QuizBank Flashcards
What use “additional” factors to measure impact on return and arrive at appropriate portfolio returns
Ross’ Arbitrage theory and
Merton’s Multi-factor CAPM
both use factors in addition to those in CAPM
The type of risk which measures the extent to which a firm uses debt securities and other forms of debt in its capital structure to finance
Financial Risk
American Depository Receipts (ADRs) are for
Trading foreign Securities in US Markets
how to calculate the portfolio deviation of a portfolio
note - std of portfolio will be less than the avg of the deviations
square root of the wtd average of the returns added together PLUS 2xstandard deviations times eachother times their covariance
^~(Wt1Ret1)squared+ (Wt2Ret2)squared +2(Wt1)(wt2)COV
with COV = std1std2correlation
Describe the markets
Primary market is where investment bankers and corporations meet to arrange offerings to the public. Secondary markets are where previously issued securities are sold (exchanges, etc.).
Third Market is Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors.
Fourth market is the market where corporation and institutional investors deal directly with one another.
Jong Mae is optimistic about the long-term growth of her Matsushita stock. However, the stock, currently priced at $128 per share, has made a sharp advance in the last week and she wants to lock in a minimum price in case the shares drop. What should Jong Mae do?
Buy a lower priced put, giving me the ability to sell the stocks at a higher price than it might decline to, and then, have the ability to buy it back later at the lower price.
Specific companies are researched and chosen as investments based on their outstanding investment possibilities by analysts who practice:
bottoms up analysis - finding values that are as yet undiscovered
The current annual dividend of ABC Corporation is $2 per share. Five years ago, the dividend was $1.36 per share. The firm expects dividends to grow in the future at the same compound annual rate as they grew during the past five years. The required rate of return on the firm’s common stock is 12%. The expected return on the market portfolio is 14%. What is the value of a share of common stock of ABC Corporation using the constant dividend growth model? (Round to the nearest dollar.)
Step 1: N = 5 i = ? = .08 PV = PMT = 0 FV = 2 Step 2: D1 = 2 x 1.08 (from Step 1) = 2.16 Step 3: V = (D1) ÷ (r - g) = 2.16 ÷ (.12 - .08) = 54
what is the cumulative feature on a preferred stock
If dividends are not paid in a given cycle, they cannot be paid to anyone else until they are paid to preferred shareholders.
what is the participating feature of a preferred stock
If dividends are not paid in a given cycle, they cannot be paid to anyone else until they are paid to preferred shareholders.
what is the convertability feature of a preferred stock
The preferred shareholder has the option of accruing a certain number of shares and then converting them to common stock
what is the cumulative feature of a common stock
common stockholders gets to cast its entire total of votes in a grouping for one seat on the board of directors if the shareholders so desire
investment characteristics of a closed-end investment companie
actively managed, but, shares of the funds are traded only on major secondary markets
technical analysis that utilizes Advances and Declines (also known as Breadth of the Market)
Pricing indicator
technical analysis that utilizes the number of shares traded
Volume indicator
technical analysis that deals with directions of the market and related averages
Market indicators
technical analysis that does not use price but rather movements
Charting indicators
