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Economics
Finance
Fin 308- Investments Final
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________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund
a load
as of 2017, approximately _______ of mutual fund assets were invested in equity funds
52%
in a recent study, Malkiel found that evidence of persistence in the performance of mutual funds _______ _______ in the 1980s
virtually disappeared
disadvantages of ETFs include
investors incur a bid-ask spread when purchasing, investors must pay a broker fee when purchasing, prices can depart from NAV at times
advantages of investment companies to investors include
record keeping and administration, low cost diversification, and professional agreement
under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions and other sales expenses directly from the fund assets rather than billing investors. These fees are known as
12b-1 charges
the primary measurement unit used for assessing the value of one's stake in an investment company is
net asset value
you are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front end and back end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with _____ ____ ____ rather than a _____ ____
front end load, 12b-1 fee
the average maturity of fund investments in a money market mutual fund is
slightly more than 1 month
rank the following fund categories from most risky to least risky
-equity growth fund
-balanced fund
-sector fund
-money market fund
sector fund, equity growth fund, balanced fund, money market fund
net asset value is defined as
market value of assets minus liabilities divided by shares outstanding
which of the following invests in a portfolio that is fixed for the life of the fund?
-managed investment company
-unit investment trust
-money market fund
-mutual fund
unit investment trust
the two principal types of REITs are equity trusts, which _________ and mortgage trusts, which ___________
invest directly in real estate, invest in mortgage and construction loans
as of 2017, approximately _______ of mutual fund assets were invested in bond funds
22%
__________ are often called mutual funds
open end investment companies
the vanguard 500 index fund tracks the performance of the S&P 500. To do so, the fund buys shares in each S&P 500 company __________
in proportion to the market value weight of the firm's equity in the S&P 500
which of the following results in a taxable event for investors?
-short term capital gain distributions from the fund
-dividend distributions from the fund
-long term capital gain distributions from the fund
all three
A ________ fund is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds
hedge
which of the following typically employ significant amounts of leverage?
-hedge funds
-REITs
-money market funds
-equity mutual funds
hedge funds and REITs
mutual funds that hold both equities and fixed income securities in relatively stable proportions are called
balanced funds
advantages of ETFs over mutual funds do not include
ETF values can diverge from NAV
which type of fund generally has the lowest average expense ratio?
indexed funds
investors who want to liquidate their holdings in a closed end fund may
sell their shares on the open market
an official description of a particular mutual fund's planned investment policy can be found in the fund's
prospectus
management fees for open end and closed end funds typically range between
.2% and 2%
historical returns have generally been _______ for stocks of small firms than for stocks of large firms
higher
the rate of return on _____ ______ is known at the beginning of the holding period, while the rate of return on ______ ______ is not known until the end of the holding period
treasury bills, risky assets
in the mean standard deviation graph, the line that connects the risk free rate and the optimal risky portfolio, P, is called the
capital allocation line
the complete portfolio refers to the investment in
the risk free asset and the risky portfolio combined
you have calculated the historical dollar weighted return, annual geometric average return an annual arithmetic average return. You always reinvest your dividends and interest earned on the portfolio. Which method provides the best measure of the actual average historical performance of the investments you have chosen
geometric average return
which return measures the time weighted returns and allows for compounding?
geometric average return
which measure of downside risk predicts the worst loss that will suffered with a given probability
value at risk
the ______ measure of returns ignores compounding
arithmetic average
you have calculated the historical dollar weighted return, annual geometric return and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the
arithmetic average return
rank the following from highest average historical return to lowest average historical return from 1926 to 2017
-small stocks
-long term bonds
-large stocks
-t bills
small stocks, large stocks, long term bonds, t bills
according to historical data, over the long run which asset has the best chance to provide the best after inflation and after tax rate of return?
common stocks
published data on past returns earned by mutual funds are required to be
geometric returns
historically, small firm stocks have earned higher returns than large firm stocks. When viewed in the context of an efficient market, this suggests that
small firms are riskier than large firms
one method of forecasting the risk premium is to use the
average historical excess returns for the asset under consideration
the normal distribution is completely described by its
mean and standard deviation
if you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the
dollar weighted return
your timing was good last year. You invested more in your portfolio right before the prices went up, and you sold right before prices went down. In calculating historical performance measures, which will be the largest?
