Investments Exam

4 April 2018

Market Orders: buy or sell orders that are to be executed immediately at current market prices; bid price-price a dealer is willing to purchase a security; ask price- price a dealer will sell a security Limit Orders: an order specifying a price at which an investor is willing to buy or sell a security Stop Order: trade is not to be executed unless stock hits a price limit; Stop- Loss- stock is to be sold if its price falls below a certain level; Stop-Buy- stock is to be bought when its price rises above certain limit Algorithmic trading- the use of a computer program to make rapid trading decisions High Frequency trading- subset of algorithmic trading that relies on computer programs to make very rapid trading decisions; strategy lies with the firms to identify profit opportunities the fastest—?bid ask spreads, cross-market Arab.Dark pools- electronic trading networks where participants can anonymously buy/sell large blocks of securities (10,000+ shares) Margin- the portion of the purchase price contributed by the investor, remainder is borrowed from the broker- limit on how much you can borrow (50% must be paid in cash) Margin Call: requires the investor to add new cash to the margin account hen the value Of the securities fall below the loan Chapter Four Investment Companies- financial intermediaries that invest the funds of individual investors in securities or other assets; each investor has a claim to the portfolio the investment company establishes Net Asset Value (NAVA)- value of each share in portfolio; assets minus liabilities expressed on a per share basis (Market Value of Assets-Liabilities)/shares outstanding Open-ended fund- fund that issues or redeems its shares at NAVA; when investors want to cash out their shares of a portfolio they sell them back to he fund at NAVA Closed-end fund- shares may not be redeemed in these funds but traded at prices that can differ from NAVA; when investors want to cash out shares they must sell their shares to other investors. Pooled portfolios with fixed number of shares, price determined by supply and demand.Real Estate Investment Trusts (Reedits)- similar to closed end funds; invest in real estate or loans secured by real estate Hedge Fund- private investment pool, open to wealthy/institutional investors, that is exempt from most SEC regulations because they are structured as riveter partnerships and can pursue other investment options such as derivatives, short sales, & leverage Mutual Fund- common name for an open-ended investment company; charge investors a load- sales commission on mutual fund, which is usually around 6%; performance generally does not beat the market when you take fees into account Front-end load: paid when you purchase the shares Back end load: exit fee when you sell your shares 1 b-1 Charges: annual fees charged by a mutual fund to pay for marketing and distribution costs; don t take fee up front, take % every yearTaxation- paid by investors in mutual funds not by fund itself Money Market Funds- invest in commercial paper, repurchase agreements, or certificates of deposit; high quantity low risk, very liquid investments, pay almost nothing Equity Funds- invest primarily in stock Bond Funds- invest in longer term funds but further specialization in this sector Balanced Funds- Invest in both stocks and bonds- some are funds Of funds: mutual funds invest in shares of other mutual funds Index Funds- tries to match the performance of a broad market index Exchange-traded Funds- offshoots of mutual funds that allow investors to read index portfolios; portfolio can get larger or smaller as people buy and sell; trades on an exchange; shares can change in number- if buyers>sellers, more shares created.If sellers>buyers, less shares created Chapter Five Holding period return (HP); rate of return over a given investment period; (end price-beginning price+dividend)/beginning price Arithmetic average: the sum of returns in each period divided by the number of periods Geometric average: the single per-period return that gives the same cumulative performance as the sequence of actual returns * *better presentation Dollar weighted average return: the internal rate Of return on an investment Risk: degree of confidence we have in what we expect will happen to future H Pros Normal Distribution- central to the theory and practices of investments; measures .

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