Fin 330 Test 1

Front 1

Security with apayoff that depends on the prices of other securities

-Options andfutures contracts are derivative securities

Back 1

Derivative Asset

Front 2

Common stock,derivative securities, and fixed income securities

Back 2

financial assets

Front 3

Institutions that “connect” borrowers and lenders by accepting funds from lenders and loaning funds to borrowers

Back 3

financial intermediaries

Front 4

Allocation of an investment portfolio across broad asset classes

Back 4

asset allocation

Front 5

purpose of derivatives

Back 5

Price discovery and risk management

Front 6

System of buying stocks or other securities that have had high returns over the past three to twelve months

Back 6

momentum investing

Front 7

Attempting to identify mispriced securities or to forecast broad market trends

Back 7

active management

Front 8

Buying and holding a diversified portfolio without attempting to identify mispriced securities

Back 8

passive investing

Front 9

Strategy of making buy or sell decisions of financial assets (often stocks) by attempting to predict future market price movements

Back 9

market timing

Front 10

2008 Bankruptcy

Back 10

Low interest rates and a steady economy created a housing market boom, driving investors to find higher yield investments

Front 11

t-bills, t-notes, t-bonds

Back 11

gov. issued securities that mature in 1 year or less, 2-10 years, and 10+ years

Front 12

Dollar-denominated deposits at foreign banks or foreign branches of American banks

Back 12

Eurodollars

Front 13

Sallie Mae

Back 13

SLM Corporation

Front 14

Freddie Mac

Back 14

Federal Home Loan Mortgage Corporation

Front 15

Fannie Mae

Back 15

Federal National Mortgage Association

Front 16

Ginnie Mae

Back 16

Government National Mortgage Association

Front 17

Major mortgage-related agencies

Back 17

Sallie Mae

Freddie Mac

Fannie Mae

Ginnie Mae

Front 18

Short-term unsecured debt issued by large corporations

Back 18

commercial paper

Front 19

Options - call/put

Back 19

calling = buying an asset at a specified price on or before a specified expiration date

putting = selling an asset at a specified price on or before a specified expiration date

Front 20

Obliges traders to purchase or sell an asset at an agreed-upon price at a specified future date

Back 20

futures contract

Front 21

the last price at which a bond traded, par = 100 or 100% of $1,000

Back 21

price quote bond

Front 22

nonvoting shares in a company, usually pay fixed dividends

Back 22

preferred stock

Front 23

Calculating dividend and dividend yield

Back 23

divide annual dividens per share by current stock price

Front 24

Firms specializing in the sale of new securities to the public

Back 24

investment bankers

Front 25

a preliminary prospectus filed by a company with the Securities and Exchange Commission (SEC), usually in connection with the company's initial public offering

Back 25

red herring

Front 26

% of trades initiated by computers

Back 26

80-90%

Front 27

An order specifying a price at which an investor is willing to buy or sell a security

Back 27

limit order

Front 28

Trade is not to be executed unless stock hits a price limit

Back 28

market order

Front 29

New issues of securities are offered to the public

Back 29

primary market

Front 30

Previously issued securities are traded among investors

Back 30

secondary market

Front 31

Stock is to be sold if its price falls below a set level

Back 31

stop loss

Front 32

Stock is to be sold when reaching the designated price, but if the price jumps over the set level, it will not be sold

Back 32

stop limit

Front 33

first sale of stock by a formerly private company

Back 33

Initial Public Offering (IPO)

Front 34

Issuing firm sells the securities to the underwriting syndicate for the public offering price less a spread that serves as compensation to the underwriters

Back 34

firm-commitment

Front 35

Electronic trading networks where participants can anonymously buy or sell large blocks of securities

Back 35

dark pool

Front 36

Nonpublic knowledge about a corporation being used to help gain an edge in the market for an individual

Back 36

insider trading

Front 37

Minimum amount of equity that must be maintained in a margin account

Back 37

margin maintenance requirements

Front 38

Internal rate of return of an investment

Back 38

dollar weighted return

Front 39

Single per-period return that gives the same cumulative performance as the sequence of actual returns

Back 39

geometric return

Front 40

Sum of returns in each period divided by the number of periods

Back 40

arithmetic return

Front 41

Rate of return over a given investment period

Back 41

holding period return

Front 42

Calculate holding period return

Back 42

HPR = (Ending Price - Beginning Price + Cash Dividend) / (Beginning Price)

Front 43

Difference between the expected return on a market portfolio and the risk-free rate

Back 43

market risk premium

Front 44

The past performance of a security or index

Back 44

historical returns

Front 45

Normal distribution

Back 45

1 deviation = 68.26%

2 deviation = 95.44%

3 deviation = 99.74%

Front 46

the square root of the variance

Back 46

standard deviation