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  1. what is margin?
    The portion of the value of the investment that is not borrowed
  2. Why do you invest?
    • -to recieve a amount in the future
    • -to recieve regular income
    • -to preserve the buying power of money
  3. Why invest in alternative assets?
    • -potential higher gain
    • -portfolio diversification
  4. how is standard deviation used as a risk measure?
    • -it measures the dispersion of a set of data from its mean
    • -a measure of the volitility of an investement
  5. why do you not invest?
    • -enjoy your money now
    • -current consumption
    • -you dont need money in the future
    • -investment risk
  6. What are the basic types of securities?
    • -interest bearing
    • -equities
    • -derivatives
  7. What are the typres of interest bearing securities?
    • -money market instruments
    • -fixed income securities
  8. What are the types of equites?
    • -common stock
    • -preferred stock
  9. What are money market instruments?
    • -short term obligations issued bu government and corporations
    • -simplest form
  10. What are fixed income securities?
    • -longer term debt obligations that promise pixed payments
    • -bonds
  11. what is the risk free rate?
    • -the rate of return of a riskless investment
    • ex. t-bills becuase the government wont default
  12. What is the risk premium?
    • The extra return on a risky asst over the risk free rate
    • -a reward for bearing risk
  13. What are some alternative assets?
    • -real estate
    • -hedge funds
    • -private equity
    • -commodities
    • -collectables
  14. What is a margin account?
    A brokerage account where securities can be bought and sold on credit
  15. What is an open end mutual fund?
    • an investment company that stands ready to
    • buy and sell shares in itself to investors, at any time
  16. What a closed end mutual fund?
    an investment company with a fixed number of shares that are bought and sold by investors
  17. What is mutual fund turnover?
    its a measure of how much trading a fund does
  18. What are the objectives and constraints in an investment policy statement?
    • objective
    • -return req.
    • -risk tolerance
    • Constraints
    • -liquidity
    • -time horizon
    • -taxes 
    • -legal
  19. What is prospect theory?
    Investors are much more distressed by prospective losses than they are happy about prospective gains.
  20. What are the 3 behavior errors consistant with prospect thoery?
    • -mental accounting
    • -frame dependence 
    • -house money effect
  21. What is mental accounting?
    • -people segament thier money into seperate buckets
    • -will spend bonuses differently than regular income
  22. What is frame dependence?
    • how a problem is frame matters to people
    • -they will answer differently to the same question asked differently
  23. What is the house money effect?
    people will take more risk with money they have won
  24. What are the cyclical economic indicators?
    • -GDP growth rate
    • -Interest rates
    • -inflation
    • -home prices
    • employment
  25. What is the efficient market hypothysis?
    • sucurities prices rapid change to new information and current prices reflect all availialbe information.
    • -investors cant acheive higher return withour higher risk
  26. What are the 3 forms of market effcientcy?
    • -weak form- past prices are no use in beating market
    • -semistrong- publicly availiable information is of no use in beating the market
    • -strongform- information of any kind is no use including inside information.
  27. What is the P/E anomolie?
    companies with low price to earnigs ratios actually have higher returns
  28. What is the january effect?
    small stocks in particular have historically generated high returns in the month of january
  29. What is the turn of the year effect?
    there is a pattern of higher trading volume and higher stock prices in the last week of dec and first 2 weeks of january
  30. What is the role of portfolio managers in an effcient market?
    • investors need portfolio managers to provide diverification.
    • - the market needs analyists to seek profit opportunities to ensure prices reflect all info.
  31. What is residual income?
    net income minus common shareholders opportunity cost
  32. What is the difference between insider and informed trading?
    • insider trading is acting on information gained in an illegal way
    • informed trading in gaining all publically availiable information to form an investment strategy
  33. What is systematic risk?
    risk that influences a large number of assets or called market risk (cant diversify away)
  34. What is unsystematic risk?
    risk that influences a single company or called uniqued risk
  35. What are the components of porters 5 forces model?
    • -rivalry among competitors
    • -threat of entrients
    • -threat of substitute products
    • -bragaining power of customers
    • -bargaining power of suppliers
  36. What are some cometitive strategies?
    • -low cost producer
    • -product differentiation
    • -focus/niche postitioning
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