Finance 3000

These Investors earn returns from receiving dividends and from stock price appreciation Investment Bankers
As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims Common Stockholders
When residual cash flows are high, Stock values will be High
Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place at Brokers Trading Posts
The Dow Jones Industrial Average Inculdes 30 of the largest (market capitalization) and most active companies in the US economy
The Standard & Poor’s 500 index includes 500 firms that are the largest in their respective economic sectors
The NASDAQ Composite includes All of the stock listed on the NYSE
This will only be executed if the order’s price conditions are met A limit order
Investors buy stock at the Quoted Ask Price
Investors sell stock at the Bid Price
These are valued as a special zero-growth case of the constant growth rate model Preferred stock
Stock valuation model dynamics make clear that lower discount rates lead to Higher Valuations
Stock valuation model dynamics make clear that higher discount rates lead to Higher Valuations
We can estimate a stock’s value by Discounting the future dividends and future stock price appreciation
Many Companies grow fast at first, but slower future growth can be expected. Such companies are called Variable growth rate firms
We often use the P/E ratio model with the firm’s growth rate to estimate A stock’s future price
Value stocks usually have Low P/E ratios and high growth
Dividend yield is defined as The last four quarters of dividend income expressed as a percentage of the current stock price
The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm’s Market capitalization
Stock Index Performance on November 26,2007, the DIJA closed at 12743, which was down 237.44 that dat. What was the return of the stock market that day -1.83 (-237.44/(12743.4-(237.44))
This includes any capital gain (or loss) that occurred as well as any income that you received from specific investment Dollar Return
This is the dollar return characterized as a percentage of money invested Percentage return
This is a measure summarizing the overall past performance of an investment Average Return
Which of these statements is true When people purchase a stock, they do not know what their return is going to be- either short or long term
This is defined as the volatility of an investment, which includes firm specific risk as well as market risk Total risk
This is a measure of risk to reward earned by an investment over a specific period of time Coefficient of variation
This index tracks 500 companies which allows for a great deal of diversification S&P 500
This is defined as a combination of investment assets held by an investor portfolio
This is defined as the portion of total risk that is attributable to the firm or industry factors and can be reduced through diversification Firm specific risk
This is the portion of total risk that is attributed to overall economic factors Market Risk
This is another term for market risk nondiversiviable risk
This is the concept and procedure for combining securities into a portfolio to minimize risk Modern Portfolio theory
This is the investor’s combination of securities that achieves the highest expected return for a given risk level Optimal portfolio
This is the term for portfolios with the highest return possible for each risk level Efficient portfolio
Which of the following makes this a true statement: The shape of the efficient frontier implies that Diminishing returns apply to risk-taking in the investment world
This is a measurement of the co-movement between two variables that ranges between -1 and +1 Correlation
To find the percentage return of an investment Divide the dollar return by the investment’s value at the beginning of the period
Which statement is true The larger the standard deviation, the higher the total risk
We commonly measure the risk-return relationship using which of the following? Coefficient of variation
Which of the following is a true statement? Firms can quite possible change their stocks’ risk level by substantially changing their business
This is the average of the possible returns weighted by the likelihood of those returns occurring Expected return
The set of probabilities for all possible occurrences Probability distribution
This is typically considered the return on US government bonds and bills and equals the real interest plus the expected inflation premium Risk-free rate
This is the reward investors require for taking risk Risk premium
This is the reward for taking systematic stock market risk Market risk premium
This model includes an equation that relates a stock’s required return to an appropriate risk premium: Asset pricing
The asset pricing theory based on a beta, a measure of mark risk Capital assets pricing model
In theory, this isa combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate Market Portfolio
The use of debt to increase an investment position Financial leverage
Which of these is the line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio? Capital market line
A measure of the sensitivity of a stock or portfolio to market risk Beta
Similar to the capital market line except risk is characterized by beta instead of standard deviation security market line
Which of these is the measurement of risk for a collection of stocks for an investor? Portfolio beta
Which of the following is NOT a necessary condition for an efficient market No trading or transaction costs
The stocks of small companies that are prices below $1 per share Penny stocks
A theory that describes the types of information that are reflected in current stock prices Efficient market hypothesis
Data that includes past stock prices and volume, financial statements, corp. News, analyst opinions, etc Public information
This has not been released to the public, but is known by few individuals likely company insiders Privately held information
Investor enthusiasm causes an inflated bull market that drives prices too high, ending a dramatic collapse in prices Stock market bubble
The study of the cognitive processes and biases associated with making financial and economic decisions Behavioral finance
Shares of stock issued to employees that have limitations on why they can be sold restricted stock
Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time Executive stock options
The constant growth model assumes which of the following? That the stock is efficiently priced

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