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Investments > Final > Flashcards

Final Flashcards

1
Q

Semistrong EMT

A

All public info is included in price, no insider Info

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2
Q

EMT would suggest what kind of strategy?

A

Passive Investing

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3
Q

Random Walk

A

Zero expected Price change

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4
Q

Sub-Martingale

A

Positive expected Price Change

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5
Q

Strong EMT

A

All info included in price (including insider info)

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6
Q

Positive Surprise Earnings show…

A

Abnormal positive results day of, positive drift after

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7
Q

Conventional Theories

A

Assume investors are rational

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8
Q

Behaviorial Finance

A

Investors may not be rational

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9
Q

Forecasting Errors are important because

A

They overweigh recent info

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10
Q

Conservatism Bias

A

Investors are too slow updating beliefs to new info

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11
Q

Regret Aversion

A

Not as painful to have invested in blue chip that loses money than a start up that loses money

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12
Q

Breadth

A

Extent to which market index movement is reflected in price movement of all stocks

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13
Q

Current Bond Yield

A

Annual Interest / Current Market Price

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14
Q

Treasury bills

A

Least risky investment

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15
Q

To Earn High Bond Rating

A

Low Debt to Equity Ratio, High Quick ratio

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16
Q

Accrued Interest

A

Paid by buyer, remitted to seller

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17
Q

Conversion Ration

A

How many shares convertable conds can be exchanged for

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18
Q

Term Structure of Interest rates

A

Relationship between securities interest rate and time to maturity

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19
Q

Inverted Yield Curve

A

Long term interest rates are higher than short term interest rates

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20
Q

Duration of a bond

A

Function of time to maturity, coupon rate, yield to maturity, and time to maturity (always lower than time to maturity)

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21
Q

Interest Rate risk is higher when

A

Term to maturity is higher

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22
Q

Immunization through duration matching is ineffective because

A

All of the Above

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23
Q

Fed Reserve lowers discount rate

A

Eq of funds lent will increase, Eq of real interest rates decrease

24
Q

Holding Period return rate

A

(all money taken in - Price you bought at)/Price you bought at

25
Q

Risk averse investors reject fair games

A

True

26
Q

Risk neutral investors judge investments only by expected returns

A

True

27
Q

In a mean-std Dev graph, the indifference curve’s slope is

A

positive

28
Q

Capital Allocation Line

A

investment opportunity set formed with a risky asset and a risk-free asset.

29
Q

Nondiversifiable risk is

A

Systemic risk, Market risk

30
Q

More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors.

A

True

31
Q

nvestors choose the portfolio that maximizes their expected utility.

A

True

32
Q

Slope of Best CAL is

A

(expected return rate - risk free rate)/Std Dev

33
Q

Covariance Formula

A

(Correlation coefficent)(std dev 1)(std dev 2)

34
Q

Expected Return Formula

A

Risk Free Rate + Beta(Expected Market Return-Risk Free Rate)

35
Q

Capital Market Line

A

I) The CML is the line from the risk-free rate through the market portfolio.
II) The CML is the best attainable capital allocation line.
IV) The CML always has a positive slope.

36
Q

Security market Line

A

Represents expected return / Beta relationship

37
Q

According to CAPM, positive alpha securities are

A

Underpriced

38
Q

Boeing is

A

Overpriced

39
Q

CAT is

A

Fairly priced

40
Q

Dividend Growth rate given ROE

A

ROE x (1 - % of earnings paid in dividends

41
Q

Both CAPM and APT stipulate

A

relationship between expected return and risk

42
Q

Developing APT, Ross assumed uncertainty in asset returns was a result of

A

a common macroeconomic factor and firm-specific factors.

43
Q

Multifactor APT Formula

A

Expected Return 1 = Beta1(Risk Premium 1) + Beta2(Risk Premium 2) + Risk Free Rate

44
Q

The APT differs from the CAPM because the APT

A

recognizes multiple systematic risk factors.

45
Q

Advantages of APT are

A

that the model does not require a specific benchmark market portfolio.

46
Q

Price that a writer of a call option receives to sell the option is called the

A

Premium

47
Q

European put allows the holder to

A

sell the underlying asset at the striking price on the expiration date.

48
Q

The current market price of a share of AT&T stock is $50. If a put option on this stock has a strike price of $45, the put

A

is out of the money and sells for a lower price than if the market price of AT&T stock is $40.

49
Q

The maximum loss a buyer of a stock call option can suffer is equal to

A

The call premium

50
Q

You write one JNJ February 70 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?

A

$65

51
Q

Options contracts are standardized in amounts of

A

100

52
Q

Before expiration, the time value of an in-the-money call option is always

A

Positive

53
Q

If the stock price decreases, the price of a put option on that stock __________ and that of a call option __________.

A

Increases, Decreases

54
Q

Other things equal, the price of a stock put option is negatively correlated with which of the following factors?

A

The stock price

55
Q

Hedge ratio for a call is always

A

Between zero and 1

Investments (1 decks)

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