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Shawna's Mnemonics > Danko Additional - March > Flashcards

Danko Additional - March Flashcards

1
Q

Use of Payment Begin or End

A

Begin Mode:
College Tuition
Retirement Benefits
Family Needs

End Mode:
401K Deferral
Profit Sharing Contributions
Bond Interest Paid
Mortgage Payments

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2
Q

Three variations of questions involving unequal cash flows

A
  1. Calculate PV = always enter zero as first input + I/YR hint: OPP
  2. Calculate IRR (dollars weighted return) = initial investment is a negative input hint: I -initial
  3. Calculate NPV = always enter the initial investment as a negative input + I/YR hint: N negative
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3
Q

NPV (net present value)

A

The difference between the PV, and the amount of initial outlet is the net present value (NPV)

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4
Q

What happens when NPV is zero?

A

The IRR is also zero and matches the npv

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5
Q

Which investment vehicles should the emergency fund be invested in?

A

checking accounts
Government, money market accounts
CD if close to maturity less than 90 days
Saving accounts
Laddered CDs less than six months maturity

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6
Q

Financial Statements - Yearly Debt

A

Found on Cashflow statement. Does not include taxes and insurance.

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7
Q

Chartered Bank Regulators

A

Federally/Nationally Chartered - Comptroller of the currency, Federal Reserve, & FDIC

State Chartered - the governing state, Federal Reserve, FDIC

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8
Q

After Tax Mortgage Payment for the Year

A
  1. End mode +12 per yr
  2. Solve for Payment
  3. multiply payment by year worth of months
  4. round down the payment amount of the year
  5. multiply rounded payment by tax bracket
  6. subtract the interest from the full amount of payments made for the year.
    RESULT IS AFTER TAX PAYMENT FOR THE YEAR
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9
Q

Holding Period Return (Question Format) + calculation

A

What is the rate of return?
What is his/her HPR?

Sold price + income - purpose price/ purchase price

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10
Q

After Tax HPR Calc Steps

A
  1. Find out net gain
  2. Is it long-term or short term
  3. Calculate 1- (the tax withholdings)
  4. Multiply the net gains by the results of #3
  5. The after tax gain!
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11
Q

YTM (Yield to Maturity) Calculation

A

IT’S A TVM QUESTION!!
END MODE + 2 P/YR
N/I/PV/PMT (50% of annual coupon) / FV ($1K)

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12
Q

IRR - Internal Rate of Return

A

NOTE: P/YR function affects the IRR. set it to 1 P/YR!
Always net the annual activity
Use cashflow key, then IRR key

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13
Q

YTC (Yield to Call) Calculation

A

Same as YTM except the FV is the ‘call price’ and maturity date is replaced with ‘call date’.

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14
Q

Current Yield Calculation

A

Annual Interest $/ Current Market Price

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15
Q

TEY (Tax EQUIVALENT Yield) [Question Format & Calculations]

A

the return that a taxable bond needs to possess for its yield to equal the yield on a comparable tax-exempt bond, such as a municipal bond.

If question has muni and tax bracket info use TEY

Muni (tax exempt Yield/1- (tax bracket)

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16
Q

Tax EXEMPT Yield

A

Converts yield to tax exempt!

If question has taxable corporate bond yield AND muni yield + tax bracket use EXEMPT yield calculation.

TEY x (1-tax rate)

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17
Q

Geometric Return Calculation

A

add each return by 1 (example 1+8% =1.08).
2. add all values together. sum = PV
3. TVM = N, I=?, PV=sum, FV = 1
4. solve for I

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18
Q

Duration (reallocation)- Question/Calculation

A

Find out current portfolio duration:
1. Get the average of the current portfolio duration by adding the duration of each bond then divideingto.This will become the target duration.
9 + 5.6 = 14.6/2 = 7.3 duration

THEN:
Take the corresponding potion percentage. Example:
40% X: 60% Y = (40% of 9) + (60% of 5.6) = 3.6 + 3.36 = 6.96

reallocation of proportion of bonds works with 40%/60% blend

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19
Q

Dividend Growth Model - Question/Calculation

A

*you can use to determine if a stock is over or undervalued

IS THIS STOCK A BARGAIN OR OVERPRICED??

