Capital Market Final Exam Notes

1. what’s the differences between Nasdaq and NYSE

NYSE has floor trading and electronic trading. All trade on the Nasdaq are done electronically. Both NYSE and Nasdaq have gone through a transformation from a not-for-profit company to a for-profit company, but Nasdaq doesn’t have the same membership problems that the NYSE had, but it did have to separate itself from the regulatory body of the NASD. The national market issues represent larger Nasdaq companies that must meet higher listing standards, but not as high as NYSE.

2. How easy or hard is something to manipulate?

3. What are the differences between ROE and ROA?

ROE: return on equity. Net income/equity ROA: return on asset. Net income/ assets

ROA and ROE are commonly used to judge the profitability of a company. One major difference between ROE and ROA is debt. If there is no debt, ROE and ROA will be equal. Now if the company decides to take a loan, ROE would become greater than ROA. A higher ROE is not always an indicator of an impressive performance of a company. In this regard, ROA is a better indicator of the financial performance of a company.

With a high ROA and manageable debt, if ROE is also high it means that the company is generating decent profits using shareholder’s money. But if ROA is low and there is huge debt carried by the company, even a high ROE can only be a misleading figure.

ROE is more stable than ROA, but the drawback is inherently does not take into consideration financial risk.

ROA is more suitable when credit unions are building up a balance sheet through leveraging because it takes into consideration that added risk of the additional fixed costs. ROE is more suitable when a credit union has steady growth through member demand because it lacks the volatility associated with ROA, revealing true profitability.

4 What is the total return? What’s the goal of investing?

The total return on a portfolio of investments takes into account not only the...