Finals Quiz Reviewer

Front 1

Variability

Back 1

is the extent to which data points in a statistical distribution or data set diverge from the average or mean value.

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Portfolio

Back 2

is a collection of financial assets or investments such as stocks, bonds, and cash.

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Segmented Markets Theory/ Market segmentation theory

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- This theory is the total opposite of the pure expectation theory where securities with different maturities are perfect substitutes for each other

Front 4

Risk Structure

Back 4

is the relationship of interest rates on bonds with the same term to maturity.

Front 5

Returns

Back 5

-This refers to the revenues, earnings, yields, proceeds, income, or profit for some undertakings made like financial investment, capital investment, and business operation.

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Net Cash Flow

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-This refers to the difference between the cash flows received from an investment and the cash flow expended on an investment

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Yield Curve

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is a graphical representation of the term structure of interest rates at a particular point in time

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Pure or Unbiased Expectations Theory

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-This theory states that for the same holding period, investors should expect to earn the same return, whether they invest in short term or long term securities

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Segmented Markets Theory

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-Under this theory, investors have certain preferred investment horizon in accordance with or to jibe with the kinds of assets and the kinds of liabilities they hold.

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Standard Deviation

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- it is known as historical volatility and used by investors as a gauge for the amount of expected volatility.

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Variable Interest Rate

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means that the interest you are charged changes as whatever index your loan is based on changes

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Rational Expectations Theory

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- This theory is based on the premise that the financial markets are highly efficient institutions in digesting new information affecting interest rates and security prices.

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Liquidity Preference Theory

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- This theory stipulates that the interest rate is determined in the money market by the money demand and the money supply

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Compound Interest

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- involves giving interest to interest earned, that is, the interest earned in the first period is added to the principal Compound Interest

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Yield to Maturity

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is the interest rate which equates the present value of all cash flow from debt instrument with the current value; hence, the Net Present Value is equal to zero.

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Velocity of Money

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- is the average number of times a unit of currency is used to purchase final goods and services.

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Interest Rate

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__denotes percentage earnings or yield on investment

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John Maynard Keynes

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In 1930, ___ introduced the concept of money demand and used the term "liquidity preference" for money demand.

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Real Interest Rates

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is the interest rate that is adjusted for expected changes in the price level to accurately reflect the true cost of borrowings.

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Loanable Funds Theory

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- This theory is based on the premise that the interest rate is the price paid for the right to borrow or use loanable funds.

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Future Value

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__ is the sum value of money which will be received in the future period resulting from investment, taking into account the interest it will earn.

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Present Value

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__ is the value at the current time of the cash flow expected to be received after some period of time

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Net Present Value

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is the difference between the total present value of all future cash flows and the investment or principal

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Inflation

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is an economic disorder characterized by continuous increase in the price level of goods and services without the corresponding increase of the production of these goods and services.

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Annuity

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is defined as a stream or series of payments made or receipts received over time.

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Deferred Annuity

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A __ does not begin to produce rents until two or more periods have expired.

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Ordinary Annuity

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A __ involves a series of equal periodic payments or receipts called rent

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Time Value of Money

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denotes the value of money over time.

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Compound Interest

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In ___ the interest is computed by adding the interest to the principal to be used as the new basis or new principal for the succeeding year or period

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Market Portfolio

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__ is a portfolio consisting of all securities where the proportion invested in each security corresponds to its relative market value.

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Mean-Variance Analysis

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__is a part of modern portfolio theory that deals with the trade-offs between risk, as represented by variance or standard deviation of return and expected returns.

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Capital Allocation Line (CAL)

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Portfolios on ___represent combination of the risk free asset and the tangency portfolio.

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Tangency Portfolio

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is the market portfolio of risky assets held in market value weights.

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Security Market Line

Back 34

is a graphical representation of CAPM. a basic estimate of the relationship, a basic estimate of the relationship between risk and return in a stock price.

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Markowitz Portfolio Theory

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-This theory identifies as an efficient frontier, which is a set of efficient portfolio.

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Efficient Portfolio

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represents that set of portfolios with the maximum rate of return for every given level or risk, or the minimum risk for every level of return.

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Global Minimum-Variance Portfolio

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is the portfolio of risky assets having the minimum variance. Portfolio is a collection of all assets available to inventors with each asset held in proportion to its market value relative to the total market value of all assets.

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Capital Asset Pricing Model (CAPM)

Back 38

- It is a model that seeks to price risky assets, most common shares in terms of trade off between the returns sought by investors and the inherent risk involve.