Introduction to Investments
The two components of investment returns.
What are income and appreciation?
The stated interest rate that does not take compounding into effect
What is a nominal rate?
A measurement of an individual asset risk.
What is variance or standard deviation
Risk inherent to the market.
What is systematic risk?
This phenomenon describes how certain times of the year—like Mondays, January, or the turn of the month—are associated with abnormal stock returns that cannot be explained by traditional risk factors.
Calendar effect
Day Trading is an example of this.
What is speculation?
The simple mean of a set of holding period returns.
What is an arithmetic mean?
A measurement of the magnitude of the relationship between returns of two assets.
What is correlation?
An interest rate representing either the cost of capital or a treasury
What is a risk-free rate?
Process of measuring a security’s intrinsic value by evaluating all aspects of the business and economic market
What is fundamental analysis?
Pooled capital from numerous investors investing in real estate.
What is a REIT?
A dollar-weighted rate of return.
What is the internal rate of return?
Comparing risk-adjusted returns against a market index or other investments.
What is benchmarking?
According to this model, the expected return of an investment should be equal to the risk-free return plus a risk premium.
What is the capital asset pricing model (CAPM)?
An analysis technique that uses price trends, chart patterns, and moving averages to evaluate a company’s value.
What is technical analysis?
Financial markets for securities that mature in less than one year.
What is a money market?
The rate that would make the net present value of a project equal to zero.
What is the internal rate of return?
An index that uses companies' market capitalization to value.
What is a value-weighted index?
A graphical representation of the capital asset pricing model.
What is the security market line?
A theory that states that all share pricing reflects all available information.
What is the Efficient market hypothesis?
A cooperative association similar to a commercial bank where the members have something in common.
What is a credit union?
A time-weighted rate of return
What is the geometric rate of return?
A value-weighted index that includes the 3000 largest companies
What is the Russell 3000?
A measure of excess return per unit of systematic risk.
What is the Treynor ratio?
This psychological discomfort occurs when investors are confronted with information that conflicts with their existing beliefs—such as refusing to sell a losing stock because admitting the mistake would feel too painful.
Cognitive Dissonance