Final study guide chaps 4-6

shares may not be redeemed, but instead are traded at prices that can differ from net asset value.

offshoots of mutual funds that allow investors to trade entire portfolios much like shares of stock.

mutual funds that primarily invest in shares of other mutual funds.

a private investment pool, open the wealthy or institutional investors, that is largely exempt from SEC regulation and therefore can pursue more speculative policies than mutual funds.

a sales commision charged on a mutual fund.

assets minus liabilites expressed on a per-share basis

financial intermediaries that invest the funds of individual investors in securities or other assets.

a fund that issues or redeems its shares at net aset value.

the ratio of the trading activity of a portfolio to the assets of the portfolio.

money pooled from many investors that is invested in a portfolio fixed for the life of the fund.

refers to the total return an investment generates over a specific period, expressed as a percentage, without comparing it to any benchmark or market index.

the sum of returns in each period divided by the number of periods (simple average)

rate of return in excess of the risk-free rate.

the mean value of the distribution of HPR (Holding Period Return)

the single per-period return that gives the same cumulative performances as the sequence of actual returns (CAGR)

rate of return over a given investment period

the rate at which prices are rising, measured as the rate of increase of the CPI (Consumer Price Index)

measures of the fatness of the tails of a probability distribution relative to that of a normal distribution. indicates likelihood of extreme outcomes.

evaluating portfolios according to their expected returns and standard deviations (or variances)

the interest rate in terms of nominal (not adjusted for purchasing power) dollars

investment policy that avoids security analysis. often entails indexing.

indexing refers to the practice of investing in a portfolio that mimics a market index (S&P 500) rather than actively selecting individual stocks or timing the market.

the growth rate of purchasing power derived from an investment.

rate of return that can be earned with certainty, often measured by the rate on Treasury Bills.

an expected return in excess of that on risk-free securities.

think of it as the extra return an investor demands for taking on additional risk compared to a risk-free investment like a Tbond.

ratio of portfolio risk premium to stdev.

=Portfolio risk premium/standard deviation of portfolio excess return.

measures of the asymmetry of a probability distribution.

the square root of the variance.

the expected value of the square deviation from the mean.

a stock's expected excess return beyond that consistent with its beta and the market's excess return.

measures an investment's performance relative to a benchmark index (reference point used to measure the performance of an investment or portfolio). it shows how much an investment beats or lags the market after adjusting for risk.

the sensitivity of a security's return to the return on the market index.

measures how much an investment moves relative to the overall market.

=1 --> moves in line with the market
>1--> more volatile than the market (higher risk)
<1 --> less volatile than the market (lower risk)
=0--> no correlation with the market
<0--> moves opposite to the market

is a statistical measure that shows how well the performance of an investment or portfolio can be explained by its relationship with a benchmark (like the market).

simply, it tells you the percentage of the investment's movements are correlated with the bench market.

=1 (100%) means the investment's performance is perfectly explained by the benchmark.

=0 means there is no correlation between the investment and the benchmark.

the higher this is means the more reliable the benchmark is in explaining the investment's behavior.

the directional relationship between the return on two assets.

measure of how two variables (like there returns of two instruments) move together. it indicates whether the two variables tend to increase or decrease at the same time.

a statistic that measure the degree to which two securities move in relation to eachother.

risk that can be eliminated by diversification.

risk that factors the whole economy, cannot be eliminated by diversification.

is a financial model that explains a stock's return based on its relationship with a market index. it simplifies return calculations by assuming that a stock's performance is influenced by the overall market and some firm-specific factors.