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Financial Economics > Experience > Flashcards

Experience Flashcards

1
Q

What is the worth of a perpetuity right before the payment

A

The payment plus the payment divided by the interest rate

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2
Q

What is the worth of a growing perpetuity right after a payment

A

One plus the growth rate times the cashflow divided by the interest minus the growth

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3
Q

How do you transform an annuity to a growing annuity formula

A

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

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4
Q

When do ear and apr take place

A

Always annually

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5
Q

What is the formula for the value of repeated savings

A

C/r) * ((1+r)^n -1) = fv of repeated savings

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6
Q

What is the monthly discount rate

A

APR/12

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7
Q

Why does the yield curve invert when we come out of a recession

A

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.

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8
Q

What is ytm in bonds

A

Yield to maturity including both coupons and face value

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9
Q

When is a bond par discount or premium

A

Discount if ytm is higher than coupon rate, premium if ytm is lower than coupon and par if it is tye same

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10
Q

How can you tell if CAPM holds if you know the sharp ratio of the market and another portfolio

A

The market portfolio should have the highest sharp ratio

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11
Q

How do yo calculate beta if you know the standard deviation and correlation of the market and a portfolio

A

Cor*sd/sdm = b

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12
Q

How should you calculate the weight of a short position

A

Negative money in short divided by the worth of the other assets subtracted by the short worth

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13
Q

What is the standard deviation aka volatility of a portfolio of an asset and a risk free asset

A

The weight times the standard deviation of the asset

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14
Q

What is the expected return if a portfolio if one asset and a risk free asset

A

rf+x*(ri-rf) x being the weight of the non risk free asset

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15
Q

How do you calculate the sharp ratio

A

Return rate subtracted by the risk free rate divided by the standard deviation of the asset

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16
Q

How do you calculate correlation using the sharp ratio

A

Correlation equals the sharp ratio divided by the larger sharp ratio

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17
Q

How do you calculate price when immediate dividends are known and are then expected to grow at a constant rate

A

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

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18
Q

How do you calculate compound annual growth rate

A

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

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19
Q

What is capm

A

ri=rf+b(rm-rf)

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20
Q

What is the market premium

A

Rm -rf

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21
Q

What is the portfolio standard deviation if there are two assets in a portfolio

A

(x^2sdx^2 + y^2sdy + 2xy*cov)^1/2

Cov = sdxsdycor

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22
Q

If a graph of portfolio ratios looks like a sideways mountain where is it most efficient

A

At the side summit

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23
Q

How do you calculate ytm if you know price maturity and the coupon payment

A

Trial and error. You type different ytms in the annuity plus present face value formula untill the result is your price

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24
Q

What makes a bond more sensitive to changes in ytm

A

If the maturity is long or the coupons are small

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25
Q

What is the formula for a growing annuity

A

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

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26
Q

How do you calculate the coupon ig you know the rate, the annual payments and the face value

A

Rate times FV / annual payments

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27
Q

Is there a coupon payed along the face value

A

Yes

28
Q

What is the price of a zero coupon bond

A

The present value if the face value using ytm as opportunity cost

29
Q

How should you calculate the price of a bond if the ytm differs year to year

A

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

30
Q

What is the essence of the separation principle

A

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

31
Q

Do investors normally demand a premium for unsystematic risk

A

No because it can be diversified away

32
Q

What is the present value of a growing annuity after the first payment

A

The annuity payment times the growth rate for the remaining period. Multiply C by growth r and subtract one from n

33
Q

What is the price if a bond immediately before a coupon

A

The coupon plus the present value of the bonds remaining time

34
Q

What is a special name for interest return rate for bonds

A

Yield to maturity

35
Q

What is the price if a stick when you know future price and dividend

A

The present value of the price and dividend

36
Q

What are discount loans

A

Bank loans from fed as a source of funds

37
Q

Name a non transaction deposit that used to be popular

A

Savings accounts

38
Q

What do banks do in balance sheet lingo

A

Sell liabilities to buy assets

39
Q

Is lending and borrowing an off sheet activeity for banks

A

No but lone sales are

40
Q

Are private placements more common for bonds or stocks

A

More common for bonds

41
Q

What role does IBs have in private placements

A

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

42
Q

Were vcs more prominent in the 2000s

A

Yea

43
Q

Do investors buy on bid price and sell on ask price

A

No they buy on ask and sell on bid market makers earns the diference

44
Q

Is ask price or bid price the largest

A

Ask price is always larger than bid price

45
Q

How does the fed lower the fed funds rate

A

By buying securities so banks can lend more overnight

46
Q

Does the principle amount to compute interest varry with consumer price index in inflation indexed bonds

A

No

47
Q

If the ymt is higher than the coupon is it a discount or premium bond

A

It is discount

48
Q

What is excess return

A

Return in excess of risk free raturn

49
Q

Do investors care about systematic risk

A

Yes

50
Q

How many times are corporations taxed

A

Twice

51
Q

How can an activist investor motivate management

A

Through a hostile takeover

52
Q

Are stock markets less fragmented than they used to be

A

No

53
Q

Can stocks be traded in more markets than they are listed

A

Yes

54
Q

Is there an official market nowadays

A

No, limited order book and dark pools are more common

55
Q

Does the us treasury ever sell securities on the money market

A

No

56
Q

Which is thr most influential actor on tye money morkey

A

The federal reserve

57
Q

What are repos in the banking world

A

Low risk low interest loans backed up with t bills as collateral

58
Q

What is the difference between capital market securities and money market securities

A

Capital market securities have longer maturity

59
Q

Is yield in aaa binds always higher than bbb

A

Yes

60
Q

What is a call provision

A

A buyback of a bond

61
Q

What are debentures

A

Risky loans inly backed up by the trustworthiness of the borrower

62
Q

What is preferred stock

A

Stock that approximates bonds

63
Q

Can a high pe mean something good

A

Yes it can mean that the market has high confidence in future returns

64
Q

Name a checkable deposit

A

Money market deposit account and negotiable withdrawal avcounts

65
Q

What is a seasoned issue IPO

A

When a firm already has public stocks but issues new ones with an IB

Financial Economics (14 decks)

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