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UNIVERSITY OF ILLINOIS College of Business - Department of Finance - Finance 300 (Financial Markets) Professor James Jackson Quiz #2 (Part I) Question: What do rational investors use to make investment decisions? Answer: Rational investors use objective risk and return factors to make investment decisions. Assignment: Each group must generate a list of 36 objective risk/return factors that have been discussed during the course to date. Once the group has completed the list, each group member must enter the list of risk/return factors in the order they have been presented during the course in the Quiz #2 (Part I) Assessment posted in Compass. In order to generate the highest score possible, the list of factors must be input in the order that they appear in the course textbook. Each group member must submit his/her own list in Compass to receive credit. 1 Holding Period Return (ROI %) 19 Yield ($/Price) 2 Expected Value (E(r) = Σ ρ i r i ) 20 Money Market Yield (Yield * (360 / n))
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Unformatted text preview: 3 Variance ( σ 2 ) 21 Straight Yield (Yield * (365 / n)) 4 Standard Deviation ( σ ) 22 Interest at Maturity Market Price (P M ) 5 Coefficient of Variation (CV) 23 Nominal Yield ( i r % + π ) 6 Correlation Coefficient ( Ρ ) 24 Current Yield (Annual Coupon / Bond Price) 7 Covariance (COV) 25 Yield to Maturity (Current Yield + Annual Capital Gain) 8 Minimum Variance Portfolio (MVP) 26 Effective Annual Rates 9 Systematic Risk 27 Term Structure of Interest Rates (Yield Curve) 10 Un-Systematic Risk 28 Risk Premiums (MRP, DRP, LP, IP) 11 Beta ( β29 29 Duration 12 CAPM (k, RR, Er) 30 Re-Investment Risk 13 Excess Return (Risk Premium = R m- R f ) 31 Price Risk 14 Sharpe Ratio [(R p - R f ) / σ] 32 Modified Duration (M.D) 15 Treynor Ratio [(R p - R f ) / β] 33 Convexity Correction (C.C.) 16 Margin 34 Interest Rate Risk 17 Leverage (1/Margin) 35 Immunization (D L = D A ) 18 Discount Paper Market Price (P D ) 36 Accrued Interest...
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