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37 Cards in this Set

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Finance Definition of "Investments"
buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold as an investment, real estate, or collectibles
Name the 3 categories of financial assets
1. Fixed Income Securities

2.Equity Securities

3.Derivative Securities
Investors make what two types of decisions regarding portfolios?
Asset Allocation Decision: choice among broad asset classes.

Security Allocation: choice of specific securities within each asset class.
Holding Period Return formula
Pend! + Dividends - Pbeg
1 all divided by Pbeg!
Arithematic Average
the sum of returns in each period divided by the number of periods.
Geometric Average
single per period return that gives the same cumulative performance as the actual sequence of returns.
Effective Annual Rate (aka APR) fomula
is the chance that the actual return from an investment may differ from what is expected.
If the standard deviation were higher you would expect lower or higher volatility on returns?
Risk Premium
the difference between expected rate of return and risk free.
an investment alternative shows dominance over another if it offers the same expected return for less risk, or if the security has a higher expected return than another security of comparable risk.
Law of one price
Equivalent assets should sell for the same price.
Direct Search Market
Buyers and sellers seek each other directly and transact directly.
Brokered Market
A market where an intermediary offers search services to buyers and sellers.
Dealer Market
a market where traders specializing in particular commodities buy and sell assets for their own accounts.
Auction Market
A market where all traders in a good meet to buy or sell an asset.
Money markets
Include short-term highly liquid and relatively low risk debt instruments.
Capital markets
Include longer term relatively riskier securities.
NASDAQ stands for?
National Association of Securities Dealer Automated Quotations stock market
Third Market
Trading of exchange-listed securities among institutional investors and broker/dealers for their own accounts (not as agents for buyers and sellers).
Fourth Market
The direct trading of large blocks of securities between institutional investors through a computer network.
are indicators of the day’s market activity
Price Weighted Index
is composed of a single share of each of the index components, regardless of the price of the share or the size of the underlying company
Higher priced stocks carry more weight than lower priced stocks in an index TorF
Bond Market (3)
Treasury Notes and Bonds
Municipal Bonds
Corporate Bonds
is a written agreement between the corporate debt issuer and the lender
Price & Yield have what kind of relationship?
(required rates of return) have an inverse relationship
When yields get very high the value of the bond will be very low

When yields approach zero, the value of the bond approaches the sum of the cash flows
Approximate YTM Formula
(Avg. Annual Income) / (Avg. Price)
Current or Annual Yield Formula
Annual coupon divided by bond price
Bond Risks
Price Risks
Default risk
Interest rate risk

Convenience Risks
Call risk
Reinvestment rate risk
Marketability risk
Equity Market
Common Stock
Preferred Stock
Shareholder's Rights
the right to vote – one vote for each share held

the right to maintain ownership percentage
Types of Dividends
gifts, cash, stock, or property
Spin Offs
a parent firm divests itself of a subsidiary, and all the shares in the subsidiary are distributed proportionally to the shareholders in the parent
Split Offs
a parent firm divests itself of a subsidiary, and the shareholders must make a choice between keeping shares in the parent, or exchanging them for shares in the separated subsidiary
The difference between a stock split and a stock dividend is
With a stock split, the par value of the stock changes by the split factor.

With a stock dividend, the par value is not affected
Categories of stocks
blue chip

Income stocks are those that historically have a higher-than-average payout ratio.

Cyclical stock is one whose fortune is directly tied to the state of the overall national economy.

Defensive stock is largely immune to changes in the economy.

Growth stocks reinvest most of their earnings rather than paying them out as dividends and may be good candidates for above-average returns.

Speculative stock has a high probability of a loss and a small probability of a large profit.

Penny stocks refer to unusually risky, especially inexpensive shares.