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Flashcards in CH 4 Deck (15)
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1
Q

What does “NAV” stand for?

A

Net asset value

2
Q

What is the formula for NAV?

A

Net asset value = (Market value of assets - liabilities)/ Shares outstanding

3
Q

What is the definition of NAV?

A

Assets minus liabilities expressed on a per-share basis.

4
Q

Define “unit investment trusts”.

A

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

5
Q

Define “open-end fund”.

A

A fund that issues or redeems its shares at net asset value.

6
Q

Define “closed-end fund”.

A

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

7
Q

How do you “cash-out” your shares from a open-end fund?

A

You sell your shares back to the fund at current market NAV.

8
Q

How do you cash out your shares from closed-end funds?

A

You sell your shares on a general organized exchange, not back to the fund.

9
Q

What does the acronym “REIT” stand for?

A

Real estate investment trusts (REITS)

10
Q

What does a “REIT” do?

A

REITs invest in real estate or loans secured by real estate. Most tend to be highly leveraged, with a typical debt ratio of 70%.

11
Q

What two principal types of REITs are there?

A

Equity trusts, which invest in real estate directly.

Mortgage trusts, which invest primarily in mortgage and construction loans.

12
Q

What do types of investments do ‘money market mutual funds’ typically hold?

A

Short-term, low-risk instruments of the money market.

Examples: treasury bills, commercial paper, repurchase agreements, certificates of deposit.

13
Q

What do types of investments do ‘bond market mutual funds’ typically hold?

A

Fixed-income securities.

14
Q

What is the formula for the ‘rate of return’ of a mutual fund?

A

Rate of return = NAV1 - NAV0 + Income and capital gain distributions / NAV0

Where:
NAV0 = NAV at time 0

15
Q

Define ‘soft dollars’

A

The value of research services that brokerage houses provide “free of charge” in exchange for the investment manager’s business.