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CFP > Bond And Stock Valuations > Flashcards

Bond And Stock Valuations Flashcards

1
Q

What is the current yield and what is the formula?

A

Measures a bond yield based on its annual interest payments and current market price

CY = annual interest payments / current market price

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2
Q

What is the yield to maturity? (YTM)

A

The internal right of return for cash flows associated with the bond, including the purchase price, coupon, payments, and maturity value

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3
Q

How do you figure the yield to maturity?

A
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4
Q

How do you figure yield to call?

A
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5
Q

How often do bonds typically pay interest?

A

Semi annually, unless otherwise stated

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6
Q

If interest rates increase bond prices will

A

Decrease

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7
Q

If interest rates decline bond prices will

A

Increase

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8
Q

Bonds with longer terms are subject to more of what than bonds with shorter terms

A

Price volatility with changing interest rates

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9
Q

An upward revision on a bond rating will cause the market yield on the bond to do what

A

Decline reflecting the bond improved quality

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10
Q

A downward revision of a bonds rating will cause the market yield on the bond to do what

A

Increase reflecting the bonds decline in quality

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11
Q

What bonds are the most price sensitive to interest rate changes?

A

Bonds with low coupon rates and long maturity

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12
Q

What would the most volatile bond be?

A

Long-term zero coupon bond

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13
Q

What are yield curves?

A

Yield curves reflect rates offered by treasury instruments for various maturities

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14
Q

Yield curves have a tendency to slope in what direction

A

Upward and outward, denoting fat as the maturity of bonds increases, the corresponding interest rate yields increase

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15
Q

What does it mean if a yield curve is flat?

A

No difference in the yield relative to maturity

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16
Q

What does it mean if a yield curve is inverted

A

That current short term borrowing cost are higher than long-term borrowing cost

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17
Q

If a yield curve is flat and investor should do what

A

Buy long maturity bonds, only if they are confident of long-term rates falling in the future

18
Q

What should investors do if the yield curve is inverted

A

Should favor longer maturities, inverted yield curves will correct to normal and short rates will fall farther than long rates

19
Q

What should investors do if you have a steeply sloped yield curve

A

Should avoid longer maturity

20
Q

What is duration?

A

Determines the weighted average number of years until an investment is recovered

21
Q

How do you solve for duration?

A
22
Q

The coupon rate of a bond and the duration of a bond have what sort of relationship

A

Inverse

23
Q

Zero coupon bonds will always have a duration equal to what

A

Time to maturity

24
Q

A bond with coupon payments will always have a duration less than it’s what

A

Time to maturity because some of its cash flows occur before maturity

25
Q

As the yield to maturity increases the duration will what

A

Decline

26
Q

What is convexity?

A

Refers to the degree to which duration changes as a result of changes in the yield to maturity, large convexity implies a large change in duration

27
Q

Convexity is likely to be the greatest with the following types of bonds

A

Low coupon bonds

Long maturity bonds

Low yield to maturity bonds

28
Q

What is the formula for estimating bond price changes using duration?

Will not be effective for large changes in interest rates

A
29
Q

What is the formula for stock holders equity, sometimes referred to as retained capital?

A

Asset - Liabilities

30
Q

What is the intrinsic value of a stock?

What is the formula?

A

Intrinsic value of a stock is the present value of future cash flows discounted at a risk adjusted interest rate also referred to as the investors required return

31
Q

What is the constant growth dividend discount model?

What is the formula?

A

Used to determine the price for a security in which dividends are growing at a constant rate

32
Q

The constant growth dividend discount model is best used for what type of companies

A

Well established

33
Q

How do you solve a problem with the constant growth dividend discount model if it shows a growth rate of a dividend?

A
34
Q

How do you measure a multi stage (variable) growth discount model?

A
35
Q

What is the discounted free cash flow model and what is the formula?

A

Models used when a firm is not currently paying a dividend

36
Q

Does book value depict an accurate measure of the value of a company?

A

No

37
Q

What is the income capitalization approach when valuing real estate?

A

Bases the value of the property on the income that can be generated from the property

38
Q

A property that recently sold for $12 million and generated net income of 2.16 million per year has an implied capitalization rate of what

A

18%

$2.16 million / $12 Million

39
Q

Net operating income (NOI) Is generally used as the measure of income because it does not consider what?

A

Mortgage payments or depreciation

40
Q

If a property has sold for $1 million and generates net operating income of 100,000 per year, and what is the implicit capitalization rate?

A

10%

$100,000 / $1 million

CFP (17 decks)

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