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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
Preferred Stock Valuation Vp
D/k Vp-price preferred stock, D-dividend, k=discount rate
26
Derivative
financial contract getting value from underlying price of some back financial instrument. Has asset
27
Time draft
bill for payment to exporter on a specified date after the exporter has completed the contract.
28
Equity Carve out
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
29
Swap
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
30
Options
contract between 2 parties that the purchaser of a contract has a right to buy or sell a given amount of an underlying asset
31
Call Option
contract giving the contract owner the right to buy an asset from the writer at a fixed price
32
Put Option
contract giving owner the right to sell and asset at a fixed price
33
Strike Price
fixed price of the contract
34
Exercise Date
last date to exercise buying of asset (aka maturity date or expiration date)
35
Premium
initial purchase price of the option
36
European Option
contract allowing the owner to exercise the option only on maturity date
37
American Option
allowing the owner to exercise option any time during the exercise period
38
Floatation costs
direct costs (underwriting, filing fees, taxes) Indirect (mgmt time). Total costs are deducted from selling price of the stock
39
Cost of Preferred Stock
D/[Current price-Floatation Costs)
40
Historical Rate of Return
[Dividend/yr+Avg Annual Gain]/Purchase Price
41
Dividend Growth Model
Cost of Internal equity is [Dividend (1+Growth Rate)/market $] + growth rate
42
Marginal Cost of Capital Breakeven
TFi/Wi Tfi -Tot funds from cap Wi-% of perm cap
43
Marketable Securities
Tbills, Federal agency securities, Repurchase agreements, Bankers' acceptances (letter of credit), Commercial paper, auction rate preferred stock, CDs, Eurodollar deposits, ST muni
44
Granting Credit
5 C's Character, conditions, Cash Flow, Credit, Collateral
45
Average Collection Period
365/[A/R Turnover]
46
Average Collection Period
AR/(Sales)*365
47
Total contribution margin
(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
Economic Order Quantity (EOQ)
he quantity of a regularly ordered item to be purchased at a point in time resulting in minimum ordering and storage costs
49
Cash Discount Rate
[Dr/(1-DR)*365/(N-DP)] DR-discount rate, N-Net pay period, DP-discount period
50
Effective Interest Rate
(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
Compensating Balance
non-interest bearing deposit maintained in the company's deposit accounts at the bank, for account service charges, lines of credit, or investments
52
EID
Discount (DR)/(1-DR)*(365/(Payment period-discount period))
53
Leveraged buyout
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
Mergers/Acquisitions
obtain another co's assets, skills or tech; economies of scale; resources; customers; grow faster than internally possible; diversify?synergies
55
Consolidation
combination of a few companies to a new company
56
Merger
combine 2 companies into one company
57
Horizontal Merger
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
Vertical Merger
suppliers or customers merge
59
Conglomerate
unrelated companies
60
Leveraged Buyout (LBO)
merger that a buyer borrows a major portion of the purchase price using the purchased assets as collateral.
61
Defenses against hostile takeovers
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
Spin-offs
parent co distributes stock in a sub and sub becomes a separate company
63
Equity Carve-outs
equity is sold directly to public rather than being distributed to parent's stockholders
64
Split-Ups
single company splits into 2 or more co's.
65
Call Options
Gives you the right to buy at a price
66
Put Options
Gives you the right to sell at a price
67
Debentures
are unsecured bonds. They are backed by the full faith and credit of the issuing firm
68
Transfer Pricing
move parts from high tax to low tax country at arm's length. To manage their effective worldwide tax rate
69
Letter of Credit
sent from importers bank to an exporter. States bank backs importers obligation to pay.
70
Time Draft
bill for payment to the exporter after contract is completed
71
American Depository Receipts (ADRs)
certificates representing ownership of foreign stocks.
72
Zero Coupon Bonds
have no ongoing interest payments. Bond sold at deep discount and redeemed a fv as interest accrues
73
Participating Preferred Stock
Preferred SH div increases when common SH div reaches specific amount
74
Risks
Credit risk, fx risk, interest rate risk, market rate risk, market risk, industry risk, political risk, default risk (can't pay bills)
75
Relationship of Risk & Return (less to more)
Tbill>Gov't Bonds>Corp Bonds>Stocks
76
Diversification
mix of assets (equity, bonds), mix of asset classes, mix of maturity dates
77
How to manage risk
Manage Risk by hedging, speculating, arbitrage, maturity matching, and portfolio mgmt

CMA (3 decks)

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