Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
38 Cards in this Set
- Front
- Back
|
primary market
|
trading of IPO's; stocks, bonds, that have just been issued
|
|
|
secondary market
|
the trading of previously held securities
|
|
|
NYSE
|
largest U.S. market (2.1 billion shares traded daily)
|
|
|
How do specialists make a profit?
|
by issuing an ask-bid spread (make profit off the difference for this spread)
|
|
|
market order
|
order to buy or sell at the prevailing market price
|
|
|
limit order
|
qualified order to buy or sell at specified prices
|
|
|
buying on the margin
|
borrow up to 50% of stock purchase price from broker; leave stock with the broker as collateral for loan
|
|
|
When should short sales be used?
|
when you think the stock price is going fo fall
|
|
|
What are some functions of Investment companies?
|
record keeping, diversification, divisibility and liquidity, lower transaction costs
|
|
|
What are some types of mutual funds?
|
money market funds, bond funds, equity funds, index funds
|
|
|
What are some expenses for mutual funds?
|
front-end loads, back-end loads, operating expenses, and 12b-1 charges
|
|
|
What do ETF's allow investors to do?
|
to trade index portfolios just like shares of stock
|
|
|
What are some advantages of ETF's
|
traded continuously, potential tax advantage and usually cheaper than mutual funds
|
|
|
What are some characteristics of hedge funds?
|
employ aggressive investment strategies, limited to a few sophisticated investors, few disclosure requirements, and fees are typically high and asymmetric
|
|
|
S&P 500
|
value weighted index: calculated as if index included shares of all 500 firms in proportion to their market values
|
|
|
What did the Sarbines-Oxley Act accomplish?
|
created certain rules in order to provide for more accurate details of financial records for firms
|
|
|
What is the historical trend of equity premium?
|
equity premium had been relatively high in the 20th century and significantly lower in recent years
|
|
|
how are stock returns more volatile than bonds?
|
while stocks do better on average, investors know that in any one year stocks may do much worse than bonds
|
|
|
What does finance theory say concerning risk?
|
average returns over long period of time are determined by risk
|
|
|
What is the skewness and kurtosis for a standard normal distribution graph?
|
skewness = 0, kurtosis = 3
|
|
|
what does value at risk try and accomplish?
|
rather than considering a given threshold return, one can instead consider a given shortfall probability
|
|
|
What is the objective of hypothesis testing?
|
to decide whether to reject the null in favor of the alternative
|
|
|
What is the rule of thumb if the t statistic > 2?
|
reject the null
|
|
|
T/F...geometric average is always less than the arithmetic average
|
TRUE
|
|
|
What does portfolio theory try to accomplish?
|
explore how risk averse investors construct portfolios in order to optimize expected returns for a given level of risk
|
|
|
What are the names of risk that can be diversified away?
|
diversifiable, non-systematic, firm specific, and idiosyncratic risk
|
|
|
What are the names of risk that can NOT be diversified away?
|
non-diversifiable risk, systematic risk, market risk, covariance risk
|
|
|
What are some of the assumptions derived under the mean-variance portfolio?
|
returns can be characterized entirely by means and variances or investors have mean-variance preferences
|
|
|
What does the CAL show?
|
all possible risk-return combinations
|
|
|
What is the main underlying though about risk aversion
|
when facing two investment opportunities with the same expected return, risk-averse investors will choose the one with the least amount of risk
|
|
|
Where is the optimal portfolio located?
|
lies at the point where the CAL is tangent to the indifference curve
|
|
|
What has to happen for a mean-variance efficient portfolio to occur?
|
the portfolio is on the CAL which is tangent to the set of feasible risky portfolio (CAL with the highest Sharpe ratio)
|
|
|
What are two important facts about the minimum-variance frontier?
|
(1) the entire efficient frontier can be constructed as a combination of any two portfolios that lie along it; (2) the covariance between the MVP and any other portfolio is equal to the variance of the MVP
|
|
|
What are the two steps in finding the optimal portfolio P?
|
(1) Find the CAL that goes through the tangency portfolio; (2) Choose the portfolio on the CAL that maximizes the investor's utility
|
|
|
What is more important for large portfolios, covariance or variance of asset returns?
|
covariance
|
|
|
What are some problems with M-V analysis?
|
non-normal distributions and instability of parameter estimates
|
|
|
When two securities that are positively correlated but not perfectly correlated are held in a portfolio then what?
|
the portfolio standard deviation will be less than the weighted average of the individual security standard deviations
|
|
|
Would you expect two people with different levels of risk aversion to have intersecting indifference curves?
|
Yes
|
