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16 Cards in this Set
- Front
- Back
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Bull market spread between bonds |
- there is less fear so there is a smaller spread between high-quality and low-quality bonds |
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Freddie Mac |
Freddie Mac was formed to provide a secondary market for conventional mortgages. Because these are not guaranteed by any federal entity, they have more risk than Ginnie Mae securities and therefore pay a higher rate of interest.
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Technical vs. Fundamental |
Technical analysis is not considered valuable under any of the forms of the EMH; fundamental analysis is considered valuable under the weak form only.
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Unit investment trusts |
Unit investment trusts are fixed portfolios of securities, most frequently in fixed income, that an investor pays a load upfront to own, but have no turnover because it is a fixed portfolio of self-liquidating securities that have no management fee.
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Sharpe Ratio |
Sharpe uses standard deviation and assumes the portfolio is not well diversified and measures total risk
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Holding period return |
HPR = (sale price - purchase price) / purchase price
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Undiversified portfolio |
Since the portfolio is not fully diversified (only five stocks), the Sharpe index is the only one that can be used. It uses standard deviation in its formula. Beta, which measures only systematic risk, assumes a diversified portfolio, and it is used in the Treynor index and the Jensen index.
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Coefficient of variation |
The coefficient of variation is a measure of the degree of variation of returns compared with the expected mean return. The security with the lowest coefficient of variation is the one most likely to deliver periodic returns closest to its expected return.
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Bankers' acceptances |
Bankers' acceptances are issued and guaranteed (accepted) by commercial banks. Companies that buy and sell goods internationally use bankers' acceptances to provide assurance that payment will be made when goods are delivered. Without BAs, collecting payment for goods sold by a merchant in one country to a merchant in another country could be less certain, which would discourage international trade.
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Decreasing money supply |
- higher prices - higher interest rates - required return increases - security prices decrease |
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Index of leading indicators |
- consists of 10 measures that economists believe change direction prior to change in the direction of the overall economy |
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Index weighting |
- Dow jones composite includes 30 stocks in the dow jones industrial average, 20 stocks in the transportation average, and 15 stocks in the utility average - S&P 500 is value weighted - Value line index is equal-weighted |
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Rates go down, duration |
When rates are expected to decline, low-coupon bonds with long maturities have the highest duration and can be expected to increase in price more than any other type of bond.
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CML vs. SML |
The CML measures risk at the portfolio level and uses standard deviation. The SML measures risk at the individual security level and uses beta. Both use the same return data and measure the positive relationship between additional risk and higher return.
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SIPC coverage |
The SIPC was established in 1970, after the brokerage firm failures of the 1968–1970 bear market. If a firm fails, and the SIPC is unable to merge it with another broker, account holders can receive up to $500,000, with a maximum of $100,000 represented by cash or cash equivalents. The SIPC does not insure investors against losses due to market risk.
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Earnings per share and P/E ratio |
Dividing the current dividend by the dividend payout ratio (expressed as a decimal) gives the current earnings per share. Finally, dividing the price per share by the earnings per share gives the P/E ratio.
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