Equity Investments Flashcards
What are the main functions of the finanicla system?
How does FS facilitate transfers?
Explain the discovery function?
Explain the function of efficient allocation of capital, and what the three functions all need
Describe the two types of assets and the different basis for market classification
Describe the types of equity claims
Types of contracts
What are the 5 types of securities?
1) Securities - fixed-Income (Debt)
Notes Bonds Bills CDs Repos MM
② Equities
2) Currencies
- monies issued by national monetary authorities
- trade in foreign currency market (24 hrs./day)
3) Contracts - an agreement between 2 parties to do
something in the future
- value depends on the value of its underlying
3) Contracts - may be cash settled or require
physical delivery
(4) Commodities - precious/industrial metals,
energy, agriculture, et
5: real assets , direct investing, properties, factories, equipment
What are intermediaries and the first type?
Last 6 types of intermediaries
Describe the types of positions
Trading on margin/ levered positions
Trading on margin/ levered positions
Margin call formula
Describe the types of execution instructions
Describe exposure, validity and clearing instructions
Difference between primary and secondary equity market
A well function system helps ……, has which features? and needs intermediaries who ……
A financial system that is ……. is characterised by securities/assets that have….. which leads to an economy that is…….
A financial system that is
Operationally efficient
is characterized by securities/assets that
have
Informationally efficient prices
which leads to an economy that is
Allocationally efficient
Describe the role of regulation
What is the order precedence?
price precedence - best bid & best ask
display precedence - displayed over hidden at same price
time precedence - first over others w/ same price and display
What are market indexes and their uses
Single period return for an index and with income
Income is added to numerator
What are the five parts of index construction?
What are the four different types of weighting?
Price weighting: stocks with the highest
price will have the greatest impact on the
return of the index
Stock i weighting = price (i)*(1/n (stocks in index))
Equal weighting: every stock has the same weight
Market cap weighting: Weighting is by how much of the index total market cap is represented by each stock
Fundamental weighting: weighted by some other measure like book value, revenues, earnings trys to overcome market-cap disadvantages.
Explain rebalancing and reconstitution for indexes
What are the uses for security market indexes
What are the four types of equity indexes
Describe the types of fixed income indexes and what they can be categorised as
can be categorized as
· Aggregate or broad market indicies
· Market sector indicies
· Style indicies
· Economic sector indicies
· Specialized indicies (e.g. high-yield, inflation-linked,
emerging market)
Describe the types of alternative investment indexes
Price return formula for price-weighted and market cap-weighted index
Price weighted: (Starting total price - ending price)/starting
Market cap weighted: (Starting total market cap - ending total market cap)/starting total market cap
For total income just add dividend proceeds to numerator
What is market efficiency, price efficiency and information efficiency
Difference between intrinsic and market value
Describe the impediments in efficient and non-efficient markets
What are the forms of market efficiency
What are the assertions of those that believe in the semi-strong form EMH
What are the assertions of those that believe in the strong form EMH
What are the assertions of the those that believe in weak EMH
What are the implications of the different forms of EMH
Describe the time-series calendar anomalies
Describe the momentum and overreaction TS anomalies and cross-sectional anomalies
What is behavioural finance and loss aversion
Describe herding, information cascades and Overconfidence
Properties of common shares
Classes within common shares and callable and putable definition
Properties of preference shares
Preference shares: Cumulative, non-cumulative and Participating
PS: Non-participating, convertible, forced conversion
Public vs Private equity
Types of private investment
3) Private investments in Public entity:
Usually in form of preferred or restricted stock usually at a discount
Advantages of private equity
Non-domestic equity, why do companies do it? and restrictions
Benefits of dual listings
Describe the direct investing method for foreign equity
Describe Depository reciepts
Sponsored and unsponsored depository reciepts
What are global DR and US DR, describe global registered shares
Risk and return sources
Comparison of risk between equity types
Why do companies issue equity
What is accounting return on equity
What is ROE, Intrinsic value and Cost of equity
Explain the differnces in levels of ADRS with regard to rasing equity
Use of industry analysis
Methods of grouping companies: Product/service, cycle sensitivity (cyclical and non-cyclical)
Describe growth cyclical, and defensive and growth companies
Describe the grouping by statistical similarity method
Explain peer group analysis
➞ companies with limited lines of business can
be categorized easily
➞ companies with multiple divisions may be included in
more than 1 category
Summarise the relationship between external and internal factors and porters 5 forces
Explain the effect of barriers to entry
Describe the effect of industry concentration
Describe the effect of industry capacity
Describe the effect of market share stability and price competition
What is the embryonic stage of life cycle model
What are the growth, shakeout and maturity stages of life cycle model and decline
Maturity: focus on incremental innovations, industry at
risk from radical innovation (usually from outside)
Decline: negative growth, excess capacity, price competition, industry exit
- technological substitution, social changes, global comp
What are the limiations of the life cycle model
Describe Macroeconomic, technological and demographic risk influences
Describe government, social and environmental risk influences
What are the main components of company analysis and the three types competitive strategy
Company analysis elements
What are the 11 business classifications and the types of companies in them
What would be in the corporate profile of a company
Explain intrinsic value versus market value
What are the 3 major valuation models
Describe a dividend and stock dividend
Explain stock splits/reverse stock splits and share repurchases and the reason for doing them
what is the chronology of a dividend payment
Dividend discount model
Gordon growth model formula and how to get g?
g = div. growth rate
b = earnings retention rate
(1 - DPR)
ROE = return on equity
g = b x ROE
What are the assumptions and alternatives for the GGM?
What is the multi stage DDM?
Multi-stage ddm examle
Appropriateness of dividend models
What are price multiples?
What are the four common price multiples
What is the justifed P/E ratio?
What is comparable company multiple analysis ?
What are EV multiples?
