Chapter 8 Flashcards
A capital market investment theory. This is very attempts to find the best portfolio for an investor by maximizing the return of the portfolio with a specific level of risk
The modern portfolio theory
What is the relationship between insecurities or asset classes that have values moving in opposite directions
Negative correlation
The difference between expected return of a portfolio Or investment and the risk free rate is called what?
Risk premium
Risk premium formula
Expected return minus risk free rate
The beta of the overall market
1.00
A measure of return on an investment that cannot be attributed to the market in general. It is a Risk-adjusted returns and varies based upon industry product region or other factors that are not specific to the market as a whole
Alpha
Approach used in the industry to analyze the value of securities. Stipulates of a company is doing well in the market How certain security should also perform well
Fundamental analysis
Statement of a company’s financial position at a specific point in time.
Balance sheet
Stockholders equity /net worth equation
Assets - liabilities
Assets formula
Liabilities + stockholders equity / net worth
Non physical assets such as company’s brand name, trade mark,
And reputation
Intangible assets
Assets that include plant, property, and equipment
Fixed assets
Assets that include cash, accounts receivables, marketable securities , inventory expected to turn into cash within 12 months
Current assets
Profit and loss statement
Income statement
Shows incoming revenues and outgoing expenses over a specific period such as a quarter. Used to determine the profitability of a company
Income statement aka profit and loss statement
3 main components of the income statement
Gross sales, costs of goods sold, net income before taxes
Any sales that have been logged and billed
Gross sales
Any purchased goods that have been returned for credits, deducted from gross sales
Returns
Number by subtracting returns from gross sales
Net sales
Cost of producing a finished product , includes labor materials freight transport manufacturing of goods, doesn’t include depreciation
Cost of goods sold
Found by subtracting cost of goods sold from the net sales number. How much the amount received for the sale of a product exceeded the basic cost of producing it
Gross margin
Day to day expenses of running a business. Includes rent advertising administrative salaries and depreciation
Operating expenses
What does the income statement show the analyst about the corporation ?
The profitability of the corporation
Total money flowing into and out f a corporation is known as ?
Cash flow
Measures the market risk involved when investing in a particular security. A method of analyzing the value of securities by studying historical prices , price movement, trading volume of a specific security
Market analysis aka technical analysis
Long term measurement prediction
200 day moving average
Attempts to gauge the the direction of the market. Technical analyst will compare the percentage of stocks advancing to those declining
Breadth of the market
Advance/ decline ratio
of advances / # Of decline
Investment objective : capital appreciation- suitable investment
Common stocks, ADR, growth fund, index fund, ETF
Investment objective aggressive growth. Suitable investments are:
Small-cap stocks or funds, aggressive growth funds, CMO, sector and special situation funds, BDC, DPP, foreign securities
Investment objective income. Suitable investment:
Income funds, bonds, bond funds, utility stocks, preferred stocks
Investment objective growth and income. Suitable investment :
Mixture of preferred stocks, bonds, common stocks, balanced fund, REIT
Investment objective Capital preservation. Suitable investment:
Treasuries, agency securities, high credit quality corporate and municipal dad
Investment Objective liquidity. Suitable Investment:
Money market funds, T-bills, commercial paper, cash
Investment objective speculation. Suitable investment:
Options, leverage and inverse leveraged ETF, short stock position, futures and forwards, day trading account
Investment Objective tax efficiency. Suitable investment:
Municipal security, municipal bond fund, annuity, retirement plan, DPP, ESA and 529 plans
Investment with interest rate risk
All bonds, preferred stock
Investments with reinvestment risk
All investments that pay interest or dividends
Investments with inflation risk
Fixed income investments money market instruments money market funds
