Exam 1 - Review Flashcards
Empirical probability
of an event is the ratio of the number of outcomes in which a specified event occurs to the total number of trials
- Empirical probability uses the number of occurrences of an outcome within a sample set as a basis for determining the probability of that outcome. The number of times “event X” happens out of 100 trials will be the probability of event X happening. An empirical probability is closely related to the relative frequency of an event.
Sharpe ratio
Risk Premium / standard deviation
What is expected
Excepted rate of return
What’s another name for risk premium
Excess return
Spilt investment
Funds between safe and risky assets
Finance
Creation of value : via investing in assets
Is household
Surplus or deficit
Surplus spending units
Is firms
Surplus or deficit
Deficit spending units
What does the 3 things markets must be?
Efficient
Trust
Competitive
What is the flow of funds
Circle of households and firms
Remember this crisis (teacher said so)
Mortgage crisis
Dodd frank reform act
- Increased transparency
Volcker Rule
- Limited banks’ ability to trade
for their own accounts.
Bankers acceptance
- Posted dated check
- Guarantee by commercial bank
Eurodollars
- It’s time deposit
- Dollar Denominated time deposit in foreign countries
How much N for discount (price)
360
2 way for quoting price
- Discount
2. Bey
Euro bond and foreign bond difference
- Eurobond: foreign currency-denominated bonds issued by the foreign companies.
- Most Popular: Most popular Eurobonds: Euro dollar bonds & Euro
yen bonds
- Most Popular: Most popular Eurobonds: Euro dollar bonds & Euro
- Domestic currency-denominated bonds
issued by the foreign companies..
- Yankee, Samurai, Arirang, Bulldog bonds
Common stock
- Residual claim
• In the event of bankruptcy, what will stockholders receive?
– Limited Liability- What is the maximum loss on a stock purchase?
- Preemptive rights
– Voting rights
Preferred stock
- Fixed dividends: limited gains, non-voting
– Priority over common
– Tax treatment
• Preferred & common dividends are not tax
deductible to the issuing firm
• Corporate tax exclusion on 70% dividends earned
3 type of index calculation
Price weighted index
Market value weighted index
Equally weighted index
What type of portfolio is price weighted index
What type of weighted scheme
Dow jones
Use same number of share for stock
Firms invest in what?
real assetse
Households invest in?
financial assets
What are the two types of real assets
real assets
- debt equity
What are the 2 types of financial assets
Assets
Liability
Assets - durable good -financial assets Liability - Mortgage Consumer Credit - Net worth
Examples of Financial Intermediaries
Commercial, banks, insurance
What’s risk premium formula
(Rx - Rf)
Spiders
TEST QUESTION
S & P 500
Diamonds
TEST QUESTION
Down Jones Inc
Cubes
TEST QUESTION
NASDAQ
Who issues money market instruments
Treasury Bills
Federal Government
Who issues money market instruments
b) Certificates of Deposit
Commercial Banks
Who issues money market instruments
c) Commercial Paper
Corporations - only high level company
Who issues money market instruments
d) Bankers’ Acceptances
Post dated Check - guarantee by commercial bank
Who issues money market instruments
Eurodollars
Foreign countries
Who issues money market instruments
f) Repurchase Agreement (Repos)
collateralize short-term debt
Who issues money market instruments
g) Broker’s Calls
margin loan
Who issues money market instruments
h) Federal Funds
loan for reserve requirement
