Summary Alternative Investments

A snapshot of the summary - Alternative Investments

• alternative investments HC1

• What are financial assets?

  Financial assets are claims to the income generated
  by real assets.
• What is productive capacity a function of?

  Real assets (land, building, machines etc)
• How do governments finance their activities?

  Government bonds
• What are characteristics of equity?

  1) Ownership share in corporation
  2) Income determined by dividends or by increase/decrease stock price
  3) Tend to be riskier than debt securities
• What is available on the primary market?

  1) Newly issued securities
  2) Stocks ; IPO, Seasoned/secondary equity offering
  3) Investment bankers and underwriting
  4) Underpricing
• What does the Firm-Foundation theory mean? Name 4 characteristics

  1) Intrinsic value (IV)
  2) Present and past conditions, and future prospects
  3) When market price < IV then buy, otherwise sell
  4) Difficult to correctly assess IV
• What does the Castle-In-The-Air Theory mean? Name 3 characteristics

  1) Behaviour of investors
  2) When E(future price) > current price then buy, otherwise sell
  3) Difficult to assess the behaviour
• How do you measure stock return?

  Rt = 100 * ((Divt +Pt -P(t-1))/P(t-1))

• Alternative Investment HC2

• What is the weak form of EMH?

  Security prices reflect all price history information

• Alternative Investments HC4

• Name 4 ways to measure the performance of an investment?

  1. Sharpe ratio
  2. Comparison with benchmark
  3. Comparison against a static strategy
  4. Using asset pricing model