Question 23

Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA). TAA represents a

dynamic investment strategy that actively adjusts the portfolios asset allocation, shifting it

towards undervalued assets and away from overvalued assets for time periods generally spanning

one to several years. Conversely, SAA is long term.

True

False

Question 24

Futures Profitability and Zero Sum Game: The profit to a long futures contract is the spot price at

maturity minus the original futures price. The profit to a short futures contract is the original

futures price minus the spot price at maturity. When summed, the profits to the long and the short

suggest that futures contracts are a zero-sum arrangement.

True

False

Question 25

Valuation Model Consistency: Valuation model consistency refers to the proper linking of the

numerator and denominators components. For example, the discounting factors for FCFE and

FCFF are the CAPM required return and the WACC, respectively.

True

False

Question 26

FCFE. The Free Cash Flow to Equity equals FCFF minus after tax interest expenditures plus

increase in net debt. FCFE is discounted by the CAPM.

True

False

Question 27

Alternative Asset Attributes: Diversification, illiquidity, and inefficiency define a number of the

distinguishing characteristics of the alternative assets space. Alternative assets are termed alpha

investments (representing manager skill to generate a positive risk adjusted return).

True

False