Economics Flashcards
Too much $ chasing too few goods is?
Inflation
Which investments are better as an inflation hedge?
Common better than Fixed income
Constant dollar:
in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values. can be converted into constant dollars by using the consumer price index (CPI) from the relevant years.
What does STRIPS stand for?
Separate Trading of Registered Interest and Principal of Securities. These types of bonds are generally known as zero-coupon bonds since they pay no interest or coupon.
Reg T governs
buying stock on margin,
What are lagging indicators?
change four to six months after the economy has begun a new trend
What is the slowest liquidity on the balance sheet?
Prepaids
Downside to using IRR?
The IRR does not measure the absolute size of the investment or the return. So, IRR can favor investments with high rates of return even if the dollar amount of the return is very small.
Stockholder’s equity is also
Net worth
The amount by which an option is in-the-money is referred to as
Intrinsic value
A call option is in the money if
Phantom income
Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer’s end is phantom income. The interest payments for zeros are credited to the taxpayer but no check is actually cut for them.
4 types of bond yields
1) coupon (the bond interest rate fixed at issuance),
2) current (the bond interest rate as a percentage of the current price of the bond), and
3)yield to maturity (an estimate of what an investor will receive if the bond is held to its maturity date). 4)Non-taxable municipal bonds will have a tax-equivalent (TE) yield determined by the investor’s tax bracket.
what is financial derivative that gives the holder the right, but not the obligation, to buy or sell a basket of stocks, such as the S&P 500, at an agreed-upon price and before a certain date?
An index option is similar to other options contracts, the difference being the underlying instruments are indexes.
If inflation erodes the value of money, an investor’s fixed return cannot buy what it used to. This risk is?
Purchasing power risk, inflation risk and constant dollar risk (not deflating dollar risk) all refer to the fact that if inflation erodes the value of money, an investor’s fixed return simply cannot buy what it used to. Fixed-income investments carry this type of risk.
