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6 Cards in this Set

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The quick ratio or acid-test ratio


(current assets- inventory) /current liabilities.

The Capital Asset Pricing Model (CAPM)


we can determine the expected return of any security (or portfolio)


Er = Rf + B(expected return on the market − Rf)


Er stands for expected return


Rf is the risk-free return


B is beta

The Sharpe ratio is used to measure risk-adjusted performance of either a portfolio or an individual security.

Actual return- Rf (90-day T-bill) / standard deviation


-the higher the Sharpe ratio, the better the portfolio or security has performed on a risk-adjusted basis.

Alpha

is the extent to which a security’s performance exceeds (or falls short of) what would be expected based on its beta

Any question asking about the risk-adjusted return

is going to be referring to the Sharpe Ratio

internal rate of return (IRR)
1. It is the discount rate that makes the future value of an investment equal to its present value.
2. In order to compute, it is necessary to know the initial cost of the investment.
3. In order to compute, it is necessary to know the cash flow of the investment.
4. It is equivalent to a bond's yield to maturity.