Investment Analysis (short notes) Previous Years Questions

Investment: An investment is the current commitment of funds for a period of time in order to derive a future flow of funds that will compensate the investor for the time value of money, the expected rate of inflation over the life of the investment, and provide a premium for the uncertainty associated with this future flow of funds. Required rate of return: The required rate of return is the minimum rate of return (expressed as a percentage) that an investor requires before investing capital. Strong-form efficiency: Stronger formulation of the notion of market efficiency, which states that the price of a stock already takes all possible market information into account. Under strong form efficiency, insider trading cannot offer an advantage, as the information is already "priced-in" to the value of the stock. Portfolio Risk: In risk analysis, it is the risk that a particular combination of projects, assets, units or whatever is in the portfolio will fail to meet the overall objectives of the portfolio because of poor balance of risks within the portfolio. Right share: A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire. Book Building: The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. OTC: A security which is not traded on an organized stock exchange, usually due to an inability to meet listing requirements. OTC market: A decentralized market of securities not listed on an exchange where market participants trade over the telephone, facsimile or electronic network instead of a physical trading floor. There is no central exchange or meeting place for this market. Short sale: It is the sale of stock that an investor does not own with the intent of purchasing it back later at a lower price. A market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. Random walk theory: An investment theory which claims that market prices follow a random path up and down, without any influence by past price movements, making it impossible to predict with any accuracy which direction the market will move at any point. Private placement: The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. It does not require SEC registration, provided the securities are bought for investment purposes rather than resale. Capital market line (CML): A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. Fundamental analysis: A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data.

Jamal Hossain Shuvo

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Investment Analysis (short notes) Previous Years Questions

Efficient Frontier: A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. Jensen ratio: A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. Continuous Market: A market with sufficient activity that a normal-sized trade can be made at any time without affecting the current market price. Earning Momentum: Pattern where a company experiences increasing earnings per share from period to period. Security market line (SML): A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. Margin: Difference between the amount of loan advanced by a stockbroker to a speculator and the current value of the securities deposited by him or her with the stockbroker as collateral. Company analysis: Research using the calculation of financial ratios and/or complex forecasting of profits, cash flows and dividends. Analysis gives a basis for the valuation of shares and decisions on when to buy sell and hold shares. Gordon Growth Model: A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends. YTC (Yield to call) : Yield on a bond computed on the basis of assumption that its issuer will redeem it at the first call date stated in the bond's prospectus (indenture agreement). Markowitz mode: A model for selecting an optimum investment portfolio, devised by H. M. Markowitz. It uses a discrete-time, continuous-outcome approach for modeling investment problems, often called the mean-variance paradigm. See also efficient frontier. Single Index Model: A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on a broad market index, and firm-specific factors. Capital allocation line (CAL): A line created in a graph of all possible combinations of risky and risk-free assets. Also known as the "reward-to-variability ratio".

Jamal Hossain Shuvo

www.Quickincometips.com