Chapter 8

Question 1

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

Answer 1

The modern portfolio theory

Question 2

What is the relationship between insecurities or asset classes that have values moving in opposite directions

Answer 2

Negative correlation

Question 3

The difference between expected return of a portfolio Or investment and the risk free rate is called what?

Answer 3

Risk premium

Question 4

Risk premium formula

Answer 4

Expected return minus risk free rate

Question 5

The beta of the overall market

Answer 5

1.00

Question 6

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

Answer 6

Alpha

Question 7

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

Answer 7

Fundamental analysis

Question 8

Statement of a company’s financial position at a specific point in time.

Answer 8

Balance sheet

Question 9

Stockholders equity /net worth equation

Answer 9

Assets - liabilities

Question 10

Assets formula

Answer 10

Liabilities + stockholders equity / net worth

Question 11

Non physical assets such as company’s brand name, trade mark,
And reputation

Answer 11

Intangible assets

Question 12

Assets that include plant, property, and equipment

Answer 12

Fixed assets

Question 13

Assets that include cash, accounts receivables, marketable securities , inventory expected to turn into cash within 12 months

Answer 13

Current assets

Question 14

Profit and loss statement

Answer 14

Income statement

Question 15

Shows incoming revenues and outgoing expenses over a specific period such as a quarter. Used to determine the profitability of a company

Answer 15

Income statement aka profit and loss statement

Question 16

3 main components of the income statement

Answer 16

Gross sales, costs of goods sold, net income before taxes

Question 17

Any sales that have been logged and billed

Answer 17

Gross sales

Question 18

Any purchased goods that have been returned for credits, deducted from gross sales

Answer 18

Returns

Question 19

Number by subtracting returns from gross sales

Answer 19

Net sales

Question 20

Cost of producing a finished product , includes labor materials freight transport manufacturing of goods, doesn’t include depreciation

Answer 20

Cost of goods sold

Question 21

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

Answer 21

Gross margin

Question 22

Day to day expenses of running a business. Includes rent advertising administrative salaries and depreciation

Answer 22

Operating expenses

Question 23

What does the income statement show the analyst about the corporation ?

Answer 23

The profitability of the corporation

Question 24

Total money flowing into and out f a corporation is known as ?

Answer 24

Cash flow

Question 25

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

Answer 25

Market analysis aka technical analysis

Question 26

Long term measurement prediction

Answer 26

200 day moving average

Question 27

Attempts to gauge the the direction of the market. Technical analyst will compare the percentage of stocks advancing to those declining

Answer 27

Breadth of the market

Question 28

Advance/ decline ratio

Answer 28

of advances / # Of decline

Question 29

Investment objective : capital appreciation- suitable investment

Answer 29

Common stocks, ADR, growth fund, index fund, ETF

Question 30

Investment objective aggressive growth. Suitable investments are:

Answer 30

Small-cap stocks or funds, aggressive growth funds, CMO, sector and special situation funds, BDC, DPP, foreign securities

Question 31

Investment objective income. Suitable investment:

Answer 31

Income funds, bonds, bond funds, utility stocks, preferred stocks

Question 32

Investment objective growth and income. Suitable investment :

Answer 32

Mixture of preferred stocks, bonds, common stocks, balanced fund, REIT

Question 33

Investment objective Capital preservation. Suitable investment:

Answer 33

Treasuries, agency securities, high credit quality corporate and municipal dad

Question 34

Investment Objective liquidity. Suitable Investment:

Answer 34

Money market funds, T-bills, commercial paper, cash

Question 35

Investment objective speculation. Suitable investment:

Answer 35

Options, leverage and inverse leveraged ETF, short stock position, futures and forwards, day trading account

Question 36

Investment Objective tax efficiency. Suitable investment:

Answer 36

Municipal security, municipal bond fund, annuity, retirement plan, DPP, ESA and 529 plans

Question 37

Investment with interest rate risk

Answer 37

All bonds, preferred stock

Question 38

Investments with reinvestment risk

Answer 38

All investments that pay interest or dividends

Question 39

Investments with inflation risk

Answer 39

Fixed income investments money market instruments money market funds