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Investments Flashcards

(92 cards)

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1
Q

Primary markets and issues are regulated by the _____________.

A

Securities Act of 1933

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2
Q

Secondary markets and issues are regulated by the __________.

A

Securities Act of 1934

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3
Q

Market Order

A

Sell ASAP at current price (most common)

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4
Q

Limit Buy Order

A

Wait for limit price or lower to buy

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5
Q

Limit Sell Order

A

Wait for limit price or higher to sell

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6
Q

Stop Order

A

When price gets hit, turns into a market order

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7
Q

Stop Limit Order

A

Combines features of a stop order and a limit order

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8
Q

Investment Advisors Act of 1940

A

Requires advisors to register with the SEC

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9
Q

DOL Rule

A

Established best interest standard and put fiduciary standards on ERISA accounts

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10
Q

Holding Period Return
Formula (Not from formula sheet)

A

[(Ending Value - Initial Value) + Income Generated] / Initial Value

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11
Q

Holding Period Return (is/is not) indexed for time

A

Is not

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12
Q

Holding period return assumes dividends (are/are not) reinvested

A

are not

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13
Q

Holding Period Return
Capital Appreciation Component

A

(Ending Value - Initial Value) / Initial Value

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14
Q

Holding Period Return
Income Yield Component

A

Income / Initial Value

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15
Q

Dollar-weighted return (does/does not) account for when investments are made and when withdrawals occur

A

does

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16
Q

Time-weighted return is based solely on the __________ or __________ of the portfolio from period to period

A

appreciation;depreciation

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17
Q

Total Risk = __________ + __________

A

Systematic Risk, Unsystematic Risk

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18
Q

Which type of risk can NOT be eliminated through diversification?

A

systematic risk

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19
Q

Systematic risk is quantified by what statistic?

A

Beta

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20
Q

Types of Systematic Risk

A

“PRIME”

Purchasing Power Risk
Reinvestment Risk
Interest Rate Risk
Market Risk
Exchange Rate Risk

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21
Q

Types of Unsystematic Risk

A

Business Risk
Financial Risk
Default/Credit Risk
Regulation Risk
Sovereignty Risk

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22
Q

The probability of a return falling within +/- 1 standard deviation of the average is ___%

A

68%

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23
Q

The probability of a return falling within +/- 2 standard deviations of the average is ___%

A

95%

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24
Q

The probability of a return falling within +/- 3 standard deviations of the average is ___%

