Chapter 1: Investments, Background and Issues Flashcards
Assets that generate net income to the economy:
Real assets
Active trading in market and competitions among securities ensure that…
Security prices approach informational efficiency
Riskier securities are priced to offer higher potential returns
Investors are unlikely to be able to find under- or overvalued securities
Assets that define allocation of income among investors:
Financial assets
Asset allocation refers to:
The allocation of the investment portfolio across broad asset classes.
Security selection refers to:
The choice of specific securities within each asset class.
In a market economy, capital resources are primarily allocated by:
Financial markets
Passive portfolio management calls for:
*FINISH
Financial markets allow for:
Shift consumption through time from higher-income periods to lower
Prices securities accordingly to their riskiness
Channel funds from lenders of funds to borrower of funds
Debt securities promise:
A fixed stream if income
Or
A stream of income that is determined according to a specific formula
The historical average rate of return on large company stocks since 1926 has been:
12%
The average rate of return on U.S. Treasury bills since 1926 was:
Less than 4%
Money market securities are characterized by:
Maturity less than one year
Safety of the principal investment
Low rates of return
The efficient market hypothesis suggests that:
Passive portfolio management strategies are the most appropriate investment strategies
An intermediary that pools and manages funds for many investors is called:
An investment company.
Rate of return equation:
(ending price – beginning price) / beginning price
