Finance Glossary: Terms Related to Assets, Securities, and Markets, Quizzes of Investment Theory

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TERM 1 real assets DEFINITION 1 assets used to produce goods and services TERM 2 financial assets DEFINITION 2 claims on real assets or the income by them TERM 3 fixed-income securities DEFINITION 3 pay a specified cash flow over a specific period TERM 4 equity DEFINITION 4 an ownership share in a corporation TERM 5 derivative securities DEFINITION 5 securities providing payoffs that depend on the values of other assets TERM 6 agency problems DEFINITION 6 conflicts of interest between managers and stockholders TERM 7 asset allocation DEFINITION 7 allocation of an investment portfolio across broad asset classes TERM 8 security selection DEFINITION 8 choice of specific securities within each asset class TERM 9 security analysis DEFINITION 9 analysis of the value of securities TERM 10 risk return trade off DEFINITION 10 assets with higher expected returns entail greater risk TERM 21 systematic risk DEFINITION 21 risk of breakdown in the financial system particularly due to spillover effects from one market into others TERM 22 money markets DEFINITION 22 include short term highly liquid and relatively low risk debt instruments TERM 23 treasury bills DEFINITION 23 short term government securities issued at a discount from face value and returning the face amount at maturity TERM 24 certificate of deposit DEFINITION 24 a bank time deposit TERM 25 commercial paper DEFINITION 25 short term unsecured debt issued by large corporations TERM 26 bankers' acceptance DEFINITION 26 an order to a bank by a customer to pay a sum of money at a future date TERM 27 Eurodollars DEFINITION 27 dollar denominated deposits at foreign banks or foreign branches of American banks TERM 28 repurchase agreements DEFINITION 28 short term sales of securities with an agreement to repurchase the securities at a higher price TERM 29 federal funds DEFINITION 29 funds in the accounts of commercial banks at the Federal Reserve Bank TERM 30 LIBOR DEFINITION 30 lending rate among banks in the London market TERM 31 treasury notes or bonds DEFINITION 31 debt obligations of the federal government with original maturities of one year or more TERM 32 municipal bonds DEFINITION 32 tax exempt bonds issued by state and local governments TERM 33 corporate bonds DEFINITION 33 long term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity TERM 34 common stocks DEFINITION 34 ownership shares in a publicly held corporation shareholders have voting rights and may receive dividends TERM 35 preferred stock DEFINITION 35 nonvoting shares in a corporation usually paying a fixed stream of dividends TERM 46 prospectus DEFINITION 46 a description of the firm and the security it is issuing TERM 47 dealer markets DEFINITION 47 markets in which traders specializing in particular assets buy and sell for their own accounts TERM 48 auction market DEFINITION 48 a market where all traders meet at one place to buy or sell an asset TERM 49 bid price DEFINITION 49 the price at which a dealer or other trader is willing to purchase a security TERM 50 ask price DEFINITION 50 the price at which a dealer or other trader is willing to sell a security TERM 51 bid-ask spread DEFINITION 51 the difference between the bid and asked prices TERM 52 limit buy (sell) order DEFINITION 52 an order specifying a price at which an investor is willing to buy or sell a security TERM 53 stop order DEFINITION 53 trade is not to be executed unless stock hits a price limit TERM 54 over the counter market DEFINITION 54 an informal network of brokers and dealers who negotiate sales of securities TERM 55 NASDAQ stock market DEFINITION 55 the computer linked price quotation and trade execution system TERM 56 electronic communication networks DEFINITION 56 computer networks that allow direct trading without the need for market makers TERM 57 specialist DEFINITION 57 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 TERM 58 stock exchanges DEFINITION 58 secondary markets where already issued securities are bought and sold by members TERM 59 latency DEFINITION 59 the time it takes to accept process and deliver a trading order TERM 60 blocks DEFINITION 60 large transactions in which at least 10,000 shares of stock are bought or sold TERM 71 12b-1 fees DEFINITION 71 annual fees charged by a mutual fund to pay for marketing and distribution costs TERM 72 soft dollars DEFINITION 72 the value of research services that brokerage houses provide free of charge in exchange for the investment manager's business TERM 73 turnover DEFINITION 73 the ration of the trading activity of a portfolio to the assets of the portfolio TERM 74 exchange traded funds DEFINITION 74 offshoots of mutual funds that allow investors to trade index portfolios TERM 75 Holding period return DEFINITION 75 Rate of return over a given investment period TERM 76 Arithmetic average DEFINITION 76 The sum of returns in each period divided by the number