Equity Investments

Question 1

What are the main functions of the finanicla system?

Answer 1

Question 2

How does FS facilitate transfers?

Answer 2

Question 3

Explain the discovery function?

Answer 3

Question 4

Explain the function of efficient allocation of capital, and what the three functions all need

Answer 4

Question 5

Describe the two types of assets and the different basis for market classification

Answer 5

Question 6

Describe the types of equity claims

Answer 6

Question 7

Types of contracts

Answer 7

Question 8

What are the 5 types of securities?

Answer 8

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

Question 9

What are intermediaries and the first type?

Answer 9

Question 10

Last 6 types of intermediaries

Answer 10

Question 11

Describe the types of positions

Answer 11

Question 12

Trading on margin/ levered positions

Answer 12

Question 12

Trading on margin/ levered positions

Answer 12

Question 13

Margin call formula

Answer 13

Question 14

Describe the types of execution instructions

Answer 14

Question 15

Describe exposure, validity and clearing instructions

Answer 15

Question 16

Difference between primary and secondary equity market

Answer 16

Question 17

A well function system helps ……, has which features? and needs intermediaries who ……

Answer 17

Question 18

A financial system that is ……. is characterised by securities/assets that have….. which leads to an economy that is…….

Answer 18

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

Question 19

Describe the role of regulation

Answer 19

Question 20

What is the order precedence?

Answer 20

price precedence - best bid & best ask
display precedence - displayed over hidden at same price
time precedence - first over others w/ same price and display

Question 21

What are market indexes and their uses

Answer 21

Question 22

Single period return for an index and with income

Answer 22

Income is added to numerator

Question 23

What are the five parts of index construction?

Answer 23

Question 24

What are the four different types of weighting?

Answer 24

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.

Question 25

Explain rebalancing and reconstitution for indexes

Answer 25

Question 26

What are the uses for security market indexes

Answer 26

Question 27

What are the four types of equity indexes

Answer 27

Question 28

Describe the types of fixed income indexes and what they can be categorised as

Answer 28

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)

Question 29

Describe the types of alternative investment indexes

Answer 29

Question 30

Price return formula for price-weighted and market cap-weighted index

Answer 30

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

Question 31

What is market efficiency, price efficiency and information efficiency

Answer 31

Question 32

Difference between intrinsic and market value

Answer 32

Question 33

Describe the impediments in efficient and non-efficient markets

Answer 33

Question 34

What are the forms of market efficiency

Answer 34

Question 35

What are the assertions of those that believe in the semi-strong form EMH

Answer 35

Question 36

What are the assertions of those that believe in the strong form EMH

Answer 36

Question 37

What are the assertions of the those that believe in weak EMH

Answer 37

Question 38

What are the implications of the different forms of EMH

Answer 38

Question 39

Describe the time-series calendar anomalies

Answer 39

Question 40

Describe the momentum and overreaction TS anomalies and cross-sectional anomalies

Answer 40

Question 41

What is behavioural finance and loss aversion

Answer 41

Question 42

Describe herding, information cascades and Overconfidence

Answer 42

Question 43

Properties of common shares

Answer 43

Question 44

Classes within common shares and callable and putable definition

Answer 44

Question 45

Properties of preference shares

Answer 45

Question 46

Preference shares: Cumulative, non-cumulative and Participating

Answer 46

Question 47

PS: Non-participating, convertible, forced conversion

Answer 47

Question 48

Public vs Private equity

Answer 48

Question 49

Types of private investment

Answer 49

3) Private investments in Public entity: Usually in form of preferred or restricted stock usually at a discount

Question 50

Advantages of private equity

Answer 50

Question 51

Non-domestic equity, why do companies do it? and restrictions

Answer 51

Question 52

Benefits of dual listings

Answer 52

Question 53

Describe the direct investing method for foreign equity

Answer 53

Question 54

Describe Depository reciepts

Answer 54

Question 55

Sponsored and unsponsored depository reciepts

Answer 55

Question 56

What are global DR and US DR, describe global registered shares

Answer 56

Question 57

Risk and return sources

Answer 57

Question 58

Comparison of risk between equity types

Answer 58

Question 59

Why do companies issue equity

Answer 59

Question 60

What is accounting return on equity

Answer 60

Question 61

What is ROE, Intrinsic value and Cost of equity

Answer 61

Question 62

Explain the differnces in levels of ADRS with regard to rasing equity

Answer 62

Question 63

Use of industry analysis

Answer 63

Question 64

Methods of grouping companies: Product/service, cycle sensitivity (cyclical and non-cyclical)

Answer 64

Question 65

Describe growth cyclical, and defensive and growth companies

Answer 65

Question 66

Describe the grouping by statistical similarity method

Answer 66

Question 67

Explain peer group analysis

Answer 67

➞ companies with limited lines of business can be categorized easily ➞ companies with multiple divisions may be included in more than 1 category

Question 68

Summarise the relationship between external and internal factors and porters 5 forces

Answer 68

Question 69

Explain the effect of barriers to entry

Answer 69

Question 70

Describe the effect of industry concentration

Answer 70

Question 71

Describe the effect of industry capacity

Answer 71

Question 72

Describe the effect of market share stability and price competition

Answer 72

Question 73

What is the embryonic stage of life cycle model

Answer 73

Question 74

What are the growth, shakeout and maturity stages of life cycle model and decline

Answer 74

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

Question 75

What are the limiations of the life cycle model

Answer 75

Question 76

Describe Macroeconomic, technological and demographic risk influences

Answer 76

Question 77

Describe government, social and environmental risk influences

Answer 77

Question 78

What are the main components of company analysis and the three types competitive strategy

Answer 78

Question 79

Company analysis elements

Answer 79

Question 80

What are the 11 business classifications and the types of companies in them

Answer 80

Question 81

What would be in the corporate profile of a company

Answer 81

Question 82

Explain intrinsic value versus market value

Answer 82

Question 83

What are the 3 major valuation models

Answer 83

Question 84

Describe a dividend and stock dividend

Answer 84

Question 85

Explain stock splits/reverse stock splits and share repurchases and the reason for doing them

Answer 85

Question 86

what is the chronology of a dividend payment

Answer 86

Question 87

Dividend discount model

Answer 87

Question 88

Gordon growth model formula and how to get g?

Answer 88

g = div. growth rate b = earnings retention rate (1 - DPR) ROE = return on equity g = b x ROE

Question 89

What are the assumptions and alternatives for the GGM?

Answer 89

Question 90

What is the multi stage DDM?

Question 91

Multi-stage ddm examle

Answer 91

Question 92

Appropriateness of dividend models

Answer 92

Question 93

What are price multiples?

Answer 93

Question 94

What are the four common price multiples

Answer 94

Question 95

What is the justifed P/E ratio?

Answer 95

Question 96

What is comparable company multiple analysis ?

Answer 96

Question 97

What are EV multiples?

Answer 97