Flashcards
How big must a company be to be considered Large Cap?
5 Billion calculated by # of shares X price of share
What is sequence risk
over a period of investing, you experience a greater risk of underperformance if a bad market preceedes a good market
Formula for Geometric Return
[(1+R)x(1+R)x(1+R)] raised to the power 1/n all minus 1
When returns are volitile, what happens to the arithmetic and geometric returns?
The get farther apart.
Are mutual funds returns reported in arithmetic or geometric?
Geometric
Dollar weighted return is also know as. . .
IRR
When do you use IRR?
Measure a client’s performance or when measure a corporate outflow of cash. For example: a company builds a new factory now, what did they earn later?
When does a holding period end?
When the size of the investment changes.
Formula for holding period return (HPR)
(Dividends (or coupons) + change in price)/price at beginning or period
What is a time-weighted return?
Takes out the amount invested. Each period of time is equally weighted. This is how “growth of 10,000” is calculated
What is sigma squared?
The symbol for variance
What is sigma?
The symbol for standard deviation
What is the standard deviation of large cap stocks historically?
20.50%
Define margin
The amount of equity contributed by the investor given as a percentage of the current market value of securities held in a margin account.
Short interest
Amont of shares that are currently shorted. A market indicator of what people think of a particular security.
