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Which one comes out higher arithmetic or geometric
Arithmetic
Which one comes out lower arithmetic or geometric
Geometric
Three components that give rate of return
-risk free rate
-risk premium
-inflation premium
Know your constraints that can be in your investment policy statement
Resources
Horizon
Liquidity
Taxes
Special Circumstances
Roth 401k
Get taxed, but when pulling it out you don’t get taxed
Traditional 401k
When money is removed from account you pay taxes
SIPC
which insures each account for up to $500,000 in cash and securities, with a $250,000 cash maximum.
Long position in equity
An investor with a long position benefits from price increases.
Buy low, sell high
Short position in equity
An investor with a short position benefits from price decreases.
Sell high, buy low
When does a margin call occur?
When the current margin is lower than the maintenance margin
What are bonds?
Borrow money, paying a periodic interest, pay the loan back
What are common stocks?
Represents a share of ownership in a company, gives you voting rights, can pay a dividend not required to, majority of action you are going to see is from changes in the value of the share
What is a derivative ?
Securities that there underlying value is based on the underlying value of another something, financial instrument whose value is determined by the value of another financial instrument
Important feature of derivative
Used for speculation, but can also be used to hedge risk (hedging means to reduce risk using a strategic asset purchase )
What are futures?
Contractural obligation between two parties to arrange for a sell of something specified in the contract at a specified date at a specified price
Open ended mutual funds
Purchasing or redeeming shares with the fund itself, typically open to new investors but not always, getting exactly the net asset value of that fund when you redeem or purchase shares
Close ended mutual funds
Fixed sized, don’t issue shares directly, buying them from other investors on the market
Covered call
-own a basket of stocks and you are selling a call option for that same amount at a specified strike price for two reasons:
used to generate income on a stock portfolio and lock in a certain profit for a trade.
Protective put
holding a stock and you suspect that stock is going to drop in value, so you are buying a put option and the reason you are doing that is because as the stocks value decreases, the puts value is going to increase so it effectively a form of insurance to lock in a certain price and much like insurance you are paying a premium to be able to do that
Know what the profit to the writer or seller of an options contract is
Taking home the premium
Less Risk to risky
T-bills
Gov Bonds
Long Term Corp
Large Comp
SCS
