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CMA > CMA Part B > Flashcards

CMA Part B Flashcards

1
Q

Rate of Return

A

[(Price2-Price1)+D]/Price1 {Price1=initial $, D=Dividend}

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2
Q

Capital Asset Pricing Model

A

Ke=Rf+B(Km-Rf)

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3
Q

Countertrading

A

bartering, good & services exchanged not sold for currency

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4
Q

Gordon Growth Model

A

V0 = Div1/[Ks-g]

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5
Q

Coefficient of Variation (CV)

A

Standard deviation (sigma)/expected return

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6
Q

<p>Covariance </p>

A

Summation of {P[(Ri-E1)]*[Ri,2-E(R2))}

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7
Q

<p>Correlation </p>

A

Cov 1,2/S1S2 is between -1<=1

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8
Q

<p>Portfolio Return </p>

A

Summation of WR w=% of total funds, r=return

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9
Q

<p>Hedging</p>

A

method of reducing exposure by taking an offsetting position in another investment (opposite)

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10
Q

<p>Degree of Operating Leverage (DOL) </p>

A

CM/Operating Income or % change in EBIT/ %change in Sales or Contribution Margin/EBIT

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11
Q

Degree of Financial Leverage (DFL)

A

% change in Net Income / % change in EBIT or EBIT/EBT

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12
Q

Degree of Total Leverage

A

DOL * DFL

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13
Q

Constant Dividend Growth

A

V0=D1/(ks-g)

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14
Q

Bond Indentures

A

agreements (terms, %, maturity, protective covenants, etc)

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15
Q

Bond Administration

A

Trustee, 3rd party who officially represents bondholder

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16
Q

Bond Principal

A

amount of bond at time its issued (aka par value, par, face value)

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17
Q

Bond Coupon rate

A

Bond interest

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18
Q

Bond Duration

A

measure of the sensitivity of the asset’s price to interest rate movements. It broadly corresponds to the length of time before the asset is due to be repaid.

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19
Q

Bond Debentures

A

bonds secured with full faith and credit of the issuing firm

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20
Q

Effective duration

A

refers to price sensitivity in response to a change in yield-approximate

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21
Q

Effective annual interest rate

A

(interest)/(usable funds)

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22
Q

Bond Valuation Vb

A

I (PVIFAk,n)+F(PVIFK,n) [value of bond= interest*PV % annuity)+ FV (PV % factor)

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23
Q

Zero Growth V0

A

D/ks V-common stock price, D-constant annual div/share, Ks-req’d rate of return

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24
Q

Variable Div Growth P

A

D(1+g)/[Ks-g] P-stock price, D-dividend, K-req’d rate of return, g-growth rate

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25
Q

Preferred Stock Valuation Vp

A

D/k Vp-price preferred stock, D-dividend, k=discount rate

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26
Q

Derivative

A

financial contract getting value from underlying price of some back financial instrument. Has asset

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27
Q

Time draft

A

bill for payment to exporter on a specified date after the exporter has completed the contract.

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28
Q

Equity Carve out

A

when common stock of the subsidiary is sold directly to the public rather than distributing it to the parent?s shareholders. Usually, the parent will contain a controlling interest in the subsidiary during the equity carve-out

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29
Q

Swap

A

a private agreement between two parties to exchange (or swap) future cash payments. A swap is usually facilitated by an intermediary. Swaps are characterized by series of forward contracts and the exchange of payments on specified payment dates

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30
Q

Options

A

contract between 2 parties that the purchaser of a contract has a right to buy or sell a given amount of an underlying asset

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31
Q

Call Option

A

contract giving the contract owner the right to buy an asset from the writer at a fixed price

32
Q

Put Option

A

contract giving owner the right to sell and asset at a fixed price

33
Q

Strike Price

A

fixed price of the contract

34
Q

Exercise Date

A

last date to exercise buying of asset (aka maturity date or expiration date)

35
Q

Premium

A

initial purchase price of the option

36
Q

European Option

A

contract allowing the owner to exercise the option only on maturity date

37
Q

American Option

A

allowing the owner to exercise option any time during the exercise period

38
Q

Floatation costs

A

direct costs (underwriting, filing fees, taxes) Indirect (mgmt time). Total costs are deducted from selling price of the stock

39
Q

Cost of Preferred Stock

A

D/[Current price-Floatation Costs)

