Reading 31: Equity Portfolio Management－LOS a overall, 2008

tycoon

CFA Institute Area 8-11, 13: Asset Valuation
Session 10: Equity Portfolio Management
Reading 31: Equity Portfolio Management
LOS a: Discuss the role of equities in the overall portfolio.

tycoon

Which of the following statements regarding using equities as an inflation hedge is most accurate? They have been a good inflation hedge:

A) but only in the U.S for a short time span.

B) in many countries over a long time span.

C) but only in the U.S for a long time span.

D) in many countries over a short time span.

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Answer and Explanation

Using data for 17 countries for 106 years, equities have had consistently positive real returns (i.e., their nominal return has been higher than that of inflation).

tycoon

Which of the following is least accurate regarding using equities as an inflation hedge?

A) The historical record is impressive as to their effectiveness.

B) They have provided a better inflation hedge than bonds.

C) The effectiveness of an individual stock as a hedge depends on its product market.

D) Their ability to hedge is unaffected by taxes.

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Answer and Explanation

Because corporate income and capital gains tax rates are not indexed to inflation, inflation can reduce the stock investors return, unless this effect was priced into the stock when the investor bought it. Equities have had consistently positive real returns in 17 countries from 1900-2005. The more competition in a firms product market, the less effective their stock will be as a hedge. Bonds are a poor inflation hedge because their future cash flows are fixed.
  

[此贴子已经被作者于2008-9-18 17:50:14编辑过]

tycoon

Which of the following is least accurate regarding equities in a portfolio?

A) U.S. equity typically constitutes about half of world equity.

B) Investing in international equities has provided diversification.

C) Equities have been shown to be an inflation hedge worldwide.

D) European institutions hold more equity than U.S. institutions in their portfolio.

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Answer and Explanation

In the U.S., institutional investors hold about 60% of their portfolio in equity. In Europe, the percentage is closer to 20%. The historical evidence in the U.S. and in other countries indicates that equities have been a good inflation hedge.