Investments Flashcards
Premium bond
higher than par value
Discount
lower than par value
GNMAs
Mort. rates down, pmts. up
amt received varies per month
guaranteed by gov’t
pmts: P&I
yield on bonds = variable
I bonds
int. up to 30 years
earnings based on fixed and semiannual inflation rate
edu. savings
purchase price-redemption value = taxable interest
UIT
once created, no new securities purchased, and they are rarely sold
Open end fund and no load mutual fund
shares purchased and redeemed DIRECTLY with issuer
short hedge: futures contract
want to sell product, hedging against higher or lower prices
Short hedge: go long
long hedge: futures contract
want to buy product, hedging against higher prices in future
Call IV
MP-EP
in the money: MP>EP
out of the money: MP<EP
Put IV
EP-MP
in the money: EP>MP
out of the money: EP<MP
Correlation coefficient
Neg reduces portfolio risk
neg makes beta neg
DDM model factors
Beta, div. paid, risk free return, risk of market
Short duration bond
least affected by int. rate changes
long maturity bond
most affected by int. rate change
CML
evals diversified and margined portfolio, includes 100% T-bills
tangent point reps. portfolio with proportional % of risky assets
EMH: strong form
All info reflected
EMH: semi strong form
public info ONLY reflected
inside info gives better results
EMH: weak form
data already reflected
fundamental analysis ONLY option
Probability distributions
Normal, lognormal, uniform, triangular
Dow Theory
identifies top of bull and bottom of bear market
Arbitrage pricing theory
securities in different markets CANNOT differ for significant length of time, movement and return NOT explained by relationship between risk and return.
expected value of each factor is zero
Markowitz Model
Standard deviation : risk measurement
Issue of New bonds for publicly traded companies
when bonds selling @ premium
interest rates expected to rise
interest rates are down.
Overvalued stock
price based on DDM is lower than trade price
