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asset test 2 > Asset test 2 > Flashcards

Asset test 2 Flashcards

1
Q

Face Value

A

Principle of a bond

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2
Q

Coupon Rate

A

interest payment

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3
Q

Maturity

A

When you receive the principle

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4
Q

Yield to Maturity

A

Actual Return

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5
Q

Credit Rating

A

S&P - AAA AA

Moodys - Aaa Aa

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6
Q

Macaulay Duration

A

Measures effective bond maturity
weighted average of the times until each payment, with weights proportional to the present value of payment

Chart on OCT 6

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7
Q

Modified duration

A

duration: how sensitive to interest risk, find out more

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8
Q

Interest rate vs. price

A

higher price, more interest

Lower price, less interest fr

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9
Q

Discount and premium bonds

A

Premium Bond: when price>face value

Discount bond: when price<face value

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10
Q

comparing different rates of discount and premium bonds

A

write down chart on OCT 1st pp

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11
Q

investment grade bonds

A

Rated BBB and above by S&P or Baa and about by Moody

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12
Q

call feature

A

Allow issuer to redeem bond prior to maturity

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13
Q

convertible and calculation

A

holders have the option of converting the stock

CV=PAR/CP * Ps

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14
Q

municipal bonds

A

issued by munipalities
Non taxable at the federal state and local level if you live in the issuing state

Write this down-chart on OCT 1st

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15
Q

risk of bonds

A 
Credit risk: risk of default 
Interest rate risk
Exchange Rate risk
Inflation risk
Call risk
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16
Q

expectation hypothesis

A

yields to maturity determined solely by expectations of future short-term interest rates or inflation rates

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17
Q

liquidity hypothesis

A

investors demand a risk premium on long-term bonds

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18
Q

bond management strategies

A

Bullets: Mainly use Zero-Coupon bond
cash flow matching
generate cash outflow in a certain date

Barbells
owing both short and long term bond

Laddered strategy
cash management: relatively liquid
Reduce interest risk(hold till maturity)

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19
Q

immunization

A

Strategy to shield net worth from interest rate movements
two offsetting interest rate risks: price risk and reinvestment rate
Math the duration with the investment horizon

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20
Q

convexity

A

curvature of a price-yield relationship of bond

More convexity= greater price increases, smaller price decreases when interest rates fluctuate by larger amounts

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21
Q

IPO

A

Initial Public Offerings

Issuer and banker put on road show
IPOs are under priced at first
sells in primary market to institutional clients
money left on the table
and then under perform in secondary market

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22
Q

why firms issue stock

A

private company needs investment capital
Owner wishes to diversify wealth
Private investors/venture capitalist want to cash out
Private owner thinks more valuable public than private
Existing public firm wants more equity capital
Provides some voting rights
Board provides oversight and ensures managers look out for interest of shareholders
Stocks also give investors a right to dividends

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23
Q

type of orders

A

Market order: execute immediately at best price
Bid price: price at which dealer will buy security
Ask price: price at which dealer will sell security
WRITE SLIDE DOWN

24
Q

when to pay dividends

A

WRITE DOWN SLIDE

25
Q

dividend yield

A

% Return I get from dividends

26
Q

dividend distribution

A

WRITE DOWN SLIDE

27
Q

stock repurchase

A

firm buys back stocks on open market

increases value of remaining shres

28
Q

stock splits

A

WRITE DOWN SLIDE

29
Q

buying on margin

A

SLIDES

30
Q

margin call

A

notification from broker that you must put up additional funds or have position liquidated

31
Q

short sale

A

sale of shares not owned by investor but borrowed through broker and later purchased to replace loan

Write slide down

32
Q

valuation ratios and characteristics

A

formulas write them down

33
Q

constant-growth DDM

A 
form of DDM that assumes dividends will grow at a constant rate
Implies stocks value greater if:
Larger dividend per share
Lower market capitalization rate, k
Higher expected growth rate of dividends
34
Q

market indices and examples

A

SLIDES

35
Q

price vs. value weighted

A 
Value Weighting
  larger stocks dominate index
  performance characteristics reflect size
Equal/Price wrighting
  smaller stocks more important
  tend to be more volatile, higher beta
  higher expected return
36
Q

open-end fund and characteristics

A

slides

37
Q

closed-end fund and characteristics

A

slides

38
Q

REITs

A

slides

39
Q

international funds

A

invest outside the US
regional funds focus on particular part of the world
Emerging market funds invest in developing nations

40
Q

life cycle funds

A

Shift assets toward safety as retirement nears
Allocation changes are you age
Life cycle funds- diversified
Popular format is a target retirement fund
QDIA investment options

41
Q

morning star style boxes

A

slides

42
Q

Mutual fund market segments

A

SLIDES

43
Q

BHB study

A

Slides

44
Q

things that ruin returns

A 
cash holdings 
size
heavy trading and brokerage expenses
Larger turnover and redemption
Poor investor timing in funds
45
Q

MF share classes (A, B, C, I)

A

slides

46
Q

active vs. index fund

A

DONT KNOW

47
Q

MF tax rules

A

Fund not taxed if diversified and income distributed
Investor taxed on capital gain and dividend distributions
Turnover: ratio of trading activity to assets of portfolio
Portfolio turnover may affect investors tax liability

48
Q

ETFs.

A 
Exchange traded funds
Mainly fees and taxes, lower cash holding
Traded in secondary market near NAV
Passively managed
Can trade like stocks
Short, buy on margin
49
Q

call option

A

/

50
Q

put option

A

/

51
Q

when to use option

A

.

52
Q

why to use option

A

.

53
Q

intrinsic value

A

.

54
Q

gain or loss of option transaction

A

.

55
Q

in (or out of) the money

A

.

asset test 2 (1 decks)

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