Bond Risk
An investment-grade bond rating
What is a bond with a low default risk; Moody's rating of a Baa or higher and Standard and Poor's rating of BBB or higher?
The relationship among bonds with the same risk characteristics but different maturities.
What is Term Structure of Interest Rates?
Ownership shares in a firm.
What is Common Stock?
Numbers that provide a sense of whether the value of the stock market is going up or down.
What is Stock Market Indexes?
The notion that the prices of all financial instruments, including stocks, reflect all available information
What is Theory of Efficient Markets?
A bond with a high risk of default. Also known as a high-yield bond.
What is Junk Bond?
The proposition that long-term interest rates are the average of expected future short-term interest rates.
What is Expectations Hypothesis of the Term Structure?
The final person to be paid if a company runs into financial trouble.
What is Residual Claimant?
The best-known index of the stock market performance, it measures the average price of a single share in 30 very large and well-known American companies.
What is Dow Jones Industrial Average (DJIA)?
The theory of efficient markets implies that stock price movements are ___________
What is Unpredictable?
What is Municipal Bonds?
The proposition that long-term interest rates equal the average of expected short-term interest rates plus a risk premium that rises with the time to maturity.
What is Liquidity Premium Theory of the Term Structure?
The payments made to a company's stockholders when the company makes a profit.
What is Dividends?
A stock market index that is based on the value of 500 of the largest firms in the U.S. economy.
What is Standard & Poor's 500 Index?
On average, the return on managed portfolios is about ___% less than the average stock market return year after year.
What is 1 percent?
Short-term, privately issued zero-coupon debt that is low risk and very liquid and usually has a maturity of less than 270 days.
What is Commerical Paper?
When the term structure of interest rates slopes down.
What is Inverted Yield Curve?
Risk-free return + Risk premium = __________
What is Required Return or Equity Risk Premium?
A marketable security that tracks a basket of assets like an index fund.
What is Exchange Traded Fund (ETF)?
Four possibilities why some financial managers claim they can exceed the market average year after year.
What is (1) They are taking advantage of insider trading. (2) They are taking on increased risk. (3) They are lucky. (4) Markets are not efficient?
They yield over and above that on a low-risk bond such as a U.S. Treasury with the same time to maturity. It is a measure of the compensation investors require for the risk they are bearing.
What is Risk Spread?
The gap between yields to maturity on a long and short-term bond. (Usually free of default risk)
What is Term Spread?
The theory that the fundamental value of a stock equals the present value of expected future dividend payments.
What is Dividend-Discount Model?
A persistent and expanding gap between actual asset prices and those warranted by the fundamentals and is usually created by mass enthusiasm.
What is Stock Bubble?
Wrote the book "Capital Ideas" which shows how you can achieve high returns in the market based on pure chance.
Who is Peter Bernsteins?