dollar weighted return
the holding period return on a stock is equal to
the capital gain yield over the period plus the dividend
the correlation coefficient between tow assets equals
their covariance divided by the product of their standard deviations
which statistic cannot be negative
variance
suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that
the returns on the stock and bond portfolios tend to vary independently of each other
rational risk averse investors will always prefer portfolios
located on the capital market line to those located on the efficient frontier
you are constructing a scatter plot of excess returns for stock A versus the market index. If the correlation coefficient between stock A and the index is -1, you will find that the points of the scatter diagram _______ and the line of best fit has a ________
all fall on the line of best fit, negative slope
you are considering adding a new security to your portfolio. To decide whether you should add the security, you need to know the security's
expected return, standard deviation and correlation with you portfolio
firm specific risk is also called
unique risk and diverisifiable risk
the optimal risk portfolio can be identified by finding
the tangency point of the capital market line and the efficient frontier, and the line with the steepest slope that connects the risk free rate to the efficient frontier
some diversification benefits can be achieved by combining securities in a portfolio as the correlation between the securities is
less than 1
what provides the best example of a systematic risk event
the federal reserve increases interest rates 50 basis points
the part of a stock's return that is systematic is a function of
volatility in excess returns of the stock market and the sensitivity of the stock's returns to changes in the stock market
risk that can be eliminated through diversification is called
diversifiable, firm specific and unique risk
according to Tobin's separation property, portfolio choice can be separated into two independent tasks consisting of
identifying the optimal risky portfolio and constructing a complete portfolio from t bills and the optimal risky portfolio based on the investor's degree of risk aversion
on a standard expected return versus standard deviation graph, investors will prefer portfolios that lie to the ___________ the current investment opportunity set
left and above
diversification is most effective when the security returns are
negatively correlated
the expected rate of return of a portfolio of risky securities is
the weighted sum of the securities expected returns
consider an investment opportunity set formed with two securities that are perfectly negatively correlated. The global minimum variance portfolio has a standard deviation that is always
equal to 0
an investor's degree of risk aversion will determine his or her
optimal mix of the risk free asset and risky asset
a security's beta coefficient will be negative if
its returns are negatively correlated with market index returns
the term excess return refers to
the difference between the rate of return and the risk free rate
the risk that can be diversified away is
firm specific risk
the efficient frontier represents a set of portfolios that
maximize expected return for a given level of risk
if you want to know the portfolio standard deviation for a three stock portfolio standard deviation for a three stock portfolio, you will have to
calculate three covariances
the ______ decision should take precedence over the ______ decision
asset allocation and stock selection
adding additional risky assets to the investment opportunity set will generally move the efficient frontier
up and to the left
the plot of a security's excess return relative to the market's excess return is called the
security characteristic line
the term complete portfolio refers to a portfolio consisting of
the risk free asset combined with at least one risky asset
a measure of the riskiness of an asset held in isolation is
standard deviation
if an investor does not diversify his portfolio and instead puts all of his money in one stock, the appropriate measure of security risk for that investor is the
stock's standard deviation
asset A has an expected return of 15% and a reward to variability ratio of .4. Asset B has an expected return of 20% and a reward to variability ratio of .3. A risk averse investor would prefer a portfolio using the risk free asset and
asset A
Which stock return statistics fluctuates the most over time
average return
decreasing the number of stocks in a portfolio from 50 to 10 would likely
increase the unsystematic risk of the portfolio
market risk is also called
systematic and nondiversifiable risk
a stock's alpha measures the stock's
abnormal return
