What is the capital gain yield, and how is it calculated for a security over a given holding period? The effective annual rate of return on an investment. The percentage change in the price of a security over a given holding period. The elasticity of returns with respect to market changes. The dividend yield of a stock.

The percentage change in the price of a security over a given holding period.

What is the compound annual growth rate (CAGR), and how does it relate to historical returns? The arithmetic average of returns over time. The geometric average historical return is also called this. The real return adjusted for inflation. Blume's formula for adjusting returns.

The geometric average historical return is also called this.

What is systematic risk, and how does it affect a large number of assets? Beta, a measure of an asset's volatility relative to the market. Diversifiable risk that can be eliminated through diversification. Risk that affects a large number of assets, each to a greater or lesser degree. Idiosyncratic risk specific to individual assets.

Risk that affects a large number of assets, each to a greater or lesser degree.

What is a portfolio, and how is it structured for an investor? A 529 account for educational savings. A group of assets held as a collective unit by an investor. Perfect correlation between asset returns. A strategy for diversification.

A group of assets held as a collective unit by an investor.

What is the risk-free rate, and how does it relate to the Security Market Line (SML)? The risk-to-reward ratio for investments. The slope of the SML representing market risk. The pure time value of money and intercept of the SML. The market risk premium over the risk-free rate.

The pure time value of money and intercept of the SML.

How is the dividend yield of a stock calculated, and what does it represent? The dividend policy set by the board. The retained earnings of a company. The capital gain from selling the stock. A stock's annual dividend divided by its beginning of period price.

A stock's annual dividend divided by its beginning of period price.

What does beta measure in terms of systematic risk for a particular asset? The volatility of returns compared to the market. The geometric average return of the asset. The amount of systematic risk in a particular asset, relative to the systematic risk in an average risky asset. The variance of returns over time.

The amount of systematic risk in a particular asset, relative to the systematic risk in an average risky asset.

What is the asset's portfolio weight, and how is it determined? The asset's beta relative to the market. The asset's expected return based on historical data. The asset's realized return over a period. The percentage of a portfolio's total market value invested in a particular asset.

The percentage of a portfolio's total market value invested in a particular asset.

Understanding Key Financial Concepts and Metrics in Investment Analysis

Flashcard

Learn Mode

Match

Library

Create

Flashcards

Library

Match (Coming Soon)

Finance - Personal Finance

jake12testoswi Created by 10 mon ago

Cards in this deck(99)

What is the capital gain yield, and how is it calculated for a security over a given holding period?

What is the compound annual growth rate (CAGR), and how does it relate to historical returns?

What is systematic risk, and how does it affect a large number of assets?

What is a portfolio, and how is it structured for an investor?

What is the risk-free rate, and how does it relate to the Security Market Line (SML)?

How is the dividend yield of a stock calculated, and what does it represent?

Between the arithmetic and geometric averages, which is the better predictor of future (expected) return?

What does beta measure in terms of systematic risk for a particular asset?

What is the asset's portfolio weight, and how is it determined?

What type of risk does the reward for bearing risk depend on?

What is a risk premium, and how is it calculated?

For normally-distributed returns, 95% of returns will be within how many standard deviations of the mean?

What is the beta of the market portfolio?

What is diversification, and how does it help in investment?

What is the Security Market Line (SML), and what does it represent?

What is variance, and how is it calculated for an investment?

What type of returns are all returns observed in the economy?

What is firm-specific risk, and how is it eliminated?

What is a market portfolio, and how is it structured?

Which class of securities has historically had returns that far exceed others from 1926-2019?

What is a real return, and how is it different from nominal return?

What does volatility measure in terms of risk for an asset?

When adding a new asset to a portfolio, under what condition does it reduce the portfolio's risk?

What is the market risk premium, and how is it represented on the Security Market Line?

What is another name for opportunity cost from the firm's perspective?

The effective cost of debt is ____________ the cost of debt. (accounts for the tax deductibility of interest payments)

A company's cost of capital provides an indication of how the market views what aspect of the company?

T/F: An advantage of estimating the cost of equity with the dividend growth model is that it applies to all public companies.

T/F: An advantage of estimating the cost of equity with the CAPM is that it explicitly adjusts for risk.

If the Debt-to-Equity ratio is 0.5, then the weight on Debt is:

What is another name for opportunity cost from the investor's perspective?

