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Definition
Real return + Inflation + Risk
also
[P(1) - P(0)] / P(0) |
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| Who does Inflation hurt or help? |
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| Inflation hurts bond holders, but helps stock holders |
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Percent of funds in asset classes
Stocks 60%
Bonds 30%
Alternative Assets 6%
Money market securities 4% |
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Definition
| Specific securites within an asset class |
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| When a private company becomes public |
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Definition
| When a public company goes private |
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Definition
| Execute immediately at the best price |
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Term
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Definition
Order to buy or sell at a specified price or better
E.G.: Stock trading at $50, could place a buy limit at 49.90 or a sell limit order at 50.25. |
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Definition
| Bid means you are selling, Ask means you are buying |
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| Margin means your own money |
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| Initial margin requirements on stocks are set by |
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| What is the most important dealer market? |
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| What is the most important auction market? |
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| Profit/Initial Investment |
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Definition
"Par*{1-[ask percent*(days to mat/360)]}=price you pay
Annual return (ask yield)={(par-price you pay)/price you pay}*(365/days to mat)" |
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Definition
"DJIA; (Sum of individual prices/number of stocks included)
With a stock split you take the point value from the previous day to find the new divisor" |
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Definition
| S&P & NASDAQ; (Sum of P1*Q1 for each individual stock/Sum of P0*Q0 for each individual stock)*100 |
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Term
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Definition
| Value line index; (P1-P0/P0) find % for each individual stock sum % for each stock and divide by # of stocks. |
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Definition
| (Profit=Ending - Beginning + Cash Flow - Cost)/initial investment (initial investment is only your own money that you pay + initial commission) |
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Term
| Margin Call for Margin Trading |
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Definition
| ((Shares*Price)-Debt)/(Shares*Price)=maitenance margin |
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Term
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Definition
| Profit/initial investment (profit=beginning value-ending value-cost-dividend) |
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| Margin Call for Short Sale |
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Definition
| (Asset-(# of shares * price))/(# of shares * price) |
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Definition
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Term
| Investors require 3 things: |
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Definition
-Real Return
-Inflation
-Risk |
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Term
| Know the difference between Commercial Banks and Investments |
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Definition
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Term
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Definition
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Term
| Types of investment companies |
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Definition
-Unit Investment Trusts (UITs)
-Managed Investment Companies
-Commingled funds
-REITs
-Hedge Funds |
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Term
| Unit Investment Trusts (UITs) |
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Definition
| Unmanaged, fixed composition portfolios |
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Term
| Managed Investment Companies |
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Definition
| Managed, usually changing composition portfolio. (Usually called Mutual Fund) |
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Term
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Definition
| shares are bought from the fund and redeemed by the fund |
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Term
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Definition
| shares are bought and sold among investors in the marketplace (NASDAQ or an exchange) and the fund itself is not involved. |
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Term
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Definition
| Partnerships of investors that pool their funds. Designed for trusts or larger retirement accounts to get professional management for a fee. Operates similar to a mutual fund. |
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Term
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Definition
| Similar to closed end fund. Invest in real estate and real estate loans. |
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Term
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Definition
Similar to mutual funds, but not registered and not subject to SEC regulations.
Available to institutional and high net worth investors
Can pursue investment strategies that are not allowed for mutual funds. |
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Term
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Definition
Used as a basis for valuation of investment company shares
-Selling new shares
-Redeeming existing shares |
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Term
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Definition
Market Value of Fund Assets - Fund Liabilities
Fund shares outstanding
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Term
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Definition
| Open-ended and Closed-ends |
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Term
| Mutual Fund Fee structure |
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Definition
Understand that there are front-end loads, and 12b-1 fees each year, and back-end loads. Hint: do TVM
See pg 93 Concept check 4.2 and Quiz 4 problem 18. |
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| Calculate Mutual Fund Returns |
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Definition
NAV1- NAV0+ Income and capital gain distributions
NAV0 |
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Term
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Definition
| Making trades after NAV is calculated at the end of the day. (only if the sale is above NAV and the buy is below NAV) |
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Term
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Definition
| A fund with high portfolio turnover rate can be particularly "tax inefficient." The lower the turnover rate, the less you will pay in taxes. If there is turnover, you have no choice but to pay the taxes. |
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Term
| ETF's (Exchange-traded funds) |
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Definition
| Offshoots of mutual funds that allow investors to trade index portfolios. ETFs allow investors to trade index portfolios like shares of stock. |
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Term
| Potential advantages of ETF's |
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Definition
-Trade continuously throughout the day
-Can be sold short or purchased on margin
-Potentially lower taxes
-No fund redemptions
-Large investors can exchange their ETF sharesfor shares in the underlying portfolio
-Lower costs (No marketing; lower fund expenses) |
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Term
| Potential disadvantages of ETF's |
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Definition
Small deviations from NAV are possible
Must pay a brokerage commission to buy an ETF but a no load index fund may be purchased online for no commission. |
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Term
| Advantage and disadvantage of mutual fund investing |
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Definition
A benefit for the individual investor is the ability to delegate management of the portfolio to investment professionals.
Evidence shows that average mutual fund performance is generally less than broad market performance. |
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Term
| How firms isue securities |
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Definition
| Primary vs. Secondary Market Security Sales |
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Term
Primary Market Security Sales |
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Definition
-New issue is created and sold
-Key factor: issuer receives the proceeds from the sale
-Public offerings: registered with the SEC and sale is made to the investing public
-Private offerings: not registered, and sold to only a limited number of investors, with restrictions on resale |
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| Secondary Market Security Sales |
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Definition
-Existing owner sells to another party
-Issuing firm doesn’t receive proceeds and is not directly involved |
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Term
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Definition
Market order
Limit order
Stop loss order
Stop buy order
Discretionary order |
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Term
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Definition
Becomes a market sell order when the trigger price is encountered.
E.G.: You own stock trading at $40. You could place a stop loss at 38. The stop loss would become a market order to sell if the price of the stock hits 38. |
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Term
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Definition
Becomes a market buy order when the trigger price is encountered.
E.G.: You shorted stock trading at $40. You could place a stop buy at 42. The stop buy would become a market order to buy if the price of the stock hits 42. |
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Term
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Definition
| Over-the-counter or OTC market: An informal network of brokers and dealers who negotiate sales of securities. |
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Term
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Definition
| Electronic communication networks: Computer networks that allow direct trading without the need for market makers. |
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Term
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Definition
| A formal exchange such as the NYSE. A specialist is a trader who makes a market in the shares of one or more firms and who maintains a "fair and orderly market" by dealing personally in the market. |
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Term
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Definition
Commission
Spread
Combination |
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Term
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Definition
| fee paid to broker for making the transaction |
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Term
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Definition
cost of trading with dealer
ask - bid |
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Term
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Definition
| price dealer will buy from you |
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Term
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Definition
| price dealer will sell to you |
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Term
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Definition
| on some trades both are paid |
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Term
| Buying on Margin definition |
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Definition
borrowing money to purchase stock.
Initial Margin Requirement IMR (minimum set by Federal Reserve under Regulation T), currently 50% for stocks.
The IMR is the minimum % initial investor equity.
The IMR is the minimum % initial investor equity.
1-IMR = maximum % amount investor can borrow |
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Term
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Definition
| Position Value - Borrowing + Additional Cash |
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