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CFP > CFP Investments > Flashcards

CFP Investments Flashcards

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1
Q

3 differences btwn Warrants & Call options

A
  1. Warrants created by corps, options created by individuals
  2. Warrants typically have maturities of several years
  3. Warrant terms aren’t standardized, call options are
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2
Q

Reg D: Accredited vs Non-accredited investor

A

Accredited (unlimited)
• NW over $1mm or
• Individual w/ income of $200k
• Couple w/ income of $300k

Non-accredited
• max of 35 investor
• Must use a purchase representative if not sophisticated

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3
Q

Coefficient of Variation (CV) formula

A

Standard deviation / mean return
CV indicates risk per unit of expected return. Helps ID what investment is riskier

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4
Q

What does Beta measure

A

• systematic risk
• volatility of returns in a diversified portfolio

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5
Q

What does Standard Deviation measure

A

• Total risk
• variability of returns in a nondiversified portfolio

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6
Q

If correlation coefficient is negative, will Beta be negative?

A

Yes

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7
Q

Geometric mean is what type of return?
And calculation

A

Time-weighted
Factors percentages (manager comparisons)
Multiply returns = FV
PV -1; n=years; i = solve

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8
Q

IRR and NPV are what type of return

A

Dollar-weighted
Factors cash flow (absolute dollar amounts)

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9
Q

What is the most important consideration relative to the Markowitz Efficient Frontier?

A

Risk

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10
Q

What type of index is the Russell 2000?

A

Capitalization weighted
• smallest 2000 stocks in the Russell 3000

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11
Q

What type of index is the Wilshire 5000?

A

Value weighted

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12
Q

What type of index is the Value Line?

A

Equally weighted

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13
Q

What type of index is the NASDAQ?

A

Capitalization weighted

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14
Q

Margin call formula

A

(1 - initial margin %) / (1 - maintenance margin %) x Purchase Price of Stock

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15
Q

Capitalization of Large Cap Stocks

A

> $10 billion

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16
Q

Capitalization of Mid Cap Stocks

A

$2 billion - $10 billion

17
Q

Capitalization of Small Cap Stocks

A

< $2billion

18
Q

Capitalization of Micro Cap Stocks

A

< $300 million

19
Q

Types of Systematic Risk
(Non-diversifiable)

A

PRIME
Purchasing power (inflation)
Reinvestment
Interest Rate (change in rates will cause value of fixed income to fall)
Market
Exchange Rate

20
Q

Types of non-systematic risks
(Unsystematic/non-diversifiable)

A

Financial
Business

21
Q

If the yield curve moved upward, duration has increased or decreased?

A

Decreased.

Interest rates and duration have an inverse relationship.

22
Q

What is the best way for a US investor to buy a foreign stock?

A

ADR

23
Q

Call options (9 mos or less) - taxability

A

• Taxability to writer due to lapse - premium received is STCG
• Taxability to the writer due to exercise (covered call) - premium received is added to sale price
- becomes LTCG if underlying security held for > 1yr
- STCG if held < 1yr

24
Q

Taxability to a call option holder

A

• if exercised, then option is considered sold (expires), and it is a short term gain/loss
• if not exercised, still short term gain/loss

25
Q

What yield is generally the most important to a bond investor?

A

YTM

26
Q

What is the intersection of the CML called?

A

Rf or Risk free (100% T bills)

27
Q

What is point B called on the CML?

A

The optimal risky portfolio, a proportional percentage of risky assets, or the tangent of the CML and the Markowitz efficient frontier.

28
Q

What happens if the portfolio moved from point of tangency to Rf on the CML?

A

The investor sells risky assets and buys T bills

29
Q

Are REITS redeemable?

A

No, they are negotiable and trade on exchanges

30
Q

Is Modern Portfolio Theory active or passive?

A

Active
It is the selection of an optimal combo of assets so the investor secured the highest return for a given level of risk

31
Q

2:1 or 2 for 1 stock split

A

You get 2 shares for 1, thus reducing the par value of the stock

32
Q

Duration correlation w/ interest rates, coupon rate, and maturity

A

• interest rates = inversely correlated
• coupon rate = inversely correlated
• maturity = positively correlated

33
Q

Using duration to manage bond portfolios
• if interest rates are expected to rise
• if interest rates are expected to fall

A

• interest rates rise = buy high coupons w/ short maturities to shorten duration (UPS: interest rates UP, Shorten duration)

• interest rates fall = buy low coupons w/ long maturities to lengthen duration (Fallen: interest rates FALL, LENgthen duration)

CFP (7 decks)

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