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portfolio mngmt
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risk premium is made up of 4 elements
interest rate risk
purchasing power risk (inflation)
business risk
financial risk
risk premium
expected return minus risk-free return
after tax return=actual return after paying income taxes
100%-tax rate, then multiply times the return
15% is for both dividends and capital gains
dividends always taxed at 15%
real return takes into consideration
the inflation rate
real return = total return minus the inflation rate
bond interest rate risk
bond sold prior to maturity
in regards to interest rate risk, if all bonds are being sold prior to maturity and they show yields--
pick the bond with the highest yield
reinvestment risk is on all debt security of 20 years or less and will be
held until maturity
if based on years, and they do not state if the bond is being held or sold, choose any bond under 20 years.
liquidity is also know as
marketability risk
true of false, money market vehicles are considered to be the most liquid
true
what is duration?
the measurement of the sensitivity of bond prices during changes in interest rates
how to find the duration risk or greatest price movement:
-alwasy pick the longest bond
two bonds with the saem maturity and which has the greatest price change? pick the lowest coupon
volatility risk is measured by:
alpha
beta
r-squared
sharpe ratio
delta
correlation coefficient
standard deviation
sharpe ratio
compares risk-adjusted return to volatility as compared to standard deviation
large cap
5 billion or more
market capitalization
price per share x number of outstanding shares
mid cap
1 billion - 5 billion
small cap
250 million - 1 billion
micro cap
250 million or less
russell 2000
small cap
wilshire 5000
all caps
s&p 500
large cap
Author
rockoforu
ID
169496
Card Set
portfolio mngmt
Description
portfolio mgmt and risk
Updated
2012-09-07T22:38:38Z
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