40
Q

Historical Rate of Return

A

[Dividend/yr+Avg Annual Gain]/Purchase Price

41
Q

Dividend Growth Model

A

Cost of Internal equity is [Dividend (1+Growth Rate)/market $] + growth rate

42
Q

Marginal Cost of Capital Breakeven

A

TFi/Wi Tfi -Tot funds from cap Wi-% of perm cap

43
Q

Marketable Securities

A

Tbills, Federal agency securities, Repurchase agreements, Bankers’ acceptances (letter of credit), Commercial paper, auction rate preferred stock, CDs, Eurodollar deposits, ST muni

44
Q

Granting Credit

A

5 C’s Character, conditions, Cash Flow, Credit, Collateral

45
Q

Average Collection Period

A

365/[A/R Turnover]

46
Q

Average Collection Period

A

AR/(Sales)*365

47
Q

Total contribution margin

A

(after-tax contribution margin on annual revenue) ? (bad debt expense + collection costs)(1 ? tax rate) ? (interest cost on accounts receivable) ? (interest cost on inventory)

48
Q

Economic Order Quantity (EOQ)

A

he quantity of a regularly ordered item to be purchased at a point in time resulting in minimum ordering and storage costs

49
Q

Cash Discount Rate

A

[Dr/(1-DR)*365/(N-DP)] DR-discount rate, N-Net pay period, DP-discount period

50
Q

Effective Interest Rate

A

(PR+CF)/(1-CB)*365/M PR-principal interest, CB-compensating balance, CF-commitment fee, M-loan length in days. Also [(interest + fees)/(usable funds)][(365)/(days to maturity)]

51
Q

Compensating Balance

A

non-interest bearing deposit maintained in the company’s deposit accounts at the bank, for account service charges, lines of credit, or investments

52
Q

EID

A

Discount (DR)/(1-DR)*(365/(Payment period-discount period))

53
Q

Leveraged buyout

A

an acquisition that occurs when a buyer of a company borrows a major portion of the purchase price using the purchased assets as collateral for the borrowing

54
Q

Mergers/Acquisitions

A

obtain another co’s assets, skills or tech; economies of scale; resources; customers; grow faster than internally possible; diversify?synergies

55
Q

Consolidation

A

combination of a few companies to a new company

56
Q

Merger

A

combine 2 companies into one company

57
Q

Horizontal Merger

A

happens when two or more firms within the same market, also referred to as competitors, join together. When a horizontal merger occurs, fewer competitors in the market result; thus having the potential of leading towards a monopolistic circumstance.

58
Q

Vertical Merger

A

suppliers or customers merge

59
Q

Conglomerate

A

unrelated companies

60
Q

Leveraged Buyout (LBO)

A

merger that a buyer borrows a major portion of the purchase price using the purchased assets as collateral.

61
Q

Defenses against hostile takeovers

A

staggered terms of board, Golden parachutes for exec, Corporate charters requiring supermajority to approve takeover, Poison pills, white knight (find friendly buyer to merge with), Pacman (role reversal in target co tries to buy buyer), greenmail (buyer purchases enough shares in co to threaten takeover), Nancy Reagan (where firm just says no to buy out)

62
Q

Spin-offs

A

parent co distributes stock in a sub and sub becomes a separate company

63
Q

Equity Carve-outs

A

equity is sold directly to public rather than being distributed to parent’s stockholders

64
Q

Split-Ups

A

single company splits into 2 or more co’s.

65
Q

Call Options

A

Gives you the right to buy at a price

66
Q

Put Options

A

Gives you the right to sell at a price

67
Q

Debentures

A

are unsecured bonds. They are backed by the full faith and credit of the issuing firm

68
Q

Transfer Pricing

A

move parts from high tax to low tax country at arm’s length. To manage their effective worldwide tax rate

69
Q

Letter of Credit

A

sent from importers bank to an exporter. States bank backs importers obligation to pay.

70
Q

Time Draft

A

bill for payment to the exporter after contract is completed

71
Q

American Depository Receipts (ADRs)

A

certificates representing ownership of foreign stocks.

72
Q

Zero Coupon Bonds

A

have no ongoing interest payments. Bond sold at deep discount and redeemed a fv as interest accrues

73
Q

Participating Preferred Stock

A

Preferred SH div increases when common SH div reaches specific amount

74
Q

Risks

A

Credit risk, fx risk, interest rate risk, market rate risk, market risk, industry risk, political risk, default risk (can’t pay bills)

75
Q

Relationship of Risk & Return (less to more)

A

Tbill>Gov’t Bonds>Corp Bonds>Stocks

76
Q

Diversification

A

mix of assets (equity, bonds), mix of asset classes, mix of maturity dates

77
Q

How to manage risk

A

Manage Risk by hedging, speculating, arbitrage, maturity matching, and portfolio mgmt

CMA (3 decks)

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