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AAMS Notecards 2025 Solution solved 100% Passed!!
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AAMS Notecards 2025 Solution solved 100% Passed!!
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Passed!!2024/2025
AAMS Notecards
standard deviation Answer: Variability around the mean; a measure of total
risk; absolute.
Beta Answer: Volatility relative to a benchmark; a measure of relative risk;
not static
What did the Brinson study evaluate? Answer: Security selection, market
timing, and asset allocation policy.
What conclusion did the Brinson study reach? Answer: More attention should
be given to the asset allocation process and less given to securities selection and
market timing.
What's the importance of asset allocation in a clients investment strategy?
Answer: Clients must be active in determining their asset allocation and
explicit about objectives, risk, and liquidity over the long term.
T-Bills average (geometric) rate of returns, as well as inflation, since 1926
Answer: 3.3%
Long-term U.S. government bonds average (geometric) rate of returns, as well as
inflation, since 1926 Answer: 5.5%
Long-term corporate bonds average (geometric) rate of returns, as well as
inflation, since 1926 Answer: 5.9%
, Passed!!
2024/2025
Intermediate-term U.S. government bonds average (geometric) rate of returns, as
well as inflation, since 1926 Answer: 5.1%
Large-company stocks average (geometric) rate of returns, as well as inflation,
since 1926 Answer: 10%
Small-company stocks average (geometric) rate of returns, as well as inflation,
since 1926 Answer: 11.8%
Inflation average (geometric) rate of returns, as well as inflation, since 1926
Answer: 2.9%
Define strategic asset allocation Answer: The identification of the asset mix
that will provide the optimal balance between expected risk and return for a long-
term investment horizon.
How is strategic asset allocation maintained? Answer: With periodic
rebalancing by repositioning higher performing assets into lower performing
assets.
Define tactical asset allocation Answer: This is the use of securities selection,
sector rotation, and market timing to periodically revise the asset mix of a
portfolio.
Define core/satellite asset allocation Answer: This approach involves a
combination of strategic and tactical asset allocation enabled by dividing a
, Passed!!
2024/2025
portfolio into a core holding of stocks and bonds, often broad based, low cost
index mutual funds or etfs, and a satellite portion.
What are the characteristics of common stock? Answer: Shareholders receive
dividends on a pro rata basis, vote on the election of corporate board members,
are residual owners of the firm (meaning their interests are subordinate to
creditors and bond holders), and the shares have no maturity
What are the sources of risk for common stock? Answer: A downturn in
economic growth, high interest rates, loss of product or service competitiveness,
failures of management, and government action
What are the characteristics of preferred stock? Answer: Dividends are
usually fixed, qualified and not tax-deductible to the paying corporation, they're
paid ahead of common shares, limited voting rights, and are generally 70% tax
free to owning corporations and can have participating, cumulative, callable, and
convertible features
What are the sources of risk for preferred stock? Answer: Interest rate risk,
purchasing power risk, business risk, and reinvestment risk
What are the characteristics of bonds? Answer: Issued by corporation,
federal and state governments and their agencies and municipalities, a promise to
repay the principal at a specified date in the future, to make periodic interest
rates at specified dates, usually issued at par value, can provide taxable or tax-
free income, and rated investment or non investment grade
What is the total return of bonds made up of? Answer: Interest and any
capital gains or loss
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