AFC Module 26 - Investments Flashcards
BEAR MARKET
Market in which securities prices have declined in value by 20 percent or more from previous highs.
BULL MARKET
MARKET IN WHICH SECURITIES PRICES HAVE RISEN 20 PERCENT OR MORE OVER TIME.
BUSINESS-CYCLE RISK
THE FACT THAT ECONOMIC GROWTH USUALLY DOES NOT OCCUR IN A SMOOTH AND STEADY MANNER AND THAT THIS IMPACTS PROFITS AS WELL AS INVESTMENT RETURNS
CAPITAL GAIN
INCREASE IN TEH VALUE OF AN INITIAL INVETMENT REALIZED UPON THE SALE OF THE INVESTMENT
CAPITAL LOSS
DECREASE IN PAPER VALUE OF AN INITIAL INVESTMENT
CURRENT INCOME
MONEY RECEIVED WHILE YOU OWN AN INVESTMENT
FINANCIAL RISK
POSSIBILITY THAT AN INVESTMENT WILL FAIL TO PAY A RETURN TO THE INVESTOR
FIXED INCOME
SPECIFIC RATE OF RETURN THAT A BORROWER AGREES TO PAY THE INVESTOR FOR USE OF THE PRINCIPAL
FIXED MATURITY
SPECIFIC DATE ON WHICH A BORROWER AGREES TO REPAY THE PRINCIPAL TO THE INVESTOR
HERD BEHAVIOR
WHEN EMOTION RULES INVESTING DECISIONS AND INVESTORS DECIDE TO COPY THE OBSERVED DECISIONS OF OTHER INVESTORS OR MOVEMENTS IN THE MARKETS RATHER THAN FOLLOW THEIR OWN BELIEFS AND INFORMATION
INTEREST
CHARGE FOR BORROWING MONEY
INVESTMENT RISK
THE POSSIBILITY THAT THE YIELD ON AN INVESTMENT WILL DEVIATE FROM ITS EXPECTED RETURN
LEVERAGE
USING BORROWED FUNDS TO INVEST WITH THE GOAL OF EARNING A RATE OF RETURN IN EXCESS OF THE AFTER-TAX COSTS OF BORROWING
LIMITED MANAGED ACCOUNT
AN ACCOUNT AT AN INVESTMENT FIRM WHEREBY THEY SELL AND BUY MUTUAL FUND ASSETS ON THE CLIENT’S BEHALF TO AUTOMATICALLY REBALANCE THE PORTFOLIO BACK TO THE CLIENT’S SPECIFIC STANDARD
LIQUIDITY
THE SPEED AND EASE WITH WHICH AN ASSET CAN BE CONVERTED TO CASH
LIQUIDITY RISK
THE RISK THAT A GIVEN SECURITY OR ASSET CANNOT BE TRADED QUICKLY ENOUGH IN THE MARKET TO PREVENT A LOSS
MARKET CORRECTION
A SHORT-TERM PRICE DECLINE IN THE STOCK MARKETS OF AT LEAST 10 % IN A STOCK, BOND, COMMODITY, OR INDEX TO ADJUST FOR RECENT PRICE INCREASES
MARKET EFFICIENCY
THE SPEED AT WHICH NEW INFORMATION IS REFLECTED IN INVESTMENT PRICES SUGGETING THAT SECURITY PRICES ARE REFLECTIVE OF THEIR TRUE VALUE AT ALL TIMES BECAUSE PUBLICLY AVAILABLE INFORMATION HAS DRIVEN MARKET PRICES TO THE CORRECT LEVEL
MARKET TIMERS
INVESTORS WHO ATTEMPT TO PREDICT THE SHORT-TERM MOVEMENTS OF VARIOUS MARKETS AND, BASED ON THOSE PREDICTIONS, MOVE CAPITAL FROM ONE SEGMENT TO ANOTHER IN ORDER TO CAPTURE MARKET GAINS AND AVOID MARKET LOSSES
MARKET VOLATILITY
THE LIKELIHOOD OF LARGE PRICE SWINGS IN SECURITIES DUE TO A COMPNAY’S SUCCESS AND VARIOUS MARKET CONDITIONS
MARKET VOLATILITY RISK
THE FACT THAT ALL INVESTMENTS ARE SUBJECT TO OCCASIONAL SHARP CHANGES IN PRICE AS A RESULT OF EVENTS AFFECTING A PARTICULAR COMPANY OR THE OVERALL MARKET FOR SIMILAR INVESTMENTS
MONTE CARLO ANALYSIS
TECHNIQUE THAT PERFORMS A LARGE NUMBER OF TRIAL RUNS OF A PARTICULAR PORTFOLIO MIX OF INVESTMENTS TO FIND AN OPTIMAL ALLOCATION FOR A PARTICULAR INVESTOR’S GOALS AND RISK TOLERANCE
RATE OF RETURN (YIELD)
TOTAL RETURN OF AN INVESTMENT EXPRESSED AS A % OF ITS PRICE
REAL RATE OF RETURN
RETURN ON AN INVESTMENT AFTER SUBTRACTING THE EFFECTS OF INFLATION AND INCOME TAXES
RISK PREMIUM
THE DIFFERENCE BETWEEN A RISKIER INVESTMENT’S EXPECTED RETURN AND THE TOTALLY SAFE RETURN ON THE T-BILL
SECURITIES MARKET
PLACES WHERE STOCKS AND BONDS ARE TRADED
SPECULATIVE RISK
INVOLVES THE POTENTIAL FOR EITHER GAIN OR LOSS
SYSTEMATIC (MARKET OR UNDIVERSIFIABLE) RISK
THE POSSIBILITY FOR AN INVESTOR TO EXPERIENCE LOSSES DUE TO UNKNOWN FACTORS THAT AFFECT THE OVERALL PERFORMANCE OF THE FINANCIAL MARKETS
TOTAL RETURN
INCOME AN INVESTMENT GENERATES FROM CURRENT INCOME AND CAPITAL GAINS
UNSYSTEMATIC (RANDOM) RISK
RISK ASSOCIATED WITH OWNING ONLY ONE INVESTMENT OF A PARTICULAR TYPE