A

99%

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25
__________ refers to the extent to which a distribution is not symmetrical
Skewness
26
__________ skewed distributions have many outliers in the upper, or right tail
Positively
27
__________ skewed distributions have many outliers in the lower, or left tail
Negatively
28
__________ is a statistical measure that describes when a distribution is more or less peaked than a normal distribution
Kurtosis
29
Normal distributions are also known as __________
mesokurtic
30
A distribution curve that is more peaked than normal is known as __________
leptokurtic (slender)
31
A distribution curve that is less peaked than normal is known as __________.
platykurtic (broad) ("platy is flatty")
32
Investors who accept the Efficient Market Theory would be __________ investors and buy only index funds
passive
33
Efficient Market Hypothesis Strong Form
Inside Information - No Fundamental Analysis - No Technical Analysis - No
34
Efficient Market Hypothesis Semi-Strong Form
Inside Information - Yes Fundamental Analysis - No Technical Analysis - No
35
Efficient Market Hypothesis Weak Form
Inside Information - Yes Fundamental Analysis - Yes Technical Analysis - No
36
Efficient Market Theory Anomalies
- Low P/E Effect - Small Firm Effect - Neglected Firm Effect - January Effect - Value Line Phenomenon
37
The __________ __________ curve identifies the optimal amount of return given a unit of risk taken
efficient frontier
38
The efficient frontier uses _________ for the risk measure
standard deviation
39
All points on the efficient frontier curve are deemed equally __________
efficient
40
Points __________ the curve are deemed inefficient
below
41
Points __________ the curve are deemed impossible
above
42
Where you plot on the efficient frontier curve is determined by __________ __________
risk tolerance
43
Risk averse investors have (steep/flat) indifference curves
steep
44
Risk tolerant investors have (steep/flat) indifference curves
flat
45
The Sharpe Ratio measures the risk-adjusted performance of a portfolio in terms of __________.
standard deviation
46
The Sharpe Ratio is appropriate to use when R2 ____ 0.70
<
47
Sharpe Ratio is a (comparative/absolute) value
comparative
48
The higher the Sharpe ratio, the (higher/lower) the risk-adjusted rate of return
higher
49
The Treynor Ratio is appropriate to use when R2 ____ 0.70
>
50
The Treynor Ratio is a (comparative/absolute) value
comparative
51
The higher the Treynor Ratio, the (higher/lower) the risk-adjusted rate of return
higher
52
The Treynor Ratio measures the risk-adjusted performance of a portfolio in terms of __________
Beta
53
CAPM is used to quantify __________ __________ given a market return and a Beta to the market
expected return
54
CAPM is used top plot the __________ __________ __________
security market line
55
CAPM Market Risk Premium
(Rm - Rf) Also known as the equity risk premium
56
CAPM Stock Premium
(Rm - Rf)Bi Return of the market less the risk free rate times Beta
57
Once CAPM produces the expected return, it can be subtracted from the __________ return to determine alpha
actual return
58
What is another name for Alpha?
Jensen's Performance Index
59
What does Alpha quantify?
Risk-adjusted rate of return
60
Alpha is only valid when R2 _____ 0.70
>
61
Alpha is a (comparative/absolute) value
absolute
62
Does Alpha use Beta or standard deviation?
Beta
63
When Alpha is above the Security Market Line (SML) (or positive)...
performance was better than expected
64
When Alpha is on the Security Market Line (SML) (or zero)...
performance was as expected
65
When Alpha is below the Security Market Line (SML) (or negative)...
performance was less than expected
66
The _____ _____ plots the rates of fixed income securities from very short-term securities all the way out to thirty-year maturity securities
yield curve
67
Yield Curve Upward Sloping
Normal, positive The rates of short-term paper are lower than the rates on longer-term paper
68
Yield Curve Flat
Rates of short-term and longer-term paper are similar
69
Yield Curve Downward Sloping
Negative, inverted The rates of short-term paper are higher than the rates of longer-term paper
70
An inversion of the yield curve is indicative of a looming __________
recession
71
The yield curve is a function of both the __________ _____ and ___ ______
business cycle; Fed policy
72
The (short/long) end of the yield curve is sensitive to Fed policy
short
73
The (short/long) end of the yield curve is a market rate and is predictive of anticipated economic conditions
long
74
Bond valuation is a function of:
- the bond's coupon payments - the market rate of interest for comparable bonds - the amount of time until maturity - maturity value
75
Compounding frequency for bond calculations
semi-annual
76
The stated or coupon yield of a bond
Nominal yield
77
The annual income paid divided by the current market price of the bond
Current Yield
78
________ is used to estimate the sensitivity of a bond to changes in rates
Duration
79
Yield to Worst is the lower of _____ __ ________ and _____ __ ____
Yield to Maturity; Yield to Call
80
As interest rates rise, bond prices (rise/fall)
fall
81
Discount Bond Yields Highest to Lowest
Yield to Call Yield to Maturity Current Yield
82
Premium Bond Yields Highest to Lowest
Current Yield Yield to Maturity Yield to Call
83
Duration is always stated in _____
years
84
For normal income-producing bonds, duration will always be (shorter/longer) than maturity
shorter
85
For zero-coupon bonds, the duration and years to maturity will be ___ ____
the same
86
Duration (increases/decreases) with maturity
increases
87
A higher coupon will result in a (higher/lower) duration
lower
88
Duration tends to (over/under)estimate risks from rising interest rates and (over/under)estimate benefits from lowering interest rates
over; under
89
Matching the duration of a fixed income portfolio to an investor's time horizon _________ those assets
immunizes
90
Longer duration = (more/less) sensitive to interest rate changes
more
91
Which systematic risks does portfolio immunization lower?
Reinvestment risk and Purchasing Power risk
92
Duration is a (linear/curved) estimate
linear

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