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Finance > Investments Class > Flashcards

Investments Class Flashcards

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1
Q

Return

A

buy an asset of any type, your gain (or loss) from that investment

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2
Q

2 components of return

A

First, you may receive
some cash directly while you own the investment. Second, the value of the asset you purchase
may change. In this case, you have a capital gain or capital loss on your investment

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3
Q

Total Dollar Return

A 
sum of the dividend income and the
capital gain (or loss):
Total dollar return = Dividend income + Capital gain (or loss)
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4
Q

dividend yield

A

The annual stock dividend as a percentage of the initial stock price.
Dividend yield = Dt / Pt

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5
Q

Capital Gains Yield

A

change in the price during the year (the capital gain) divided by the beginning
price.

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6
Q

effective annual return (EAR)

A

The return on an investment
expressed on a per-year, or
“annualized,” basis.
1 + EAR = (1 + holding period percentage return) ^m

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7
Q

total market capitalization (or market

“cap” for short)

A

its stock price multiplied by the number of shares of stock.

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8
Q

risk-free rate

A

The rate of return on a riskless

investment.

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9
Q

risk premium

A

The extra return on a risky asset
over the risk-free rate; the reward
for bearing risk.

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10
Q

investment policy statement, or IPS,

A

divided into two sections: objectives
and constraints. In thinking about investor objectives, the most fundamental question is: Why
invest at all?

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11
Q

investment horizon

A

planned life of the investment

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12
Q

liquidity

A

high degree of liquidity is one that can be
sold quickly without a significant price concession. One part of liquidity is the ease with which an asset can be
sold. The other part is how much you have to lower the price to sell the asset quickly.

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13
Q

market timing

A

Buying and selling in anticipation of the overall direction of a market. you might move money into the stock market when you think stock prices will rise. Or you might move money out of the stock market when you think stock prices will fall.

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14
Q

asset allocation

A

The distribution of investment funds among broad classes of assets.

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15
Q

thumb of rule in asset allocation

A

one of the simplest being to split the portfolio into 60 percent stocks and 40 percent bonds.
Equity precentage is your age minus 100 or 120

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16
Q

security selection

A

Selection of specifi c securities within a particular class.

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17
Q

Active

A

You actively vary your holding per class. You keep changing partiular stocks.

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18
Q

Passive

A

seldom change asset allocations and you might just acquire a diverse group of small
stocks, perhaps by buying a mutual fund

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19
Q

deep-discount broker

A

only services provided are account maintenance

and order execution—that is, buying and selling.

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20
Q

full-service broker

A

investment advice regarding the
types of securities and investment strategies that might be appropriate for you to consider
brokerage fi rms do extensive research on individual companies and securities
and maintain lists of recommended

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21
Q

Discount brokers

A

offering more investment counseling than the deep-discounters and lower commissions
or fees than the full-service brokers

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22
Q

Federal Deposit Insurance Corporation, or FDIC

A

protects money deposited into bank accounts during bank failure

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23
Q

Securities Investor Protection Corporation (SIPC)

A

Insurance fund covering investors’ brokerage accounts with member firms. restore funds to investors who have securities in the hands of bankrupt or
financially troubled brokerage firms.

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24
Q

cash accounts

A

A brokerage account in which all
transactions are made on a strictly
cash basis.

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25
Q

margin accounts

A

subject to limits, purchase securities on credit using

money loaned to you by your broker.

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26
Q

call money rate

A

The interest rate brokers pay to
borrow bank funds for lending to
customer margin accounts

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27
Q

spread

A

additional interest you pay depending on your broker and the size of the loan

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28
Q

margin

A

The portion of the value of an

investment that is not borrowed.

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29
Q

initial margin

A

The minimum margin that must be
supplied on a securities purchase.
own cash amt = im * total order

30
Q

maintenance margin or house margin

A

The minimum margin that must

be present at all times in a margin account.

31
Q

margin call

A

A demand for more funds that
occurs when the margin in
an account drops below the
maintenance margin.

