Excess return Flashcards
What are excess returns?
Excess returns are investment returns from a security or portfolio that exceed the riskless rate on a security generally perceived to be risk free, such as a certificate of deposit or a government-issued bond. Additionally, the concept of excess returns may also be applied to returns that exceed a particular benchmark, or index with a similar level of risk.
HOw do you determine excess returns?
Determining the excess returns requires the subtracting of the riskless rate, or benchmark rate, from the actual rate achieved. For example, if the current riskless rate is 1.2% and the portfolio being examined received a return of 8%, the excess return would be the 6.8% difference. Excess returns can be either positive or negative depending on the result of the equation. Positive excess returns demonstrate the investment outperformed the riskless rate or benchmark, while negative excess returns occur when an investment underperforms in comparison to the riskless rate or benchmark.
What is a widget?
predefined application
What are covered bonds?
Covered bonds are debt securities issued by a bank or mortgage institution and collateralised against a pool of assets that, in case of failure of the issuer, can cover claims at any point of time. They are subject to specific legislation to protect bond holders.[1] Unlike asset-backed securities created in securitization, the covered bonds continue as obligations of the issuer; in essence, the investor has recourse against the issuer and the collateral, sometimes known as “dual recourse.”[2] Typically, covered bond assets remain on the issuer’s consolidated balance sheet (usually with an appropriate capital charge).
What is a CUSIP?
A CUSIP is a nine-character alphanumeric code that identifies a North American financial security for the purposes of facilitating clearing and settlement of trades.
What is key rate duration?
Key rate duration measures the duration of a security or portfolio at a specific maturity point along the entirety of the yield curve. When keeping other maturities constant, the key rate duration can be used to measure the sensitivity in a bond’s price to a 1% change in yield for a specific maturity.
What is credit spread duration?
Measure of a corporate bonds sensitivity to changhes in credit spreads. A decrease in a corporate bonds credit spread leads to a rise in the value of a bond.
What is repo?
A repurchase agreement involves the sale of a security with an agreement to repurchase the same security back at a higher price at a later date.
Where are repo agreements quite common?
Repo is short for repurchase agreement. Those who deal in government securities use repos as a form of overnight borrowing. A dealer or other holder of government securities (usually T-bills) sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed price. They are usually very short-term, from overnight to 30 days or more. This short-term maturity and government backing means repos provide lenders with extremely low risk.
What is Delta?
The delta is a ratio comparing the change in the price of an asset, usually a marketable security, to the corresponding change in the price of its derivative. For example, if a stock option has a delta value of 0.65, this means that if the underlying stock increases in price by $1 per share, the option on it will rise by $0.65 per share, all else being equal.
