quiz 1 Flashcards
saving
keeping money aside from your income, does not earn returns
investing
buying assets expected to appreciate in the future, earns returns
bond basics
-issues of debt
-interest payments
-low-risk low rewards
stock basics
-stake of ownership
-voting rights and dividends
-higher risk, higher reward
long term stock price driver
earnings power (As a company earns more money, its stock price tends to rise over the long-term)
short term stock price driver
human behavior, news, and financial statements
rule of 72
72 / interest rate = years to double money
compound interest
interest earned on money that was previously earned as interest
the average bear market % price decline
35.62%
the average length of a bear market
289 days
bear market definition
20% correction/decline from peak
Confirmation bias
people naturally favor information that confirms their previously existing beliefs
information bias
bias arising from measurement error
loss aversion bias
loss is perceived as more severe than an equivalent gain
hindsight bias
people convince themselves after an event that they accurately predicted it before it happened, which can lead people to conclude that they can accurately predict other events
cognitive bias
an unconscious error in thinking that arises from the way people perceive the world and the information around them that determines how they make decisions
anchoring bias
use of irrelevant information as a reference point(anchor) for making decisions about that security, such as the purchase price of a security
primary markets
are used by the issuer(company) to raise capital;
secondary markets
are transactions between investors
price-weighted index
the index is based on the traded price of stocks that comprise the index basket constituents
- DJIA
market-cap weighted index
the index is based on the market capitalization of each index constituent
- S&P 500
equal-weighted index
price change in the index is based on the percentage return of each component
- Nasdaq-100
types of market indices
equities index and fixed income index
