Investments Exam 1 Book
Investments Study Guide
BOOK
Review Figures: 1.1, 1.2, 1.3, 3.7, 5.3, 5.4, 6.1, 7.2, 8.1, 8.3, 8.4, 8.5
Chapter One
Real Assets- assets used to produce goods and services (land, buildings, etc)
Financial Assets- claims on real assets of the income generated (stocks, bonds)
Fixed Income (Debt) Securities- pay a specified cash flow over a specific period of time (CDs, Treasury Bills, Treasury securities)
Equity- ownership share in a corporation (pay dividends) depend on success of company
Derivatives- securities providing payoffs that depend on values of other assets
Separation of Management and Ownership- corporations of large scale cannot be owner-operated firms; sell stock to shareholders and hire other people to manage the company
Risk Return Trade-off- assets with higher expected returns entail greater risk
Passive Management- buying and holding a diversified portfolio without attempting to identify mispriced securities; saves money
Active management- attempting to identify mispriced securities or to forecast broad market trends- if markets where perfectly efficient this would be unnecessary- however in markets profit opportunities exist for investors who really look into mispriced securities; more money
Financial intermediaries- institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers; these include banks, investment companies, insurance companies, & credit unions; both assets and liabilities are largely financial compared to other companies Primary Market- market in which new issues of securities are offered to the public; banks for primary markets are underwriters; IPOs
Secondary Market- previously issued securities are traded among investors
Venture Capital- Money invested to finance a new firm
Private Equity- investments in companies not traded on stock exchange
Securitization- packaging illiquid loans into standardized securities backed by those loans to create liquid assets that
BOOK
Review Figures: 1.1, 1.2, 1.3, 3.7, 5.3, 5.4, 6.1, 7.2, 8.1, 8.3, 8.4, 8.5
Chapter One
Real Assets- assets used to produce goods and services (land, buildings, etc)
Financial Assets- claims on real assets of the income generated (stocks, bonds)
Fixed Income (Debt) Securities- pay a specified cash flow over a specific period of time (CDs, Treasury Bills, Treasury securities)
Equity- ownership share in a corporation (pay dividends) depend on success of company
Derivatives- securities providing payoffs that depend on values of other assets
Separation of Management and Ownership- corporations of large scale cannot be owner-operated firms; sell stock to shareholders and hire other people to manage the company
Risk Return Trade-off- assets with higher expected returns entail greater risk
Passive Management- buying and holding a diversified portfolio without attempting to identify mispriced securities; saves money
Active management- attempting to identify mispriced securities or to forecast broad market trends- if markets where perfectly efficient this would be unnecessary- however in markets profit opportunities exist for investors who really look into mispriced securities; more money
Financial intermediaries- institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers; these include banks, investment companies, insurance companies, & credit unions; both assets and liabilities are largely financial compared to other companies Primary Market- market in which new issues of securities are offered to the public; banks for primary markets are underwriters; IPOs
Secondary Market- previously issued securities are traded among investors
Venture Capital- Money invested to finance a new firm
Private Equity- investments in companies not traded on stock exchange
Securitization- packaging illiquid loans into standardized securities backed by those loans to create liquid assets that