A stock’s alpha is its projected independent rate of change or the difference between an investment’s expected return and its actual return. Portfolio managers whose portfolios have positive alphas are adding value and increasing the return through their asset selection.
A stock’s beta is its projected rate of change relative to the market as a whole. If the market was up 10% for the year, a stock with a beta of 1.5 could reasonably be expected to be up 15%. A stock with a beta greater than one has a higher level of volatility than the market as a whole and is considered to be more risky than the overall market. A stock with a beta of less than one is less volatile than prices in the overall market and is considered to be less risky. An example of a low betaRead more
In a normal interest rate environment, longer-term bonds will pay investors a higher interest rate than short-term bonds of equal quality. As interest rates change the price of existing bonds will move inversely to the change in interest rates. A bond’s duration is a measure of the bond’s price sensitivity to a small change in interest rates and is stated in years. Longer term bonds and bonds with low coupons will generally have a higher duration than shorter term or higher yielding bonds. The higher the bond’s duration, the greater the bond’s interest rate risk and the greater its price volatility. Duration allows investors to compare the interest rate risk associated with bonds of different maturities, quality, and coupons. The bond’s duration may be stated as either modified duration or effective duration. Modified duration assumesRead more
Economics, put simply, is the study of shortages – supply vs. demand. As the demand for a product or service rises, the price of those goods or services will tend to rise. Alternatively, if the provider of those goods or services tries to flood the market with those goods or services, the price will tend to decline as the supply outpaces the demand. The supply and demand model works for all goods and services including stocks, bonds, real estate, and money. Series 65 candidates can expect to see 10 to 15 questions on economics.Read more
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