Series65 MOD 8 Risk & Evaluation
Home > Flashcards > Print Preview
The flashcards below were created by user
on FreezingBlue Flashcards
. What would you like to do?
What does Modern Portfolio Theory attempt to do:
- Attempts to Maximize return for a given amount of Risk
- Build Portfolios that have lower Collective Risk than Individual Components
Define CAPM, Capital Asset Pricing Model
- Used to determine Capital Asset Pricing Theory
- T-Bills are used as Proxy (Risk-Free) return
- Return above the Risk -free Return = premium
- Risk premium must justify additional risk taken
- CAPT used to determine appropriate price
Monte Carlo Simulations use what factors:
- Interest Rates
- Inflation Rates
- Past Performance
- Expected Returns
BENCHMARK PORTFOLIOS are used to:
compare the relative performance of an actual portfolio against a model portfolio.
The value of money (present value) can decrease over time (future value)if the return does not keep up with inflation. This is known as the:
TIME VALUE OF MONEY
To determine the discounted cash flow of a bond it is necessary to know:
- Future value
- interest received
- the discount rate
PRESENT VALUE is determined by:
assuming an investment rate of return and a target amount (goal) to be reached at the end of a period of years, and then calculating how much would have to be invested today to achieve that goal.
NET PRESENT VALUE is a calculation used to:
determine the present value of an investment based on the future value at a given rate of return (discount rate).
Annual payment to be received ÷ Annual compounded interest rate = Contribution needed for perpetual payments
Rate of Returns
Basic Formula is Income + Appreciation ÷ Original Cost = Rate of Return
EXPECTED RETURN is the:
return an investor anticipates earning from an investment when the investment is made
TOTAL RETURN is the:
return an investor has received from an investment for the years that the investment was held.
TOP-DOWN APPROACH Investing:
- is an investment method in which the investor or analyst first looks at the general economy as a whole
- 2. particular industry
- 3. individual security within that industry
Quantitative refers to:
that which can be measured mathematically
BOTTOM-UP APPROACH Investor:
the investor/analyst looks for outstanding performanceof individual stocks in determining how a particular industry might perform.
The ACTIVE RETURN is:
a measurement of the difference between the actual return and the benchmark, and is a good indicator of the portfolio manager’s ability to supervise the portfolio.
HOLDING PERIOD RETURN is the:
return an investor has received from an investment for the specific years that the investment was held.
RISK-FREE RETURN is the expected return on:
T-bills or other risk-freeinvestments
RISK PREMIUM is the:
difference between the EXPECTED RETURN and the RISK-FREE RETURN
The RISK-ADJUSTED RETURN is the:
difference between an investor’s TOTAL RETURN and the RISK-FREE RETURN
AFTER-TAX RETURN, or NET YIELD, is the:
Total Return minus any taxes
REAL RATE OF RETURN is:
the Total Return minus the inflation rate. Also referred to as the “INFLATION-ADJUSTED RETURN
The Rule of 72
determines how many years it will take to double the amount of the investment
expected interest and divided into 72
The Rule of 72
determine the compounded interest rate that was achieved
number of years an investment has taken to double and divide that into 72
The TIME-WEIGHTED RETURN, or GEOMETRIC MEAN, is a:
measure of the compound rate of growth in a portfolio. This concept is used to determine the performance of investment advisers and portfolio managers in comparison with one another
The DOLLAR WEIGHTED RETURN is:
an accounting method that factors in any deposits or withdrawals of capital to a portfolio and considers them part of the return, along with capital gains and losses
The current yield is the:
- nominal yield (rate) divided by the current market price.
- 8% bond selling at 90 ($900)
- 8 divided by 90 = 8.88%
The nominal yield is:
- the amount the bond will pay per $1,000/yr
- 8% bond will pay 8% of $1,000
Yield to maturity and current yield move in the __________.
The yield to call moves in the ________
same direction as the yield to maturity
When a bond trades for less than par (at a discount price)
the yield to call will be higher than the nominal yield
When a bond trades for more than par:
the yield to call is lower than the nominal yield (there is a loss at maturity)
is the very real risk that the business an investor chooses to investin may go out of business.
MARKET RISK is the risk that securities that belong to the same class:
will all be affected similarly by changes in prices in the market. (systematic risk)
INTEREST-RATE RISK is the risk that:
an investor has when attempting to sell a debt security (bond) prior to the maturity date.
If the test question does not state whether the bond is held or sold, reinvestment risk is the correct choice for bonds with maturities under 20 years.
Define TREASURY INFLATION-PROTECTED
- issued by the U.S. government
- The semiannual interest payments are based on the inflation-adjusted principal at the time the interest is paid, and when the interest rate is applied to the adjusted principal value, the amount of the payment increases
DURATION always affects:
the longest bonds the most, and if all bonds are relatively the same (within months), the lowest coupon is affected the most.
ACID TEST RATIO =
TOTAL CURRENT ASSETS - INVENTORY ÷ TOTAL CURRENT LIABILITIES
CURRENT RATIO =
TOTAL CURRENT ASSETS ÷ TOTAL CURRENT LIABILITIES
- a measurement of a stock or portfolio’s return independent of market related factors.
- It is the return in excess of the expected return and is used to determine the value of a company’s management team or a portfolio manager
A stock or portfolio is assigned an expected return per:
the capital asset pricing module (CAPM).
CAPM uses beta to:
measure relative volatility and expected return compared to the market
If a stock or portfolio’s return equals this expected return, it is said to have an
alpha of __
BETA (also called the BETA COEFFICIENT) is a measurement of:
the volatility of a stock or portfolio compared to the volatility of the stock market as a whole, a stock within its industry, or a portfolio of stocks with an index to which it is similar
R-SQUARED refers to the volatility of stocks in relation to the:
market prices of those stocks.
DELTA is a volatility measurement used to compare:
option premium movements with the price movements of the stocks underlying the option contract
STANDARD DEVIATION is a statistical measurement of:
a range of volatility and not a measure of the volatility of the particular investment.
The SHARPE RATIO compares a stock’s:
- risk-adjusted rate of return to its volatility.
- The Sharpe ratio measures an investment’s return per unit of risk.
The CORRELATION COEFFICIENT is a:
- statistical measure of the degree of how 2 investments are related.
- It is a measure of volatility and can be used to comparethe performance of one investment with another.
An income statement lists:
the amounts received from selling goods and services, plus other items, and matches them against all the costs and outlays incurred to operate the company.
CASH FLOW is the:
amount of cash available to a company after the deduction of taxes, but with the addition of depreciation
When the increased return matches the increased risk, it is known as an:
What would you like to do?
Home > Flashcards > Print Preview