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31 Cards in this Set

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  • Back
We can examine returns in the _____ market to help us determine the appropriate returns on ____ ____ assets
financial; non-financial
- There is a reward for bearing ____
- The greater the potential ____, the greater the ____
- This is called the _______
risk; reward; risk; risk-return trade-off
Financial markets allow companies, governments and individuals to ____ the ____ of holding money
increase; efficiency
_____ have the ability to invest in financial assets so they can ____ _____ and earn a return to compensate them for doing so
savers; defer consumption
_____ have better access to the capital that is available so that they can ____ in ____ ____
borrowers; invest; productive assets
____ ____ provide us with information about the ____ that are required for various levels of ____
financial markets; returns; risk
The "extra" return earned for taking on risk
risk premium
The return over and above the risk-free rate
risk premium
Treasury bills are considered to be ____ ____
risk-free
The greater the ____ ____, the more ____
risk premium; volatility
1. small stocks
2. large stocks
3. long-term corporate bonds
4. long-term government bonds
5. treasury bills
order of average returns and risk premiums (largest --> smallest)
measure the volatility of asset returns
standard deviation and variance
sum of squared deviations from the mean / number of observations - 1
historical variance
square root of the variance
standard deviation
average compound return per period over multiple periods
geometric mean
return earned in an average period over multiple periods
arithmetic mean
The geometric mean will be (greater/less) than the arithmetic mean -- unless all returns are ____
less; equal
15-20 years or less: use the ____ (use for shorter periods)
arithmetic
40+ years: use the ____ (use for longer periods)
geometric
20-40 years or so: split the difference using ____ ____
Blume's Formula
market where prices reflect all available information
efficient capital market
market where stock prices are in equilibrium or "fairly" priced
efficient capital market
Cannot earn "abnormal" or "excess" returns in a ___ ___
efficient market
As new information comes to market, this information is analyzed and ____ are made based on this information
trades
Investors doing ____ makes markets efficient
research
Efficient markets means that, on average, you will earn a return that is ____ for the ____ undertaken
appropriate; risk
Efficient markets will not protect you from wrong choices if you do not ____
diversify
strong form efficiency, semistrong form efficiency, weak form efficiency
three forms of efficient market
states all information in a market, whether public or private, is accounted for in a stock price. Not even insider information could give an investor the advantage.
strong form efficiency
claims all past prices of a stock are reflected in today's stock price. Therefore, technical analysis cannot be used to predict and beat a market.
weak form efficiency
implies all public information is calculated into a stock's current share price. Meaning that neither fundamental nor technical analysis can be used to achieve superior gains.
semistrong form efficiency