32
Q

critical price

A

the lowest price before you get a margin call

33
Q

hypothecation

A

Pledging securities as collateral

against a loan.

34
Q

street name

A

An arrangement under which a broker is the registered owner of a security.

35
Q

Roth individual retirement account (Roth IRA)

A

With the first type, you pay taxes today on money you earn. If you then invest these aftertax dollars in a retirement savings account, you pay no taxes at all when you take the money out later. This means that
dividends, interest, and capital gains are not taxed, which is a big break.

36
Q

long position

A

An investor who buys and owns shares of stock
An investor with a long position will make money if the price of the stock increases and lose money if it goes down. In other words, a long investor hopes that the price
will increase.

37
Q

short sale

A

A sale in which the seller does

not actually own the security that is sold

38
Q

short position

A

selling stock and hoping price will drop

39
Q

What happens to margin when stock price drops?

A

Margin = total order - loan/ ( #shares * price)

So high price means margin will drop

40
Q

Classification of Financial Assets

A

interest-bearing, equities, derivatives

41
Q

money market

instruments

A
  1. They are essentially IOUs sold by large corporations or governments to borrow money.
  2. They mature in less than one year from the time they are sold, meaning that the loan
    must be repaid within one year.
42
Q

fi xed-income securities

A

lives that exceed 12 months at the time they are issued.

43
Q

PREFERRED STOCK

A

the dividend on a preferred share is usually fi xed at some amount

44
Q

primary asset

A

Security originally sold by a
business or government to
raise money. Thus, stocks and
bonds are primary fi nancial assets.

45
Q

derivative asset

A 
A fi nancial asset that is derived
from an existing traded asset
rather than issued by a business or
government to raise capital. More
generally, any fi nancial asset that
is not a primary asset.
46
Q

futures contract

A

An agreement made today
regarding the terms of a trade
that will take place later.

47
Q

option contract

A

An agreement that gives the owner
the right, but not the obligation, to
buy or sell a specific asset at a specified price for a set period of time.

48
Q

call option

A

An option that gives the owner the
right, but not the obligation, to buy
an asset.

49
Q

put option

A

An option that gives the owner the
right, but not the obligation, to sell
an asset.

50
Q

option premium

A

The price you pay to buy an option.

51
Q

strike price

A 
The price specifi ed in an option contract
at which the underlying asset
can be bought (for a call option) or
sold (for a put option). Also called
the striking price or exercise price.
52
Q

bid price

A

The bid price is the price you will receive if you want to sell an option at the prevailing market price;

53
Q

ask price

A

the ask price is the price you will pay if you

want to buy an option at the prevailing market price.

54
Q

In bond quote, bond prices are

A

Percentage of face value

55
Q

If ytm > coupon then bond is selling at

A

At discount

56
Q

If ytm < coupon then bond is selling at

A

Premium

57
Q

Ytm =coupon rate then bond is selling at

A

Par

58
Q

For bonds spread is the difference

And it is measured in

A

Yield and risk less yield

Measured in basis points

59
Q

Basis points

A

1/100 of 1%

Or .0001

60
Q

10 bps is what percentage

A

.10%

61
Q

150 bps is what percentage?

A

1.50%

62
Q

Current yield

A

Annual coupon / current price

63
Q

From bond quote how to calculate dividend yield

A

Annualized div / closed price

Or last qrt price *4 / closed price

64
Q

Annualized PE

A

Price / Sum of the last 4 EPS

65
Q

EPS

A

NI / #shares outstanding

66
Q

3.57%

Convert bps

A

357 bps

67
Q

9.73%

Convert bps

A

973 bps

68
Q

Variance

A

Sum of Return minus avg return then square it

Then divide all by n-1

69
Q

Standard deviation

A

Measure of variability

70
Q

Coefficient of variance

A

Standard deviation

71
Q

What do u do when u get a margin call

A

Sell securities or add money

Finance (16 decks)

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