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29 Cards in this Set
- Front
- Back
- 3rd side (hint)
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An INVESTOR does the following-->forgoes current consumption for __________ _______
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For future benefit (for wealth, goal)
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Investors are RISK ___________?
What does this mean? |
RISK AVERSE
THEY REQUIRE GREATER RETURN FOR GREATER RISK |
Ch. 17 Investment concepts
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INVESTORS are RISK AVERSE so that means they have risk __________? which means they have ____________ to take risk.
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RISK TOLERANCE--willingness to take risk
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Ch. 17 Investment concepts
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INVESTING is RISKY b/c of the uncertainty of _______ _______ and _______ ________ _______.
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of the UNCERTAINTY of CASH FLOWS & CASH FLOW TIMING
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Ch. 17 Investment concepts
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When the economy is doing well and an INVESTOR HAS EXCESS FUNDS he may be willing to take greater ________?
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RISK
He has more RISK TOLERANCE. |
Ch. 17 Investment concepts
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WHY INVEST?
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RETIREMENT....EMERGENCIES....ACHIEVE FUTURE GOALS (college home purchase, travels).....GREATER INCOME...SHELTER INCOME FROM TAXES (IRAs, 401 Ks, rental properties)
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What are the TWO TYPES of INVESTORS? What is the difference?
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1. INVESTORS-desire for growth over a long time period; take 'NORMAL' RISKS.
2. SPECULATORS-LARGE RISKS taken with expectation of above risk adjested returns, look for mis-priced assets (real estate, stocks, bonds) in the market. |
Ch. 17 Investment concepts
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ACTIVE MGMT.
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INVESTOR COMMITS TIME AND EFFORT to choose securities to meet his objectives.
>COSTLY in terms of *time, *effort, *commissions). |
Ch. 17 Investment concepts
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PASSIVE MGMT.
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purchase investment CHOSEN BY INVESTMENT PROFESSIONAL with investor's objective in mind (through choosing MUTUAL FUNDS that mirror your objectives or by actually using a professional).
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Ch. 17 Investment concepts
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ASSET ALLOCATION
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THE PROPORTION OF FUNDS INVESTED IN EA. TYPE OF ASSET SHOULD = YOUR OBJECTIVES
*aka BOTTOM-UP MGMT. table 16.1 |
Ch. 17 Investment concepts
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BOTTOM-UP MGMT. OF STOCKS ENTAILS?
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process of management in which information and decisions are decentralized, and resource users actively participate in the decision-making process.
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Ch. 17 Investment concepts
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What are the 3 basic categories of FINANCIAL ASSETS?
STD, LTD, BS |
*Short-term Debt (money market)
*Long-term Debt *Bonds and Stocks |
Ch. 17 Investment concepts***
Asset Allocation the implementation to achieve investment objectives. |
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When considering an investor's ASSET ALLOCATION one should consider that changes in the economy impacts _____/_____.
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RISK/RETURN
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Ch. 17 Investment concepts***
Asset Allocation the implementation to achieve investment objectives. |
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SELECTIONS OF SECURITES involve ___________ COSTS. What are these?
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TRANSACTION COSTS:
Costs incurred when buying or selling securities. *brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). *This is what a broker or bank makes for being the middleman in a transaction. |
Ch. 17 Investment concepts***
Asset Allocation the implementation to achieve investment objectives. |
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Why is INVESTMENT MONITORING important? (b/c it involves changes in the ________, in investor _______, and b/c of the development of new _________ _________.)
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Changes in:
ECONOMY INVESTOR GOALS and: DEVELOPMENT OF NEW INVESTMENT PRODUCTS |
Ch. 17 Investment concepts***
Monitoring investments |
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BROKER
what does his profession entail? earns commissions per ______. requires _________. requires _________ and _________ in state which he performs business. |
an AGENT who helps investors trade financial instruments not available from a traditional bank.
*They earn commissions per trade. *Require licensing from the exchanges *required to be licensed and *registered in the state where he conducts business |
Ch. 17 Investment concepts***
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What are the two types of BROKERAGE FIRMS (FS and D)?
FS vs. D? |
FULL SERVICE:A brokerage firm that provides a wide range of services and products to its customers, including research and advice.
