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21 Cards in this Set
- Front
- Back
What are some examples of internal factors that affect the level of return of an investment?
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type of investment vehicle, the quality of management, its financing, and the issuer's customer base.
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What are some examples of external factors that affect the level of return of an investment?
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Federal Reserve actions, shortages, war, price controls, political events, Business environment, Economic environment
and the general level of price changes (inflation, and deflation.) |
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Inflation tends to have a positive impact on which type of investments?
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real estate
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Inflation tends to have a negative impact on which type of investments?
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stocks and fixed income securities
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Rising interest rates, which normally accompany --------------- rates of inflation, can significantly affect returns.
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increasing
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What is a general rule of investing regarding components and underlying assumptions of time value of money?
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-The sooner you receive a return on a given investment, the better.
-A dollar received today is worth more than a dollar received in the future -The sooner your money can begin earning interest, the faster it will grow |
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an investment whose present value of benefits (discounted at the appropriate rate) equals or exceeds the present value of its costs
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satisfactory investment
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The rate of return an investor must earn on an investment to be fully compensated for its risk
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required return
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If the present value of benefits exceeds the cost, you would earn a rate of return greater than the --------------.
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discount rate
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is composed by the real interest rate plus inflation
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Nominal interest
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the rate of return that can be earned on a risk free investment; the sum of the real rate of return and the expected inflation premium
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risk free rate
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The most common “risk-free” investment is considered to be the
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3-month U.S. Treasury Bill
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a return premium that reflects the issue and issuer characteristics associated with a given investment vehicle
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risk premium
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the type of vehicle (stock, bond, etc), it's maturity (2 years, 5 years,) and its features (voting/nonvoting, callable/non callable.
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issue characteristics (part of risk premium)
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industry and company factors such as the line of business and financial condition of the issuer.
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issuer characteristics (part of risk premium)
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current income actually received by an investor during a given period.
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realized return
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What are the two components of investment return?
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current income and capital gains
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treated as current income for tax purposes but are not realized return until the bond is sold or matures.
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interest on taxable zero-coupon bonds.
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are realized only when the investment vehicle is actually actually sold at the end of the holding period.
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capital gains returns
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return that has been achieved but not yet realized (no sale has taken place)
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Paper Return
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the period of time over which an investor wishes to measure the return on an investment vehicle
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Holding Period
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