A. What is the estimated price of a stock paying XX in dividends with a growth rate of XX and a required rate of return of XX?

B. If stock is selling for XX, would you suggest client purchase?

D(1+g)/r-g

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20
Q

Expected Return

A

*you can use to determine if something will make the required rate of return.

Do(1+g)/price) + g = percentage

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21
Q

Price/Free Cash Flow - Question/Calculation

A

Similar to the dividend discount model, however the dividend is replaced by the free cash flow.

FCF0(1+g)/r-g

what is the maximum price that should be paid for XXX common stock?

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22
Q

DDM shortcut [stock with accelerating or declining growth rates]

A

Shortcut #1: If 1st growth rate is LOWER than 2nd use DDM w/second return only. Then choose next LOWEST number below DDM result.

Shortcut #2: If 1st is HIGHER then 2nd use DDM w/second return only. Then choose next HIGHEST number above DDM result.

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23
Q

Dividend Payout Ratio

A

“of all the money you had to payout, how much did you actually payout?”

COMMON dividend/Earnings per share

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24
Q

Book Value per share

A

Book Value/Shares Outstanding

Will sometimes be used as an extra step to determine Dividend Payout Ratio calculation.

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25
CML (Capital Market Line)
MACRO MACRO MACRO Specifies the relationship between risk and return on the portfolio instead of just one investment. Reveals: Expected return on a fully diversified portfolio
26
Rf
risk free return... 100% T-bills.
27
SML (Security Market Line)
S = SINGLE and portfolio asset valuation. Can be used to value ANY asset. Vertical axis = expected return. Horizontal = Beta ri = rf +(rm - rf) B1
28
Stock Risk Premium
(Erm - rf) B an excess return that investing in the stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk of equity investing.
29
Activity Ratio
Measures how rapidly a firm is able to convert various accounts into cash.
30
Technical Analysis
Charting Support Resistance Sentiment Indicators
31
Fundamental Analysis
Consider economic factors such as rates of inflation and unemployment. GDP.
32
The Dow Theory
Shows direction of overall market.
33
Barron's Confident Index
compares returns on higher vs lesser bonds.
34
Dow Jones
Price-weighted average Most widely quoted and narrow focus
35
S&P 500
Broader measure of NYSE activity.
36
Russell 2000
Popular CAP WEIGHTED index. Covers bottom 8% of Russell 3000
37
Wilshire 5000
BROADEST measure of activity. Value weighted.
38
Value Line
EQUALLY WEIGHTED
39
NASDAQ
Broadest measure of OTC trading. CAP WEIGHTED
40
Stock Split
Makes ownership of stock more affordable. 500 shares/$90 = $750 shares/$60 stock split 3/2. what is 3/2? 1.5. 1.5 * 500 shares = 750 shares PRICE IS RECIPRICOL!! 2/3 = .6667. $90* .6667 = 60
41
Reverse Split
Raises price of outstanding shares
42
Wash Sale
30 days before and after sale of loss you cannot repurchase stock or bond within that time frame. If you purchase within the amount of the original loss sale is added to cost basis of recent purchase.
43
Sharpe Ratio
Ratio of excess return of the portfolio to its Standard Deviation. Used for mutual funds with low R^2
44
Ex-Dividend Date timing
PED = Purchase Date > Ex-Dividend date > Date of record
45
Alpha Ratio (formally Jensen)
Measures the contribution of the portfolio manager. MOST WIDLEY USED BETA!!!! Rp - [Rf + (Rm - Rf) B]
46
Treynor Ratio
Ratio of excess return of the portfolio to its BETA *BETA is the systematic risk of the asset not the market.
47
FUN FACT
Alpha of an S&P 500 fund = 0 Beta of an S&P 500 fund = 1
48
R^2
Square is the square of correlation coefficient. Index funds R^2 is close to 100%. Sector funds will have low R^2. R^2 is greater than 60 = diversified portfolio R^2 is less than 60 = nondiversified portfolio
49
Social Security earned income reduction amounts.
