This blog is an extension of our blog on CFA Quants.

Round five of the CFA Webinar Question Answer sessions! This will aid your CFA prep in more ways than one. Find below a recording of the discussion on CFA Alternative Investments and Portfolio Management.

The answers to the questions are given right here as well.

Find here a brief summary of some of the most important points of CFA Alternative Investments and Portfolio Management:

#CFA Success

Question: What is Convenience Yield?

Answer 1: It is called the extra benefit that is derived from holding the physical good rather than future contract.

Question: Who are Venture Capitalists?

Answer 2:

“Investors who provide money to start up firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns. Hence VCs do not ask for the money back, rather own a share of the profit (in simple terms).”

Question: What is the difference between CAL & CML?

Answer 3:

“There is no difference between CAL and CML as they both represent the same thing. They all involve a possible combination of risk free and risky asset.”

Question: Please elaborate Market Risk Premium.

Answer 4:

“Market Risk Premium = E(Rm)- rf.”

Question: What are Call Options and Put Options?

Answer 5:

“In both options, only the buyer has the right to sell or buy. But there is no obligation.

Call Option: The buyer has a right to buy at some specified price in future.

Put Option: The buyer has a right to sell at some specified price in future.”

Question: Explain Contango and Backwardation.

Answer 6:

“Contango – Futures price > spot price (i.e market is at a premium).

Backwardation – Future price < spot price (i.e market is at a discount).

There will be subsequent blogs on more questions and discussions that will take place on the following days. So stay tuned for more!

If you have any queries, comments or questions feel free to post them in the comments section or visit our forum.