of periods TERM 77 Geometric average DEFINITION 77 The single per period return that gives the same cumulative performance as the sequence of actual returns TERM 78 dollar weighted average return DEFINITION 78 the internal rate of return on an investment TERM 79 inflation rate DEFINITION 79 the rate at which prices are rising, measured as the rate of increase of the CPI TERM 80 nominal interest rate DEFINITION 80 the interest rate in terms of nominal dollars TERM 81 real interest rate DEFINITION 81 the excess of the interest rate over the inflation rate; the growth rate of purchasing power derived from an investment TERM 82 scenario analysis DEFINITION 82 process of devising a list of possible economic scenarios and specifying the likelihood of each one, as well as the HPR that will be realized each case TERM 83 probability distribution DEFINITION 83 list of possible outcomes with associated probabilities TERM 84 expected return DEFINITION 84 the mean value of the distribution of HPR TERM 85 varience DEFINITION 85 the expected value of the squared deviation from the mean TERM 96 mean variance analysis DEFINITION 96 ranking portfolios by their sharpe ratios TERM 97 asset allocation DEFINITION 97 portfolio choice among broad investment classes TERM 98 capital allocation to risky assets DEFINITION 98 the choice between risky and risk free assets TERM 99 complete portfolio DEFINITION 99 the entire portfolio including risky and risk free assets TERM 100 capital allocation line DEFINITION 100 plot of risk return combinations available by varying portfolio allocation between a risk free asset and a risky portfolio TERM 101 passive strategy DEFINITION 101 investment policy that avoids security analysis TERM 102 capital market line DEFINITION 102 the capital allocation line using the market index portfolio as the risky asset TERM 103 investment opportunity set DEFINITION 103 set of available portfolio risk return combinations TERM 104 optimal risky portfolio DEFINITION 104 the best combination of risky assets to be mixed with safe assets to form the complete portfolio TERM 105 efficient frontier DEFINITION 105 graph representing a set of portfolios that maximizes expected return at each level of portfolio risk TERM 106 separation property DEFINITION 106 the property that implies portfolio choice can be separated into two independent tasks: determination of the optimal risky portfolio, and the personal choice of the best mix of the risky portfolio and the risk free asset TERM 107 index model DEFINITION 107 model that relates stock returns on both a broad market index and firm specific factors TERM 108 beta DEFINITION 108 the sensitivity of a security's returns to the market factor TERM 109 firm specific or residual risk DEFINITION 109 component of return variance that is independent of the market factor TERM 110 alpha DEFINITION 110 a stock's expected return beyond that included by the market index; its expected excess return when the market's excess return is zero TERM 121 arbitrage DEFINITION 121 creation of riskless profits made possible by relative mispricing among securities TERM 122 arbitrage pricing theory DEFINITION 122 a theory of risk return relationships derived from no-arbitrage considerations in large capital markets TERM 123 well-diversified portfolio DEFINITION 123 a portfolio sufficiently diversified that nonsystematic risk is negligible TERM 124 arbitrage portfolio DEFINITION 124 a zero-net-investment risk free portfolio with a positive return TERM 125 factor portfolio DEFINITION 125 a well-diversified portfolio constructed to have a beta of 1 on one factor and a beta of zero on any other factor TERM 126 random walk DEFINITION 126 the notion that stock price changes are random and unpredictable TERM 127 efficient market hypothesis DEFINITION 127 the hypothesis that prices of securities fully reflect available information about securities TERM 128 weak form EMH DEFINITION 128 the assertion that stock prices already reflect all information contained in the history of past trading TERM 129 semistrong form EMH DEFINITION 129 the assertion that stock prices already reflect all publicly available information TERM 130 strong form EMH DEFINITION 130 the assertion that stock prices reflect all relevant information including inside information TERM 131 technical analysis DEFINITION 131 research in recurrent and predictable stock price patterns and on proxies for buy or sell pressure in the market TERM 132 resistance level DEFINITION 132 a price level above which it is supposedly unlikely for a stock or stock index to rise TERM 133 support level DEFINITION 133 a price level below which it is supposedly unlikely for a stock or stock index to fall TERM 134 fundamental analysis DEFINITION 134 research on determinants of stock value such as earnings and dividend prospects, expectations for future interest rates, and risk of the firm TERM 135 index fund DEFINITION 135 a mutual fund holding shares in proportion to their representation in a market index such as the S&P 500