ASSET MANAGEMENT TERMS
Market Index - answer Collection of securities that measures performance of a market
over time.
Can track single industry, exchange, region, entire global mkt, etc.
Why are indexes useful? - answer Offers a view of US economy and stock market.
What are the most widely followed indexes? Main diff? – answer S&P 500 - Tracks 500
largest companies by *market cap* in US (focus on large-cap, cross sector). More
*comprehensive view*.
Dow Jones - Tracks *30* of most prominent companies in US. *Blue-chip companies*,
provide snapshot.
Nasdaq - Tracks stocks on Nasdaq stock exchange. Tech-heavy.
Blue-chip Stocks - answerStocks of large, well-established corporations with a solid
record of profitability
List some of the common types of fixed income products. - answerTreasury bills (T-
bills), treasury notes (T-notes), treasury bonds (T-bonds), treasury inflation-protected
securities (TIPS), municipal bonds, corporate bonds, junk bonds, certificate of deposit
(CD)
Name and explain the 3 main Treasury FI securities - answer1) *T-Bills*: ST FI
securities that mature *within 1 year* and do *NOT make coupon payments.* Investors
buy bills at price LESS than face value and earn that difference at maturity.
2) *T-Notes*: Maturities between *2-10 years*, pay fixed IR, sold in multiples of $100.
Investors receive semiannual interest payments. Repaid principal at maturity.
3) *T-Bonds*: Like T-Notes EXCEPT mature in *20-30 years*. Can be purchased in
multiples of $100.
TIPS - answer"Treasury Inflation-Protected Securities."
Protect investors from inflation. *Principal amount* of TIPS bond *adjusts* with inflation /
deflation.
Municipal Bond - answerGov't issued like Treasury BUT issued and backed *by a state,
municipality (city), or country*, instead of the Federal gov't.
, Issued to raise capital to finance *local expenditures.* Can offer tax-free benefits.
Corporate Bonds - answerBonds *issued by corporations* to fund operating expenses.
Price and IR offered depends on company's financial stability and creditworthiness.
*Higher credit ratings = lower coupon rates*
Junk Bonds - answerHigh-risk, high-interest bonds b/c *risk of default.*
Ratings below BBB
Default - answerCompany fails to pay the principal and interest on a bond/debt security
Certificate of Deposit (CD) - answerAn interest-earning deposit that requires the funds
to remain deposited for a fixed term. Withdrawal of the funds before the term expires
results in a financial penalty.
Fixed rate vs variable (floating) rate bonds - answer*Fixed Rate*: Pay the *same
interest rate* over their entire maturity.
*Floating/Variable Rate*: Periodically reset the interest rate paid *based on prevailing
rates in the market.*
Hawkish - answer*Tightening monetary policy with higher interest rates.*
This cools economic activity a bit, and importantly, it *keeps inflation in check.*
Investment grade credit - answerRating that signifies a municipal or corporate bond
presents a relatively *low risk of default.*
Bond Rating - answerGrade given by a rating agency that assesses the
creditworthiness of the bond's issuer. Signifies the likelihood of default.
How does bond maturity typically affect bond prices? - answerLonger-maturity bonds
are generally more sensitive to interest rate changes, so their prices can fluctuate more
than shorter-maturity bonds.
How does inflation typically impact bonds? - answerInflation can diminish the *buyer
power* of a bond's fixed interest payments, making them *less valuable*.
Inflationary risk should be considered!
Market Index - answer Collection of securities that measures performance of a market
over time.
Can track single industry, exchange, region, entire global mkt, etc.
Why are indexes useful? - answer Offers a view of US economy and stock market.
What are the most widely followed indexes? Main diff? – answer S&P 500 - Tracks 500
largest companies by *market cap* in US (focus on large-cap, cross sector). More
*comprehensive view*.
Dow Jones - Tracks *30* of most prominent companies in US. *Blue-chip companies*,
provide snapshot.
Nasdaq - Tracks stocks on Nasdaq stock exchange. Tech-heavy.
Blue-chip Stocks - answerStocks of large, well-established corporations with a solid
record of profitability
List some of the common types of fixed income products. - answerTreasury bills (T-
bills), treasury notes (T-notes), treasury bonds (T-bonds), treasury inflation-protected
securities (TIPS), municipal bonds, corporate bonds, junk bonds, certificate of deposit
(CD)
Name and explain the 3 main Treasury FI securities - answer1) *T-Bills*: ST FI
securities that mature *within 1 year* and do *NOT make coupon payments.* Investors
buy bills at price LESS than face value and earn that difference at maturity.
2) *T-Notes*: Maturities between *2-10 years*, pay fixed IR, sold in multiples of $100.
Investors receive semiannual interest payments. Repaid principal at maturity.
3) *T-Bonds*: Like T-Notes EXCEPT mature in *20-30 years*. Can be purchased in
multiples of $100.
TIPS - answer"Treasury Inflation-Protected Securities."
Protect investors from inflation. *Principal amount* of TIPS bond *adjusts* with inflation /
deflation.
Municipal Bond - answerGov't issued like Treasury BUT issued and backed *by a state,
municipality (city), or country*, instead of the Federal gov't.
, Issued to raise capital to finance *local expenditures.* Can offer tax-free benefits.
Corporate Bonds - answerBonds *issued by corporations* to fund operating expenses.
Price and IR offered depends on company's financial stability and creditworthiness.
*Higher credit ratings = lower coupon rates*
Junk Bonds - answerHigh-risk, high-interest bonds b/c *risk of default.*
Ratings below BBB
Default - answerCompany fails to pay the principal and interest on a bond/debt security
Certificate of Deposit (CD) - answerAn interest-earning deposit that requires the funds
to remain deposited for a fixed term. Withdrawal of the funds before the term expires
results in a financial penalty.
Fixed rate vs variable (floating) rate bonds - answer*Fixed Rate*: Pay the *same
interest rate* over their entire maturity.
*Floating/Variable Rate*: Periodically reset the interest rate paid *based on prevailing
rates in the market.*
Hawkish - answer*Tightening monetary policy with higher interest rates.*
This cools economic activity a bit, and importantly, it *keeps inflation in check.*
Investment grade credit - answerRating that signifies a municipal or corporate bond
presents a relatively *low risk of default.*
Bond Rating - answerGrade given by a rating agency that assesses the
creditworthiness of the bond's issuer. Signifies the likelihood of default.
How does bond maturity typically affect bond prices? - answerLonger-maturity bonds
are generally more sensitive to interest rate changes, so their prices can fluctuate more
than shorter-maturity bonds.
How does inflation typically impact bonds? - answerInflation can diminish the *buyer
power* of a bond's fixed interest payments, making them *less valuable*.
Inflationary risk should be considered!
