Experience Flashcards
What is the worth of a perpetuity right before the payment
The payment plus the payment divided by the interest rate
What is the worth of a growing perpetuity right after a payment
One plus the growth rate times the cashflow divided by the interest minus the growth
How do you transform an annuity to a growing annuity formula
You subtract the growth rate from the interest rate in the beginning and add it to the one in the division top. Than you move the exponent from the lower divider to exponentiate the entire division
When do ear and apr take place
Always annually
What is the formula for the value of repeated savings
C/r) * ((1+r)^n -1) = fv of repeated savings
What is the monthly discount rate
APR/12
Why does the yield curve invert when we come out of a recession
It does not, when people have hope for the close future they buy more short term bonds making the yield curve have its normal shape where longer maturity is compensated.
What is ytm in bonds
Yield to maturity including both coupons and face value
When is a bond par discount or premium
Discount if ytm is higher than coupon rate, premium if ytm is lower than coupon and par if it is tye same
How can you tell if CAPM holds if you know the sharp ratio of the market and another portfolio
The market portfolio should have the highest sharp ratio
How do yo calculate beta if you know the standard deviation and correlation of the market and a portfolio
Cor*sd/sdm = b
How should you calculate the weight of a short position
Negative money in short divided by the worth of the other assets subtracted by the short worth
What is the standard deviation aka volatility of a portfolio of an asset and a risk free asset
The weight times the standard deviation of the asset
What is the expected return if a portfolio if one asset and a risk free asset
rf+x*(ri-rf) x being the weight of the non risk free asset
How do you calculate the sharp ratio
Return rate subtracted by the risk free rate divided by the standard deviation of the asset
How do you calculate correlation using the sharp ratio
Correlation equals the sharp ratio divided by the larger sharp ratio
How do you calculate price when immediate dividends are known and are then expected to grow at a constant rate
You calculate the present value of the known dividends and then add the present value of a growing perpetuity that begins a period after the last known dividend
How do you calculate compound annual growth rate
You divide the value in the future by the value at present and exponentiate it all by one divided by the time periods and lastly subtract by one
What is capm
ri=rf+b(rm-rf)
What is the market premium
Rm -rf
What is the portfolio standard deviation if there are two assets in a portfolio
(x^2sdx^2 + y^2sdy + 2xy*cov)^1/2
Cov = sdxsdycor
If a graph of portfolio ratios looks like a sideways mountain where is it most efficient
At the side summit
How do you calculate ytm if you know price maturity and the coupon payment
Trial and error. You type different ytms in the annuity plus present face value formula untill the result is your price
What makes a bond more sensitive to changes in ytm
If the maturity is long or the coupons are small
What is the formula for a growing annuity
A normal annuity but plus g under the first division and on top of the second and move the exponentiation out so it encapsulates the entire division
How do you calculate the coupon ig you know the rate, the annual payments and the face value
Rate times FV / annual payments
Is there a coupon payed along the face value
Yes
What is the price of a zero coupon bond
The present value if the face value using ytm as opportunity cost
How should you calculate the price of a bond if the ytm differs year to year
The you cannot use the annuity formula so you dimply have to add the present value of the coupons and the face value using the ytm you got ad opportunity cost. If you need the ytm of the new bond you can get it through trial and error when you have the price
What is the essence of the separation principle
That firms cannot gain value by doing what investors can do by themselves aka a firm does not gain value by saving money in a risk free or equity cost investment
Do investors normally demand a premium for unsystematic risk
No because it can be diversified away
What is the present value of a growing annuity after the first payment
The annuity payment times the growth rate for the remaining period. Multiply C by growth r and subtract one from n
What is the price if a bond immediately before a coupon
The coupon plus the present value of the bonds remaining time
What is a special name for interest return rate for bonds
Yield to maturity
What is the price if a stick when you know future price and dividend
The present value of the price and dividend
What are discount loans
Bank loans from fed as a source of funds
Name a non transaction deposit that used to be popular
Savings accounts
What do banks do in balance sheet lingo
Sell liabilities to buy assets
Is lending and borrowing an off sheet activeity for banks
No but lone sales are
Are private placements more common for bonds or stocks
More common for bonds
What role does IBs have in private placements
They are match makers, facilitators and advisors but don’t need to be involved as the sec demands no paper and the companies stay private
Were vcs more prominent in the 2000s
Yea
Do investors buy on bid price and sell on ask price
No they buy on ask and sell on bid market makers earns the diference
Is ask price or bid price the largest
Ask price is always larger than bid price
How does the fed lower the fed funds rate
By buying securities so banks can lend more overnight
Does the principle amount to compute interest varry with consumer price index in inflation indexed bonds
No
If the ymt is higher than the coupon is it a discount or premium bond
It is discount
What is excess return
Return in excess of risk free raturn
Do investors care about systematic risk
Yes
How many times are corporations taxed
Twice
How can an activist investor motivate management
Through a hostile takeover
Are stock markets less fragmented than they used to be
No
Can stocks be traded in more markets than they are listed
Yes
Is there an official market nowadays
No, limited order book and dark pools are more common
Does the us treasury ever sell securities on the money market
No
Which is thr most influential actor on tye money morkey
The federal reserve
What are repos in the banking world
Low risk low interest loans backed up with t bills as collateral
What is the difference between capital market securities and money market securities
Capital market securities have longer maturity
Is yield in aaa binds always higher than bbb
Yes
What is a call provision
A buyback of a bond
What are debentures
Risky loans inly backed up by the trustworthiness of the borrower
What is preferred stock
Stock that approximates bonds
Can a high pe mean something good
Yes it can mean that the market has high confidence in future returns
Name a checkable deposit
Money market deposit account and negotiable withdrawal avcounts
What is a seasoned issue IPO
When a firm already has public stocks but issues new ones with an IB
