Flashcards in Investments Class Deck (71)
buy an asset of any type, your gain (or loss) from that investment
2 components of return
First, you may receive
some cash directly while you own the investment. Second, the value of the asset you purchase
may change. In this case, you have a capital gain or capital loss on your investment
Total Dollar Return
sum of the dividend income and the
capital gain (or loss):
Total dollar return = Dividend income + Capital gain (or loss)
The annual stock dividend as a percentage of the initial stock price.
Dividend yield = Dt / Pt
Capital Gains Yield
change in the price during the year (the capital gain) divided by the beginning
effective annual return (EAR)
The return on an investment
expressed on a per-year, or
1 + EAR = (1 + holding period percentage return) ^m
total market capitalization (or market
“cap” for short)
its stock price multiplied by the number of shares of stock.
The rate of return on a riskless
The extra return on a risky asset
over the risk-free rate; the reward
for bearing risk.
investment policy statement, or IPS,
divided into two sections: objectives
and constraints. In thinking about investor objectives, the most fundamental question is: Why
invest at all?
planned life of the investment
high degree of liquidity is one that can be
sold quickly without a significant price concession. One part of liquidity is the ease with which an asset can be
sold. The other part is how much you have to lower the price to sell the asset quickly.
Buying and selling in anticipation of the overall direction of a market. you might move money into the stock market when you think stock prices will rise. Or you might move money out of the stock market when you think stock prices will fall.
The distribution of investment funds among broad classes of assets.
thumb of rule in asset allocation
one of the simplest being to split the portfolio into 60 percent stocks and 40 percent bonds.
Equity precentage is your age minus 100 or 120
Selection of specifi c securities within a particular class.
You actively vary your holding per class. You keep changing partiular stocks.
seldom change asset allocations and you might just acquire a diverse group of small
stocks, perhaps by buying a mutual fund
only services provided are account maintenance
and order execution—that is, buying and selling.
investment advice regarding the
types of securities and investment strategies that might be appropriate for you to consider
brokerage fi rms do extensive research on individual companies and securities
and maintain lists of recommended
offering more investment counseling than the deep-discounters and lower commissions
or fees than the full-service brokers
Federal Deposit Insurance Corporation, or FDIC
protects money deposited into bank accounts during bank failure
Securities Investor Protection Corporation (SIPC)
Insurance fund covering investors’ brokerage accounts with member firms. restore funds to investors who have securities in the hands of bankrupt or
financially troubled brokerage firms.
A brokerage account in which all
transactions are made on a strictly
subject to limits, purchase securities on credit using
money loaned to you by your broker.
call money rate
The interest rate brokers pay to
borrow bank funds for lending to
customer margin accounts
additional interest you pay depending on your broker and the size of the loan
The portion of the value of an
investment that is not borrowed.
The minimum margin that must be
supplied on a securities purchase.
own cash amt = im * total order