DISCOUNT:A brokerage firm that discounts commissions for individuals to trade securities. Most discount brokerage firms offer limited advice but reduce their fees by 50% or more compared with full-service brokerage firms |
Ch. 17 Investment concepts
Securities Transactions |
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Securites are traded in ROUND LOTS of _#_? otherwise called ___ ____ ______ (OLT)
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In stock trading, an odd lot is an order for 100 shares
However, thinly traded stocks sometimes trade in 10-share increments. |
Ch. 17 Investment concepts
Trading Securities |
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MARKET ORDER
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BEST PRICE when ORDER=MARKET
*MOST COMMON type of order *an order to buy or sell a specified amount of a security at the best price available. *aka UNRESTRICTED ORDER |
Ch. 17 Investment concepts
Trading Securities types of orders |
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Why should investors be wary of Market Orders? What is a safer way to use a market order?
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Be wary of using market orders on stocks with a low average daily volume: in such market conditions the ask price can be a lot higher than the current market price (resulting in a large spread). In other words, you may end up paying a whole lot more than you originally anticipated! It is much safer to use a market order on high-volume stocks, such as Microsoft or Wal-Mart.
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Ch. 17 Investment concepts
Trading securities Types of Orders |
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STOP ORDER
what are they? What is their advantage in terms of losses? |
*LIMITS LOSSES
*These orders may be placed for a day or can be made valid until a specific calendar date. *If calendar date several weeks away, then buy on stop order sits until stock hits your specific TARGET PRICE-->then turns into MARKET ORDER and is executed. *If stock doesn't hit specified price level, then remainS on books until predetermined date or until you cancel the order. |
Ch. 17 Investment concepts
Trading securities Types of Orders |
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SELL STOP ORDER
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*set BELOW THE MARKET
*when stock price in the market hits specified amt., a market order to sell the stock will automatically be placed |
Ch. 17 Investment concepts
Trading securities Types of Orders |
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LIMIT ORDERS
what are they? why are they beneficial? in what situation are they especially useful? |
*An order placed w/brokerage to buy/sell a set number of shares at specified price or better. *allow an investor to limit length of time an order can be outstanding before being canceled.
*Limit orders typically cost more than market orders. *beneficial b/c when trade goes through, investors get specified purchase or sell price. *especially useful on a low-volume or highly volatile stock. |
Ch. 17 Investment concepts
Trading securities Types of Orders |
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BUY LIMIT ORDER (ch.17trading securities-stocks&bonds)
why would an investor choose this? when does the order execute? can it be executed at the same time as a sell limit order? |
*an order to buy at no worse than the specified price=best price
*for an investor that wants to purchase the stock but thinks current price is too high *order executes when market price comes down a bit *can be executed at same time (buy and sell orders) |
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What are the other types of orders other than market, stop, and limit? [(DO); (GTC); F/K order?
Basic defs? (ch.17trading securities-stocks&bonds) |
DO-DAY ORDER-Any order to buy or sell a security that automatically expires if not executed on day order is placed.
FILL OR KILL ORDER-An order given to a broker that must immediately be filled in its entirety or, if this is not possible, totally canceled. GTC-GOOD TILL CANCELLED ORDER-This is a time restriction you can place on different orders. will remain active until you cancel it. Brokerages typically limit max. time you can keep order open (active) to 90 days maximum. |
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Volatility is a measure of what tendency of a market or security?
(ch.17 trading securities-stocks&bonds) |
1. statistical measure of the tendency of a market or security to rise or fall sharply within a period of time.
2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the expiration of the option. |
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STOCK CERTIFICATES are either held by the INVESTOR or the BROKERAGE FIRM (what is it called when the latter is true)? Which is better for the investor? Why?
(Ch16 Investment concepts-evidence of ownership of securities-stocks or bonds) |
When held by the BROKERAGE FIRM it is said that it is held in STREET NAME or 'for the benefit of' your acct.
HELD IN STREET NAME IS BETTER for INVESTOR b/c? *EASIER TO TRANSFER *BROKERAGE IS PROVIDING SAFEKEEPING |
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All Securities are protected by this type of security insurance provided by the U.S. government.(SIPC)
Who was it created for? How much does it protect in terms of $ and security replacement? how much is cash replacement? who are the members? |
*A nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy.
*up to $500,000 coverage for cash and securities held by firm (coverage of cash lmtd. to $100,000). *Members to the SIPC include all brokers and dealers registered under the Securities Exchange Act of 1934 |
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SOURCES OF INVESTMENT INFO.
Ch. 16 investment concept |
newspapers, websites, gov., SEC' EDGAR system, Federal Reserve, financial databases and price quotations like those on yahoo and google
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