Fundamentals of Investing (Canadian Edition) Summary

These flashcards cover key topics and fundamental concepts from the lecture notes on investment management, securities dealer accounts, stock indexes, and various investment vehicles.

What is the purpose of an Investment Policy Statement (IPS)?

It outlines objectives, constraints, acceptable securities, investment style, and performance evaluation methods.

What are the primary investment objectives to consider?

Safety, income, and growth.

How do you calculate Net Worth?

Total assets at market value minus total liabilities.

What is the role of asset allocation in investment portfolios?

It drives the majority of portfolio returns over time by dividing investments among asset classes.

What types of broker accounts are mentioned?

Cash accounts, margin accounts, custodial accounts, wrap accounts, discretionary accounts.

Define Price-Weighted Indexes.

A stock index where the influence on the index is based on stock price, making higher-priced stocks more impactful.

What are the characteristics of common stocks?

Common stocks are equity securities with shareholder rights and can be issued through methods such as public offerings.

What does the total return of an investment include?

The total return includes both price changes and dividends.

Explain the concept of Margin Accounts.

Margin accounts allow an investor to borrow funds to increase purchasing power, but they also involve risks such as margin calls.

How is the Sharpe ratio used in investments?

The Sharpe ratio is a performance metric used to assess risk-adjusted returns.

What is the significance of calculating expected portfolio returns?

It can be calculated as weighted averages to assess overall portfolio performance.

What is the difference between active and passive fund management?

Active management involves frequent trading and attempts to outperform the market, while passive management seeks to replicate market indices.

What is intrinsic value in the context of stock valuation?

Intrinsic value is an estimate of a stock's true value based on fundamental analysis, such as using the dividend discount model.

What is a callable bond?

A bond that can be redeemed by the issuer before its maturity at predetermined prices.

Define foreign exchange spot rates.

Spot rates are the prices agreed for immediate delivery of currencies and reflect current exchange rates.

What are the learning outcomes of studying mutual funds?

Students should understand how mutual funds work, calculate net asset value, evaluate costs, and select appropriate funds for different objectives.