Investments Flashcards
Regulation T sets the initial margin at:
50%
Margin Call =
loan / (1 - mainteance margin)
Value Line ranks _______ & Morningstar ranks _________.
stocks ; primarily mutual funds
Treasury bills:
issued in varying maturities up to 52 weeks. $100 denominations
Commercial paper:
short-term loans between corporations. Maturities of 270 days or less. $100,000 denominations
Bankers acceptance:
- Facilitates imports/exports
- Maturities of 9 months or less
- Can be held until maturity or traded
Investment policy statement establishes RR TTLLU:
risk return taxes time-line liquidity legal and unique circumstances
confirmation bias
people tend to filter information and focus on information supporting their opinions
Diversification benefits (risk is reduced) begin anytime:
correlation is less than +1
Systematic risk:
PRIME: purchasing power risk reinvestment risk (mostly impacts bonds) interest rate risk market risk exchange rate risk
Capital market line (CML)
specifies the relationship between risk and return in all portfolios. Uses SD as its measure of risk
Capital Asset Pricing Model (CAPM)
Calculates the relationship of risk and return for an individual security using Beta as its measure of risk.
Mutual funds report on a:
time-weighted basis
If the required rate of return decreases,
the stock price will increase
Dividend payout ratio =
common stock dividend / EPS
Return on equity =
EPS / stockholders equity per share
EE bonds are not:
marketable securities
Which bonds mitigate against purchasing power risk?
I bonds and TIPS
Agency bonds are not backed by the full faith and credit of the US Gov except:
GNMA’s
Zero-coupon bonds are particularly suited for what type of account?
IRA’s (generate phantom income)
Bond duration:
is the weighted average maturity of all cash flows
As term increases or decreases:
duration will increase or decrease
Unit Investment Trusts (UITs):
passively managed and self-liquidating
Stock index funds are tax efficient because:
they have a low turnover rate
C-shares are usually most appropriate for:
short-term investors
American Depository Receipts (ADRs)
do not eliminate exchange rate risk
Max gain if stock price appreciates:
buying a call
Max gain if stock price falls:
buying a put
“protecting profits” or “locking in a gain”
buying a put
The smaller the coupon:
the greater the volatility
The primary reason to use a ladder bond strategy:
lower overall interest rate risk
Representativeness:
thinking a good company is a good investment
Bottom-up equity managers:
value managers & technicians
Top-down equity managers:
group rotation managers & market timers
The indifference curve:
measures what level of risk an investor will accept for a given levels of return
An investor may use options on debt instruments to protect against:
interest rate risk
If bonds are selling at a premium:
then interest rates have decreased since the bonds were issued
ADRs:
trade foreign securities in the US Market
The Capital Market Line (CML) uses _ as a measure of risk
standard deviation
The security market line (SML) uses _ as a measure of risk
beta
The ___ is the best index to use capturing the overall US Market.
Wilshire
Time-weighted return is only concerned about the:
security’s cash flows
When evaluating the return of 2 investment managers, use:
time-weighted return
Anchoring results in:
buying securities that have fallen because it “must” get back up to that recent high
Duration:
an accurate measure of a bond’s sensitivity to interest rate risk
Intrinsic value:
the discounted value of all future stream of cash flows
Standard deviation measures:
a security’s performance relative to expectations of performance
