Investments & Risk
This type of risk cannot be diversified away and affects the entire market or economy
What is Systematic risk?
A combination of the top 500 public companies in the US
What is the S&P 500?
This term refers to the amount of money a borrower must repay on a loan, excluding interest
What is the principle?
In capital budgeting, this method discounts all future cash flows and subtracts the initial investment to determine profitability
What is Net Present Value (NPV)?
The formula for calculating the future value of an investment is FV=PV×(1+r)t. What does "r" represent in this formula?
What is the interest rate or rate of return?
This type of risk CAN be diversified away
What is unsystematic (idiosyncratic) risk?
The primary U.S. stock exchange where most large companies' stocks are traded.
What is the New York Stock Exchange (NYSE)?
A condition or restriction placed on a borrower by lenders to protect the lender’s interests
What is a "debt covenant"?
The term used to describe a company that has capital structuring consisting of both debt and equity
What is a leveraged company?
Interest earned on both the initial principal and the interest that has already been accumulated
What is compound interest?
What does a higher Sharpe ratio mean?
What is better risk-adjusted return?
This term refers to the initial offering of a company's shares to the public.
What is an Initial Public Offering (IPO)?
A bond with a lower credit rating (below BBB) that carries a higher risk of default, but offers higher yields
What is a "junk bond"?
A measure of a company's financial leverage, calculated by dividing total liabilities by shareholders' equity
What is the debt-to-equity ratio?
An order placed with a broker to buy or sell once a stock reaches a certain price to limit losses
What is a "stop-loss order"?
According to the Capital Asset Pricing Model (CAPM), the expected return on a security is based on this risk factor
What is Beta?
This type of derivative gives the holder the right, but not the obligation, to buy or sell an asset at a specified price before a certain date.
What is an option?
A bond backed by collateral, such as real estate or equipment, which reduces the risk to investors.
What is a "secured bond"?
An investment strategy in which an investor divides the total amount to be invested across periodic purchases to reduce the impact of volatility
What is dollar-cost averaging?
This option type gives the holder the right to sell the underlying asset at a specific price
What is a put option?
A representation of risk and return tradeoffs for efficient portfolios with different weights of the market portfolio and risk-free assets
What is the Capital Market Line (CML)?
A contract that obligates the buyer to purchase, and the seller to sell, an asset at a predetermined future date and price is known as this
What is a futures contract?
The name for a bond that can be converted into a predetermined number of shares of the issuing company's stock
What is a convertible bond?
A monetary policy used by central banks to increase the money supply
What is "quantitative easing (QE)"?
The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security
What is the bid-ask spread?