Quiz 1 Flashcards
Examples of Non-financial assets
patent, machinery
_____ assets are used to produce products or services, while _____ assets are claims on real assets or on the cash flows they produce.
Real, financial
4 functions of financial markets
Consumption timing
Risk allocation
Resource allocation
Separation of ownership and management
security selection
choice of specifc securities within a broad asset class - Trying to identify mispriced financial assets is an example
Investment company
pools money from investors and invests it in a variety of securities - invests money raised from investors in a variety of securities
Financial intermediary, examples
take in funds from lenders or investors and use the proceeds to lend money or buy assets
Investment companies, banks and credit unions, insurance companies
A security with a higher risk should expect a _____ return
higher
Active management
usually try to achieve returns higher than commensurate with risk by identifying mispriced assets - attempt to identify mispriced securities or to predict broad market trends
capital market
market for long term capital - allow companies to raise long-term capital, i.e., to issue securities with maturities longer than one year, and investors to trade those securities with each other.
Futures contract
calls for delivery of an asset at a specified price, on a specified delivery or maturity date -
How to calculate change in price weighted index
Sum up all prices of indexes, calculate total g/l % using sums
How to calculate change in market-cap weighted index
sum up market cap before and after time period, then calculate total g/l %
What type of market is the NYSE?
Organized exchange, auction market
Historically, the NYSE started as an _____ and NASDAQ as a _____.
exchange, dealer market
A limit order has _____
(execution, price certainties)
execution uncertainty, but not price uncertainty
Costs associated with trading a security
Dealer’s bid-ask spread, Broker’s commission, The price concession an investor may be forced to make for trading in quantities greater than those associated with the bid-ask quote
You bought some shares and want to protect yourself against losses. You should place a _____.
stop-loss
examples of investment companies
Closed-end funds
Exchange-traded funds
Mutual funds
Which functions do investment companies perform for their investors?
Lower transaction costs
Record keeping
Diversification and divisibility
Asset management
Active funds have _____ the index on average, _____ adjusting the index returns for trading costs and management fees.
underperformed; even after
How much do equity funds typically hold in cash?
About 5%
portfolio turnover calculation
value of shares traded / portfolio value
Agency problems
due to a conflict of interest in a principal-agent relationship
The problems stemming from a conflict of interest between shareholders and executives
