Chapter 15 FINAL Flashcards

(42 cards)

1
Q

When an invetsor creates their portfolio what do they look at?

A

Risk + Return

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2
Q

What are the two types of investors

A
  1. an investor who prefers an investment with greater return with a greater level of risk
  2. Theres investors who are more risk averse and want safe assets
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3
Q

What are safer investments

A

GICs, Canada savings bond

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4
Q

What are riskier investments

A

TESLA
GOOGLE

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5
Q

Rank 6 investments from less risk/return to greater risk/return

A

Treasury bills
bonds
debentures
preferred shares
common shares
derivatives

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6
Q

What is return from a security?

A
  1. Either intrest or dvidends recieved
  2. Capiral gain (price change)
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7
Q

How do we calculate the % change?

A

Cash flow + (end - bed) / beg

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8
Q

What is cash flow?

A

intrest/dividends

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9
Q

What is the end-beg

A

Price change of security

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10
Q

What is the real rate of return?

A

Its how much an investment increase by due to inflation

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11
Q

How to find real rate of return

A

Nominat - infaltion rate

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12
Q

What is nominal rate?

A

Actual rate of return

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13
Q

There are four types of risk what is it?

A

Inflation
Business
Political
Liquidity

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14
Q

What is liquidity risk?

A

Due to inflation it decreases the cash flows amount making the price of securities fall.

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15
Q

What is a business risk

A

The risk associated with a specific industry or business

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16
Q

What is political risk

A

Risk associated in a particular country

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17
Q

What is a liquidy risk

A

its if the investment can be monetized quickly and easily

18
Q

What is interest rate risk?

A

How a securities return is effected to do rise in interest rates

19
Q

What is foreign exchange risk

A

How the streng/weakness of the canadian dollar will affect investment returns if investing in foreign securities

20
Q

What is default risk

A

The risk associated with a company going bankrupt or defaults on debt obligations

21
Q

What is systematic risk

A

Its risk associated with the overall market or economy

22
Q

What is a non systematic risk

A

its risk associated with a specific firm

23
Q

How do we measure the risk?

24
Q

What is beta?

A

bta measures a securities return relative to the overall market

25
Higher beta =
more riskier
26
What is asset allocation
where we decide to put our money
27
what are the different assets a person can get risk and return
cash fixed income equtities
28
How do we determine asset allocation for an investor?
its dependant on what the investors objectives and risk tolerance is
29
How is the expected return of each asset in a portfolio based?
Their weighing and expected return
30
Ex: Exp. Return Weighting Company A 8% 25% Company B 10% 40% Company C 12% 35%
The overall return would be: .08 X .25 + .1 X .4 + .12 X .35 = .102 or 10.2%
31
Why do we need to diversify a portfolio
To eliminate risk to one specific firm
32
How should we invest?
In securities that move in opposite directions
33
What is correlation
measures how two securites are related
34
+1 correlation inficates
two securities are moving in perfect positive direction
35
-1 correlation inficates
two securities are moving in perfect negative direction
36
0 correlation indicates
No correlation
37
How do we want our securities to be correalted?
negative
38
If Company A’s beta = 2.0; if the market goes up 10%,
Company A’s shares will increase 20% - and vice versa
39
What are primary investment objectives
safety, income, return, capital growth
40
What are secondary investment objectives
marketability/liquidy tax minimization
41
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