Search
Browse
Create
Log in
Sign up
Log in
Sign up
Upgrade to remove ads
Only $2.99/month
FDNBUSF (Chapter 5 & 6)
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Terms in this set (30)
Amortization
Is the process of spreading out a loan into a series of fixed payments over time
Amortized Loan
A loan that is repaid in equal payments over its life; payment includes both principal repayment and interest
Amortization Tables
Are widely used for home mortgages, auto loans, and so forth to determine how much of each payment represents principal repayment and how much represents interest
Financial Calculators and Spreadsheets
Can be used to set up amortization tables
Auto Loans
Are often 5 year (or shorter) amortized loans that you pay down with a fixed monthly payment
Home Loans
Are traditionally 15-year or 30-year fixed rate mortgages
Personal Loans
You get from a bank
Interest Cost
What you lender gets paid for the loan
Annual Compounding
The process of determining the future or present value of a cash flow or series of cash flows when interest is paid once a year
Semi-annual Compounding
The process of determining the future or present value of a cash flow or series of cash flows when interest is paid twice a year
Annual Percentage Rate (APR)
Is a simple interest rate quoted on loans
Effective Annual Rate (EAR)
Is the actual interest rate or rate of return
Risk
Is a peril or exposure to loss; is the chance that an outcome other than expected will occur
Possibility Distribution
Is a listing of all possible outcomes with a probability assigned to each
Expected Rate of Return
It is the return on investment that an investor anticipates receiving; it is the rate to be realized from an investment over a long period of time
Discrete Probability Distributions
The number of possible outcome is limited or finite; a large range on the state of the economy
Standard Deviation
A measure of the tightness. or variability, of a set of outcome
Coefficient of Variation
Standardized measure of risk per unit of return; calculated as the standard deviation divided by the expected return
Risk Aversion
Require higher rates of return to invest in higher-risk securities
Risk Premium
The portion of the expected return that can be attributed to the additional risk of an investment; the difference between the expected rate of return on a given risky asset and that on a less risky asset
Portfolio
A collection of investment securities
Capital Asset Pricing Model (CAPM)
A model based on the proposition that any stock's required rate of return is equal to the risk-free rate of return plus a risk premium, where risk reflects diversification
Expected return on a portfolio
The weighted average expected return on the stocks held in the portfolio
Realized Rate of Return
The return that is actually earned; actual return is generally different from the expected return
Correlation Coefficient
A measure of the degree of relationship between two variables; positively correlated stocks have rates of return that move in the same direction; negative correlated stocks have rates of return that move in opposite directions
Risk Reduction
Combining stocks that are not perfectly positively correlated will reduce the portfolio risk through diversification; the riskiness of a portfolio is lessened as the number of stocks in the portfolio increases
Firm-specific Risk
That part of security's risk associated with random outcomes generated by events, or behaviors, specific to the firm
Market Risk
That part of a security's risk that cannot be eliminated through diversification because it is associated with economic, or market factors that systematically affect most firms
Relevant Risk
The risk of a security that cannot be diversified away its market risk; this reflects a security's contribution to the risk of a portfolio
Beta Coefficient
A measure of the extent to which the returns on a given stock move with the stock market
YOU MIGHT ALSO LIKE...
FIN 330 Ch 8
19 terms
Return & Risk Chapter 4
65 terms
66mod_8
96 terms
CH 6 & 8
60 terms
OTHER SETS BY THIS CREATOR
ACCOB Quiz 2 Review (Unit 2)
38 terms
COBSHRM Quiz 1 (2nd Term)
21 terms
ACCOB1 Chapter 2 (Partnership)
33 terms
ACCOB1 Quiz 1
30 terms