Exam Revision Flashcards
What does a Financial System consist of?
Financial Market
Financial Institutions
Financial Instruments
Which 2 markets are there under Financial Markets?
Capital Market (Long Term) Money Market (Short Term)
What is the Purpose of a Financial System?
The system that enables lenders and borrowers to exchange funds.
What does a Financial Institution do?
Intermediaries in financial markets; channel the savings of individuals / businesses and governments into loans and investments.
What does a Financial Market do?
Are any place where suppliers of funds and demanders of funds meet to transact financial assets.
What is the Future Value Equation? (Compounded Anually)
FV = A x (1 + R)^T
What is an Annuity?
A stream of equal periodic cash flows over a specified time period.
What is a Perpetuity?
An annuity with infinite life; an annuity that never stops providing the holder with a cash flow at the end of each year.
What is the Present Value Equation? (Compounded Anually)
PV = A x (1 + R)^-T (inverse of FV)
What is the Future Value Equation? (Compounded Frequently)
FV = A x (1 + r / m)^mT
What is the Annuity Formula?
PV = A x (1 - (1 + r)^-T / r)
What is a risk?
The variability of returns associated with a given asset.
What is the Total Rate of Return?
The total gain or loss experienced on an investment over a given period of time.
What is the Formula for Total Rate of Return?
Rt = Ct + Pt + Pt-1 / Pt-1
Why do we use the Coefficient of Variantion?
To Calculate how much risk you are assuming in comparison to the amount of return you can expect from your investment.
What does Variance Measure?
The dispersion of an investment’s return around the expected value of a return.
What is the Efficient Frontier of a Portfolio?
The set of optimal portfolios that offers the highest expected return for a defined level of risk OR the lowest risk for a given level of expected return.
What are the 3 Different Types of Bonds?
Premium Bond: Value of bond is higher than face value
At Par Bond: Value of bond is the same as face value
Discount Bond: Value of bond is lower that face value
What is the Market Portfolio?
The market portfolio belongs to the efficient set, but it has to have a variance higher than the minimum variance portfolio.
What kinds of Stock Markets Exist?
Primary: Companies issue stocks for the first time.
Secondary: Investors and Shareholders buy and sell stocks; no company involvement necessary.
What is a Common Stock?
Common stockholders are considered residual owners, they recieve a share of shat is left after all other claims on a firm’s income and assests have been satisfied.
Greater risk than preferred stocks; higher risk crates a higher potential for reward.
What is a Preferred Stock?
Preferred stockholders have certain privileges over common stock holders.
They are promised a fixed periodic dividend, which is stated either as a percentage or as a dollar amount of the company’s income and assets.
Less risky than common stocks.
What is a Financial Instrument?
Any form of financial asset which can be traded.
What is Strong-Form Market Efficiency?
Private and inside information is available.
