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Investments > Chapters 3 - 5 > Flashcards

Chapters 3 - 5 Flashcards

1
Q

The process by which interest is paid on interest that has been previously earned

A

Compounding

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2
Q

A series of equal annual payments

A

Annuity

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3
Q

Compound value of a series of equal annual payments

A

Future sum of annuity

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4
Q

A series of equal annual payments with the payments made at the beginning of the year

A

Annuity due

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5
Q

A series of equal annual payments in which the payments are made at the end of each year.

A

Ordinary annuity

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6
Q

The present worth of a series of equal payments

A

Present value of annuity

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7
Q

The payments of interest twice a year

A

Semi-annual compounding

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8
Q

The stages of life during which individuals accumulate and subsequently use financial assets

A

Financial life cycle

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9
Q

A financial statement enumerating cash receipts and cash disbursements

A

Cash budget

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10
Q

The increase in the value of an asset such as a stock or bond

A

Capital gain

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11
Q

A decrease in the value of an asset such as a stock or a bond

A

Capital loss

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12
Q

Price appreciation that has not been realized

A

Paper profits

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13
Q

An individual retirement plan that is available to workers

A

Individual retirement account (IRA)

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14
Q

A retirement plan that is available to self-individuals

A

Keogh account (HR-10 plan)

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15
Q

A contract sold by an insurance company in which the company guarantees a series of payments and his earnings are not taxed until they are distributed

A

Tax-deferred annuity

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16
Q

A theory that stock prices correctly measure the firms future earnings and dividends and that investors should not consistently outperform the market on a risk-adjusted basi

A

Efficient market hypothesis (EMH)

17
Q

The sum of the anticipated dividend yield and capital gains

A

Expected returns

18
Q

The return necessary to induce the investor to purchase an asset

A

Required return

19
Q

The sum of income and capital gains earned on an investment

A

Realized return

20
Q

Nondiversifiable risk; risk associated with fluctuations in security prices

A

Systematic risk

21
Q

Systematic risk; the risk associated with the tendency of a stocks price to fluctuate with the market

A

Market risk

22
Q

The uncertainty associated with changes in interest rates; the possibility of loss resulting from increases in interest rates

A

Interest rate risk

23
Q

The risk associated with reinvesting earnings or principal at a lower rate than was initially earned

A

Reinvestment rate risk

24
Q

The uncertainty that future fluctuation will erode the purchasing power of assets and income

A

Purchasing power risk

25
Q

The price of foreign currency in terms of another currency

A

Exchange rate

26
Q

An increase in the value of one currency relative to other currencies

A

Revaluation

27
Q

A decrease in the value of one currency relative to other currencies

A

Devaluation

28
Q

The uncertainty associated with the changes in value of foreign currencies

A

Exchange rate risk

29
Q

The risk associated with default by a country’s government

A

Sovereign risk

30
Q

The risk associated with individual events that affect a particular security

A

Unsystematic risk

31
Q

The risk associated with the nature of a business

A

Business risk

32
Q

The risk associated with a firms sources of financing

A

Financial risk

33
Q

The total risk associated with owning a portfolio; the sum of systematic and unsystematic risk

A

Portfolio risk

34
Q

The process of accumulating different securities to reduce the risk of loss

A

Diversification

35
Q

Deviation from the average

A

Dispersion

36
Q

A portfolio whose return is not maximized given the level of new risk

A

Inefficient portfolio

37
Q

The portfolio that offers the highest expected return for a given amount of risk

A

Efficient portfolio

38
Q

An index of risk; a measure of the systematic risk associated with particular stock

A

Beta coefficient

39
Q

Simultaneous purchase and sale to take advantage of price differences in different markets

A

Arbitrage

Investments (3 decks)

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