according to the capital asset pricing model, a fairly priced security will plot
along the security market line
in a well diversified portfolio, _________ risk is negligible
unsystematic
in a world where CAPM holds, which of the following does not effect the capital market line
the capital market line is also called the security market line
when all investors analyze securities in the same way and share the same economic view of the world, we would say they have
homogeneous expectations
if all investors become more risk averse, the SML will ______ and stock prices will
have the same intercept with a steeper slope and fall
in the context of the capital asset pricing model, the systematic measure of risk is captured by
beta
in a single factor market model the beta of a stock
measures the stock's contribution to the standard deviation of the market portfolio
investors require a risk premium as compensation for bearing
systematic risk
according to the capital asset pricing model, in equilibrium
all securities returns must lie on the security market line
according to the CAPM, what is not a true statement regarding the market portfolio
it is always the minimum variance portfolio on the efficient frontier
the capital asset pricing model was developed by
william sharpe
if enough investors decide to purchase stocks, they are likely to drive up stock prices, thereby causing
expected returns to fall and risk premiums to fall
according to the capital asset pricing model, fairly priced securities have
zero alphas
compensation of money managers is _______ based on alpha or other appropriate risk adjusted measures
rarely
standard deviation of portfolio returns is a measure of
total risk
an important characteristic of market equilibrium is
the absence of arbitrage opportunities
the graph of the relationship between expected return and beta in the CAPM context is called the
SML
according to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is
directly related to the beta of the stock
the market portfolio has a beta of
1
the SML is valid for _______ and the CML is valid for
both well diversified portfolios and individual assets, and well diversified portfolios only
according to the capital asset model, a security with a
positive alpha is considered underpriced
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Verified questions
ACCOUNTING
The ending balance of the Supplies account appears a. in the Trial Balance columns of the work sheet. b. in the Balance Sheet columns of the work sheet. c. in the Income Statement columns of the work sheet. d. on the statement of changes in owner’s equity.
ACCOUNTING
The Sunrise Corporation operates car rental agencies at more than 20 airports. Customers can choose from one of three contracts for car rentals of one day or less: Contract 1: $45 for the day, Contract 2:$25 for the day plus $0.30 per mile traveled, Contract 3:$1.50 per mile traveled. 1. plot separate graphs for each of the three contracts, with costs on the vertical axis and miles traveled on the horizontal axis. 2. Express each contract as a linear cost function of the form y=a+bX. 3. Identify each contract as a variable-, fixed-, or mixed-cost function.
ACCOUNTING
On January 1, Lifestyle Pools purchased 25% of Marshall Fence's common stock for $700,000 cash. By the end of the year, Marshall Fence reported net income of$160,000 and paid dividends of $60,000 to all shareholders. For Lifestyle Pools, record the initial purchase and its share of Marshall Fence's net income and dividends for the year.
ACCOUNTING
During the year, TRC Corporation has the following inventory transactions. $$ \begin{array}{ll}{\text { Date }} & {\text { Transaction }} \\ \hline \text { Jan. 1 } & {\text { Beginning inventory }} \\ {\text { Apr. } 7} & {\text { Purchase }} \\ {\text { Jul. } 16} & {\text { Purchase }} \\ {\text { Oct. } 6} & {\text { Purchase }} \\ \text{ } & \text{ } \end{array} \begin{matrix} \text{Number of Units} & \text{Unit Cost} & \text{Total Cost}\\ \hline \text{50} & \text{$\$ 42$} & \text{\$2,100}\\ \text{130} & \text{44} & \text{$5,720$}\\ \text{200} & \text{47} & \text{$9,400$}\\ \underline{110} & \text{48} & \underline{5,280}\\ \underline{\underline{490}} & \text{ } & \underline{\underline{\$ 22,500}}\\ \end{matrix} $$ For the entire year, the company sells 440 units of inventory for $60 each. 1. Using FIFO, calculate (a) ending inventory, (b) cost of goods sold, (c) sales revenue, and (d) gross profit. 2. Using LIFO, calculate (a) ending inventory, (b) cost of goods sold, (c) sales revenue, and (d) gross profit. 3. Using weighted-average cost, calculate (a) ending inventory, (b) cost of goods sold, (c) sales revenue, and (d) gross profit. 4. Determine which method will result in higher profitability when inventory costs are rising.