If a project has an NPV = $0, then its return is:

Returns from an investment stem from which two sources?

Why are percentage returns more informative than total dollar returns?

What is the historical ranking of returns for different asset classes?

What is a risk premium, and how is it calculated?

What is the arithmetic average return, and what does it tell you?

What is the geometric average return, and how is it calculated?

What is a nominal return, and how is it different from a real return?

What is a real return, and how is it calculated?

What is variance, and how is it calculated for an investment?

What is the standard deviation, and how is it related to variance?

68% of returns fall within how many standard deviations of the mean?

99% of returns fall within how many standard deviations of the mean?

What is an overreaction to stock price, and how does it affect the market?

What is a delayed reaction to stock price, and how does it manifest?

What is an efficient market reaction, and how does it affect stock prices?

T/F: All investments in an efficient market are NPV = 0.

What is the strong form efficient market hypothesis, and what does it imply?

What is the semistrong form efficient market hypothesis, and what does it imply?

What is the weak form efficient market hypothesis, and what does it imply?

T/F: Smaller companies are more volatile.

What is an expected value, and how is it calculated?

What is an expected return, and how is it determined?

What is a portfolio, and how is it structured for an investor?

What is portfolio weight, and how is it calculated?

What is the expected return on a portfolio, and how is it calculated?

What are negative portfolio weights, and how do they affect investment strategy?

What is short selling, and why do investors do it?

What is the benefit of diversification, and how does it reduce risk?

T/F: When returns are perfectly correlated, they move in lock-step.

T/F: When returns are not perfectly correlated, some stocks' returns are up while others are down.

What is systematic risk, and what factors contribute to it?

What is unsystematic risk, and how is it different from systematic risk?

What are realized returns, and how do they differ from expected returns?

T/F: Volatility of the return reflects both types of risk.

What is portfolio diversification, and how does it reduce risk?

Why is there no premium for bearing firm-specific risk?

T/F: Risk premium is determined entirely by the security's systematic risk.

Why is the standard deviation of returns not a good measure of systematic risk?

T/F: If you create a portfolio that is large enough, the diversifiable risk will be completely eliminated and all that is left is systematic risk.

What is a market portfolio, and how is it structured?

What is beta, and how does it measure systematic risk?

What is the beta of a risk-free asset?

What is the beta of an average risk asset (market portfolio)?

What type of industries typically have a beta greater than 1?

What type of industries typically have a beta less than 1?

What does a higher standard deviation (volatility) indicate about an asset?

What does a higher beta indicate about an asset's risk?

What is the best-fit line for beta, and how is it determined?

What is the beta of a portfolio, and how is it calculated?

If an asset has a reward-to-risk ratio that plots under the line, what does it indicate?

If an asset has a reward-to-risk ratio that plots above the line, what does it indicate?

T/F: In equilibrium, all assets and portfolios must have the same reward-to-risk ratio, and must equal the reward-to-risk ratio for the market.

What is the Security Market Line (SML), and what does it represent?

What is the Capital Asset Pricing Model (CAPM), and how does it relate to systematic risk?

What happens when CAPM and market disagree, indicating the market price is too low?

What is the cost of capital, and how is it determined?

What is the cost of capital from the firm's perspective, and what does it indicate?

What is the required return from the investor's perspective?

What are the components of cost of capital?

What are the pros and cons of the dividend growth model?

What are the pros and cons of the CAPM?

What is the cost of debt, and how is it determined?

What is the effective cost of debt, and how is it calculated?

T/F: Dividends are not tax deductible, so there is no tax impact on cost of equity.

What is WACC, and how is it used in investment evaluation?

If NPV = 0, how much return does a project provide?

If NPV > 0, how much return does a project provide?

Ask Our AI Tutor

Get Instant Help with Your Questions

Need help understanding a concept or solving a problem? Type your question below, and our AI tutor will provide a personalized answer in real-time!

How it works

Ask any academic question, and our AI tutor will respond instantly with explanations, solutions, or examples.

Get Started

Browse questions and discover topic-based flashcards
Practice with engaging flashcards designed for each subject
Strengthen memory with concise, effective learning tools

Discover By Topic

Understanding Key Financial Concepts and Metrics in Investment Analysis

Related Decks