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AFM 121 FINAL REVIEW > Chapter 15 FINAL > Flashcards

Chapter 15 FINAL Flashcards

1
Q

When an invetsor creates their portfolio what do they look at?

A

Risk + Return

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2
Q

What are the two types of investors

A
  1. an investor who prefers an investment with greater return with a greater level of risk
  2. Theres investors who are more risk averse and want safe assets
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3
Q

What are safer investments

A

GICs, Canada savings bond

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4
Q

What are riskier investments

A

TESLA
GOOGLE

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5
Q

Rank 6 investments from less risk/return to greater risk/return

A

Treasury bills
bonds
debentures
preferred shares
common shares
derivatives

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6
Q

What is return from a security?

A
  1. Either intrest or dvidends recieved
  2. Capiral gain (price change)
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7
Q

How do we calculate the % change?

A

Cash flow + (end - bed) / beg

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8
Q

What is cash flow?

A

intrest/dividends

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9
Q

What is the end-beg

A

Price change of security

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10
Q

What is the real rate of return?

A

Its how much an investment increase by due to inflation

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11
Q

How to find real rate of return

A

Nominat - infaltion rate

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12
Q

What is nominal rate?

A

Actual rate of return

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13
Q

There are four types of risk what is it?

A

Inflation
Business
Political
Liquidity

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14
Q

What is liquidity risk?

A

Due to inflation it decreases the cash flows amount making the price of securities fall.

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15
Q

What is a business risk

A

The risk associated with a specific industry or business

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16
Q

What is political risk

A

Risk associated in a particular country

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17
Q

What is a liquidy risk

A

its if the investment can be monetized quickly and easily

18
Q

What is interest rate risk?

A

How a securities return is effected to do rise in interest rates

19
Q

What is foreign exchange risk

A

How the streng/weakness of the canadian dollar will affect investment returns if investing in foreign securities

20
Q

What is default risk

A

The risk associated with a company going bankrupt or defaults on debt obligations

21
Q

What is systematic risk

A

Its risk associated with the overall market or economy

22
Q

What is a non systematic risk

A

its risk associated with a specific firm

23
Q

How do we measure the risk?

A

Beta

24
Q

What is beta?

A

bta measures a securities return relative to the overall market

25
Q

Higher beta =

A

more riskier

26
Q

What is asset allocation

A

where we decide to put our money

27
Q

what are the different assets a person can get risk and return

A

cash
fixed income
equtities

28
Q

How do we determine asset allocation for an investor?

A

its dependant on what the investors objectives and risk tolerance is

29
Q

How is the expected return of each asset in a portfolio based?

A

Their weighing and expected return

30
Q

Ex: Exp. Return Weighting
Company A 8% 25%
Company B 10% 40%
Company C 12% 35%

A

The overall return would be:

		.08 X .25 + .1 X .4 + .12 X .35 = .102 or 10.2%
31
Q

Why do we need to diversify a portfolio

A

To eliminate risk to one specific firm

32
Q

How should we invest?

A

In securities that move in opposite directions

33
Q

What is correlation

A

measures how two securites are related

34
Q

+1 correlation inficates

A

two securities are moving in perfect positive direction

35
Q

-1 correlation inficates

A

two securities are moving in perfect negative direction

36
Q

0 correlation indicates

A

No correlation

37
Q

How do we want our securities to be correalted?

A

negative

38
Q

If Company A’s beta = 2.0; if the market goes up 10%,

A

Company A’s shares will increase 20% - and vice versa

39
Q

What are primary investment objectives

A

safety, income, return, capital growth

40
Q

What are secondary investment objectives

A

marketability/liquidy
tax minimization

41
Q
A
42
Q
A

AFM 121 FINAL REVIEW (10 decks)

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