Fin 332 Midterm Chap 1-2

attempting to identify mispriced securities or to forecast broad market trends.

buying and holding a diversified portfolio without attempting to identify mispriced securities.

conflicts of interest between managers and stockholders.

allocation of an investment portfolio across broad asset classes.

choice of specific securities within each asset class.

securities providing payoffs that depend on the values of other assets.

an ownership share in a corporation.

claims on real assets or the income generated by them.

pay a specified cash flow over a specific time period.

Are investments that pay a fixed amount of interest over time and return the principal at maturity. Examples include bonds, TBs, and CDs

firms specializing in the sale of new securities to the public, typically by underwritting the issue. underwritting is when the investment bank guarantees the sale of the securities, taking on the risk if they don't sell.

a market in which new issues of securities are offered to the public. think IPO

markets in which previously issued securities are traded among investors.

investment in companies whose shares are not traded in public stock markets.

analysis of the value of securities.

risk of breakdown in the financial system, particularly due to spillover effects from one market into others.

think of this like dominos, once a piece falls, it will knocks others down.

money invested to finance a new, privately held firm. think silicon valley.

the right to buy an asset at a specified exercise price on or before a specified expiration date.

the right to sell an asset at a specified exercise price on or before a specified expiration date.

obliges traders to purchase or sell an asset at an agreed upon price at a specified future date.

index return equals the weighted average of the returns of each component security, with weights proportional to outstanding market value.

Ex : In the S&P 500, Apple and Microsoft affect the index more than smaller companies because they are worth more.

a bank time deposit.

A product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

short-term unsecured debt issued by large corporations

ownserhip in publicily held corporation. Shareholders have voting rights and may receive dividends.

long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.

an index computed from a simple average of returns.

Lending rate among banks in the London Market

tax-exempt bonds issued by state and local governments.

an average computed by adding the prices of the stocks and dividing by a "divosor".

short-term government securities issued at a discount from face value and returning the face amount at maturity. have maturity of 1 year or less.

are debt securities issued by the U.S. government ranging from 2 to 10 years. pays interest every six months and return the principal (face value) at maturity.

debt securities issued by the U.S. government that mature in 20 to 30 years.