Becca

Question 1

US Indicises

Answer 1

Dow Jones Industrial Average - 30 blue chip companies - calculated by adding the NY stock exchange closing prices & adjusting them by the ‘current average divisor’

Standard’s & Poor 500 - 500 companies on the NY stock exchange - represents 80% of the capitalisation of the exchange. Those included are weighted as per their capitalisation. Regarded as a good guide to the US market.

NASDAQ - new, small companies in fast growing sectors like tech and biotech. Often used as a proxy for performance of tech stocks.

Question 2

Japanese indicies

Answer 2

Nikkei 225 - most widely quoted measure of the Tokyo stock exchange. Not strictly an index but the average of 225 stocks. Not weighted according to capitalisation and so small stocks can move in the index as much as big.

Tokyo stock exchange index (TOPIX) - more comprehensive, better guide to the market but not as widely followed as Nikkei 225.

Nikkei 300 - broader cover, less popular.

Question 3

German index

Answer 3

Dax 40 - 40 largest quoted companies. Live index. Value weighted and basis for futures and options traded. Unusually for an index, it includes reinvested income.

Question 4

Hong Kong Index

Answer 4

Hang Seng - indicator of the broad movements of the Hong Kong stock exchange. Representative sample of stocks and value weighted.

Question 5

France index

Answer 5

CAC 40 - Real time, value weighted, largest stocks in Euronext Paris

Question 6

World indicies

Answer 6

MSCI world - widely used

FTSE all world - global equity markets 4000 stocks for 49 countries.

Question 7

What is Beta?

Answer 7

Indicates the volatility of a stock relative to the market.

The market has a beta of 1.

Beta of more than 1 = exaggerated market movements.

Less than 1 = more stable than the market.

Question 8

GILT STRIPS

Answer 8

“Separate trading of registered interest and & principle securities”

Coupon and redemption payment are separate.

Each can be separately traded as zero-coupon bond with a known nominal redemption value.

As each is purchased at a discount to it’s redemption value, the entire return is in the form of a capital gain.

Question 9

Geometric vs arithmetic mean

Answer 9

Geometric rather than arithmetic is the most suitable method for calculating average historic returns as it compounds the returns and represents what the investor would actually have achieved.

Arithmetic mean is used for projecting future returns since it better predicts the future portfolio value.