolio manager do what he or her was heired to do? 2interpreting the numbers. How much did the portfolio earn.Protect the portfolio when necessary.:protfolio protection I powerful managerial tool designed to reduce the likelihood that a portfolio will fall in value below a predetermind minimun level.Ch. 3Setting Portfolio Objectives•Discuss the types of investor preconditions that must be considered before building portfolios:Current situation:what the current need of the portfolio beneficiary. Investment horizon: Liquidity. Ethical constraints •Discuss the four traditional objectives: Stability of principal:most conservative portfolio objective. Over the long run generate most modest return.Income: there is no specific proscription against periodic decline in principla value.(when chosen objectives appropriate investment include corporate bond, gover bond , gover agency sec,pre stock, Growth of income: objective usually involoves a reduce initial income payout but a dollar payout that grows over time and overtakes the level amount from an income objective. Requires the fund manager to seek some capital appreciation in the original principa. This means that some of the fund needs to reside in equity sec. Capital appreciation:if people have an investment porfolio they might be more interested in having it continue to grow in value rather than in getting additional income from it.•Discuss taxation of income as an additional portfolio constraint.•Discuss primary versus secondary objectives. Deciding in the primary objective of the porfolio is a major accomplishment for the fund manager and the fund beneficiary. It is also prudent and enormously helpful to establish a
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investment policy, fund manager, conservative portfolio objective