Activity 2 Assignment

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William Rainey Harper College *

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Finance

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May 22, 2024

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docx

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A. After reading CAIA chapter 1, please answer the following questions (11 points) Please use your own wording to answer the questions. 1) Define the term "investment" and give two examples. Investment is the act of allocating resources with the expectation of generating future returns. Examples include purchasing stocks for potential capital gains and investing in bonds for fixed interest payments. 2) List four major types of real assets other than land and other types of real estate and give an example of each type. Four major types of real assets, excluding land and other real estate, are: a) Natural resources (e.g., oil fields) b) Infrastructure (e.g., toll roads) c) Commodities (e.g., gold) d) Intellectual property (e.g., patents) operationally focused 3) List the 3 major types of alternative investments other than real assets in the CAIA curriculum. The three major types of alternative investments, apart from real assets, are: a) Hedge funds b) Private equity c) Structured Products 4) Name and define the five structures that differentiate traditional and alternative investments. The five structures that differentiate traditional and alternative investments are: a) Legal and regulatory structure b) Securities structure c) Trading structure d) Compensation structure e) Institution structure Investment horizon, Return characteristics, Risk characteristics, Market structure 5) Which of the five structures that differentiate traditional and alternative investments relates to the taxation of an instrument? The structure related to the taxation of an instrument is the "regulatory structure."

6) Name and define the four return characteristics that differentiate traditional and alternative investments. The four return characteristics that differentiate traditional and alternative investments are: a) Diversification means spreading your investments to reduce risk by choosing things that don't all move in the same way. b) Illiquidity is when you can't quickly buy or sell something because not many people are trading it. c) Inefficiency is when the market doesn't behave as expected, creating opportunities for investors to take advantage of the differences. d) Non-Normality is when investment returns don't follow the typical pattern, making them harder to predict using standard methods. 7) Name and define the four major methods of analysis that distinguish alternative investments from traditional investments. The four major methods of analysis distinguishing alternative investments are: a) Return Computation Methods: Figuring out how much money you can make from an investment based on how it's set up. b) Statistical Methods: Using math to understand how an investment's profits vary, mainly by looking at the average and how much they might change. c) Valuation Methods:Deciding how much an investment is worth by considering the overall value of the economy, including pricing for regular investments and finding potentially mispriced ones. d) Portfolio Management Method: Applying smart strategies to handle issues like unusual behavior in the market. This method also focuses on making investments that have the potential to bring in really good profits. 8) Describe an "incomplete market".

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