Parttime: $1 from each $2 earned above $21,240. Fulltime: $1 from each $3 earned above $56,520.
50
Provisional Income for the taxation of Social Security
$25K for single $32K for married
51
Pure Life
Highest payout for the beneficiary for his /her lifetime. No benefits for spouse. Also called Pension Maximization or Pension Max application
52
PIA
The "primary insurance amount" (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age.
53
Programs Covered by Social Security Act
OASDI Medicare Fed Unemployment SSI (supplemental security income
54
Fixed Contributions (DB plans)
Money Purchase Plan Target Benefit Plans
55
Employment categories NOT covered by OASDI
Federal employees that are employed before 1984 Americans working abroad. Railroad employees Child under 18 in unincorporated business Ministers Members of tribal council some state employees and teachers
56
FLEXible Contributions (Defined Contribution plans)
Profit Sharing Plans Stock Bonus Plan
57
Defined Contribution Plans
Vesting schedule/admin costs/ exempt from creditor/integrated with social security. Money Purchase Pension Target Benefit Pension Profit Share Plan Stok Bonus Plan
58
Pension Plans
Defined Benefit Pension Cash Balance Pension Money-Purchase Pension Target Benefit Pension SPOUSE DETERMINES BENEFICIARY
59
What type of entity cannot do an ESOP?
Sole Proprietor or Partnership
60
When can you pull money penalty fee.
55 - Qualified plans and 403B + separate from service 59 1/2 - IRA
61
Benefits of a qualified plan
Contributions to the plan are tax deductible to the business. Contributions are not currently taxable to the participants. Contributions made on behalf of employees can be paid with dollars that would have otherwise been spent on taxes. Earnings on contributions grow tax deferred. Qualified plans are protected from creditors. Provides a valuable benefit to employees and helps to attract and retain employees. Taxation of benefits are deferred until taken in the future.
62
SEPTA-N
Profit Sharing Plans (7): 401K Stock Bonus Plan Employee Stock Plan Profit Sharing Plan Thrift Plan Age-Based PSP New Compatibility
63
Highly Compensated Employee (HC)
A more than 5% owner at anytime during the plan year OR proceeding year. Current year: Employee with compensation in excess of $150K. Prior Year: An employee with compensation in excess of $135K.
64
Qualified Plans (To void 10% penalty)
MESS AT DQ Medical Expenses, Equal periodic Payments, Separation from Service, Age, Tax levies, Death/Disability and QDRO
65
IRA (To avoid 10% penalty)
HIDE ME Home purchase, Health Insurance, Death and disability, Education, Medical expenses, Equal periodic payments... AGE
66
Profit Sharing Plan that favors Savers and Young Persons
401K and Thrift Plans
67
Profit Sharing Plan that favor highly compensated young persons
Profit Sharing Plans
68
Profit Sharing Plan that favors Highly compensated and long length of service
Stock Bonus Plan and ESOP
69
Profit Sharing Plan that favors older highly compensated
Age-Based Profit Sharing Plan
70
Profit Sharing Plan that favors owners
New Comparability Plan
71
Mandatory Funding Plans
Pension Plans - Defined Benefit, Cash Balance Plan, Money Purchase Plan, Target Benefit
72
Less Expensive Plans
Cash Balance and Money Purchase Plan
73
Self-employment contribution calculation
Calculate the self-employed individual’s contribution as: Contribution Rate / (1 + Contribution Rate) = Self-employed contribution rate Calculate self-employment tax as: Net Self-Employment Income x 92.35% = Net Earnings Subject to Self-Employment Tax x 12.4% up to $160,200 + 2.9% on all income = Self-Employment Tax o Calculate the self-employed individual’s contribution: Net Self-Employment Income - 1/2 Self-Employment Tax = Adjusted Net Self-Employment Earnings x Self-employed Contribution Rate = Self-Employed Individual’s Plan Contribution
74
Disclaimer Clause
Must disclaim within 9 mos of the date of death. Disclaim must be in writing.

Shawna's Mnemonics (3 decks)

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