which describes someone's expected outcome from investing in the stock market

What is the stock market and how does it work?

Aug 29, 2021 · The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. An expected return is calculated by multiplying potential outcomes by the odds of them ...

What is the expected return on investment?

Individuals tend to buy high out of greed, and sell low out of fear. The best thing to do is not constantly look at the price fluctuations of stocks, and just check in on a regular basis. …

What is the prospect theory of investing?

Ownership in companies is traded in the stock market while ownership of foreign money is traded in the currency exchange market. ... Sotckholders may not get an increase in the amount of …

What does it mean to invest in stocks?

Jul 23, 2021 · Prospect theory is part of the behavioral economic subgroup. It describes how individuals make decisions between alternatives where risk is involved and the probability of …

Which accurately explains the difference between the stock market and the bond market quizlet?

Which term describes a company's first sale of stock to the public?

Which is a risk of being a stockholder quizlet?

Which best explains why the money supply is decreased when the government issues bonds quizlet?

Which term describes a company's first sale of stock to the public initial public offering circular flow model debt financing venture capital?

How do you invest in companies before they go public?

What are stock markets quizlet?

Which is a benefit of being a stockholder?

Which is a benefit of being a stockholder quizlet?

Which of the following best explains why the money supply is decreased?

Which action is most likely to result in a decrease in the money supply?

Which of the following best explains why the money supply is increased when the Fed buys bonds on the open market?

What is expected return?

Expected return and standard deviation are two statistical measures that can be used to analyze a portfolio.

Is it dangerous to make investment decisions solely on expected return?

To make investment decisions solely on expected return calculations can be quite naïve and dangerous. Before making any investment decisions, one should always review the risk characteristics of investment opportunities to determine if the investments align with their portfolio goals.

Is expected return based on historical data?

The expected return is usually based on historical data and is therefore not guaranteed into the future; however, it does often set reasonable expectations. Therefore, the expected return figure can be thought of as a long-term weighted average of historical returns .

Is expected return dangerous?

Limitations of Expected Return. To make investment decisions solely on expected return calculations can be quite naïve and dangerous. Before making any investment decisions, one should always review the risk characteristics of investment opportunities to determine if the investments align with their portfolio goals.

What is standard deviation in portfolio?

Standard deviation of a portfolio, on the other hand, measures the amount that the returns deviate from its mean, making it a proxy for the portfolio's risk. Expected return is not absolute, as it is a projection and not a realized return.

Why is investing in stocks good?

Stock investment offers plenty of benefits: Takes advantage of a growing economy: As the economy grows, so do corporate earnings. That's because economic growth creates jobs, which creates income, which creates sales. The fatter the paycheck, the greater the boost to consumer demand, which drives more revenues into companies' cash registers.

What are the pros and cons of investing in stocks?

Stock Investing Pros and Cons 1 Grow with economy 2 Stay ahead of inflation 3 Easy to buy and sell

Is the stock market volatile?

However, the stock market can be volatile, so returns are never guaranteed. You can decrease your investment risk by diversifying your portfolio based on your financial goals.

Why is economic growth important?

That's because economic growth creates jobs, which creates income, which creates sales. The fatter the paycheck, the greater the boost to consumer demand, which drives more revenues into companies' cash registers. It helps to understand the phases of the business cycle —expansion, peak, contraction, and trough.

How to stay ahead of inflation?

Best way to stay ahead of inflation: Historically, stocks have averaged an annualized return of 10%. 1 That's better than the average annualized inflation rate. It does mean you must have a longer time horizon, however. That way, you can buy and hold even if the value temporarily drops.

What does "liquid" mean in stock market?

2. Easy to sell: The stock market allows you to sell your stock at any time. Economists use the term "liquid" to mean that you can turn your shares into cash quickly and with low transaction costs.

What is a well diversified portfolio?

That means a mix of stocks, bonds, and commodities. Over time, it's the best way to gain the highest return at the lowest risk. 6.

What is the bottom line of Prospect Theory?

Bottom Line. Prospect theory says that individuals will accept an investment when the gains are presented, versus the losses. That is, investors weigh potential gains more than potential losses.

How does Prospect Theory work?

Prospect theory belongs to the behavioral economic subgroup, describing how individuals make a choice between probabilistic alternatives where risk is involved and the probability of different outcomes is unknown.

What is the theory of loss aversion?

Also known as the " loss-aversion " theory, the general concept is that if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen.

What is the prospect theory?

The prospect theory is part of behavioral economics, suggesting investors chose perceived gains because losses cause a greater emotional impact.

What is the certainty effect in prospect theory?

There is a certainty effect exhibited in the prospect theory, where people seek certain outcomes, underweighting only probable outcomes.

What is the underlying explanation for an individual's behavior?

The underlying explanation for an individual’s behavior, under prospect theory, is that because the choices are independent and singular, the probability of a gain or a loss is reasonably assumed as being 50/50 instead of the probability that is actually presented. Essentially, the probability of a gain is generally perceived as greater.

Why do people prefer straight cash?

However, individuals are most likely to choose to receive straight cash because a single gain is generally observed as more favorable than initially having more cash and then suffering a loss. Although there is no difference in the actual gains or losses of a certain product, the prospect theory says investors will choose the product ...