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CFA II > FA and Equity > Flashcards

FA and Equity Flashcards

1
Q

Out of equity method, proprotionate consolidation and acquisition method which has the higher Net Profit Margin, ROE and ROA

A

Equity method for all and proportionate consolidation and Equity for ROE. Proportionate is between for all others

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2
Q

Using the current rate method, when is the value of the net assets and net liabilities gaining

A

The net assets gain when the local currency appreciates and the net liabilities when the currency is depreciating

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3
Q

Using the temporal rate method, when is the value of the net monetary assets and net monetary liabilities gaining?

A

The net monetary assets gain when the local currency appreciates, and net monetary liabilities when the currency depreciates

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4
Q

How are monetary assets and liabilities measured using the temporal method?

A

Temporal method - current rate

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5
Q

How are monetary assets and liabilities measured using the current rate method?

A

Current Rate method - current rate

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6
Q

How are nonmonetary assets and liabilities measured using the temporal method?

A

Temporal method - historical rate

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7
Q

How are nonmonetary assets and liabilities measured using the current rate method?

A

Current Rate method - current rate

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8
Q

How is common stock measured using the temporal method?

A

Temporal method - historical rate

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9
Q

How is common stock measured using the current rate method?

A

Current Rate method - historical rate

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10
Q

How is equity measured using the temporal method?

A

Temporal method - Mix (average and historical)

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11
Q

How are Revenues and SG&A measured using the temporal method?

A

Temporal method - Average Rate

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12
Q

How is the cost of goods sold measured using the temporal method?

A

Temporal method - Historical Rate

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13
Q

How are depreciation and amortization measured using the temporal method?

A

Temporal method - Historical Rate

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14
Q

How is net income measured using the temporal method?

A

Temporal method - Mixed rate (average and historical rate) - based on previous values in income statement

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15
Q

Where is exchange rate gain or loss measured using the temporal method?

A

Temporal method - Income Statement

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16
Q

Where is exposure measured using the temporal method?

A

Temporal method - Net Monetary assets

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17
Q

How is equity measured using the current rate method?

A

Current Rate method - current rate

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18
Q

How are Revenues and SG&A measured using the current rate method?

A

Current Rate method - Average Rate

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19
Q

How is the cost of goods sold measured using the current rate method?

A

Current Rate method - Average Rate

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20
Q

How are depreciation and amortization measured using the current rate method?

A

Current Rate method - Average Rate

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21
Q

How is net income measured using the current rate method?

A

Current Rate method - Average Rate

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22
Q

Where is exchange rate gain or loss measured using the current rate method?

A

Current Rate method - Equity

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23
Q

Where is exposure measured using the current rate method?

A

Current Rate method - Net Assets

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24
Q

What is the FCFE coverage ratio

A

FCFE / (dividends + share repurchase)

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25
Q

What is the formula for FCFE from CFO

A

CFO - FCInv + net borrowing

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26
Q

What is the gordon growth model?

A

D1/V0 + g

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27
Q

What is Equity Return Premium (ERP) using dividend yield?

A

ERP = E(dividend yield) + g - rf

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28
Q

What is Grinold-Kroner model

A

It is used to express the expected market equity return = [DY + changeP/E + expected inflation + real economic growth rate - change shares outstanding] - rf

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29
Q

What is the Dividend Discount Model (DDM) that starts with re

A

re = DY + CGY

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30
Q

What is the expanded CAPM for private companies

A

Required return = rf + Bpeer x ERP + Size Premium + Firm Specific Premium

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31
Q

What are PBO Components rather how do you get from Opening PBO to Closing PBO?

A

Opening PBO
+ Service Cost
+ Interest Cost
+/- Actuarial (gains) or losses
+/- Past Service Costs
- Benefits Paid
= Closing PBO

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32
Q

What is the Gordon Growth Model

A

V0 = D0 x (1+g)/(r-g) or D1/(r-g)

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33
Q

What is the PV of Growth Opportunities

A

P0 = E1/r + PVGO

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34
Q

What is the H-model?

A

V0 = [(D0 x (1+gL))/(r-gl)] + (D0 x H x (gs-gl))/(r-gl)

where H is the transition period/2

where gl is low growth

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35
Q

What is the plain wording of basic ROE?

A

ROE = (net profit margin) x (asset turnover) x (equity multiplier)

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36
Q

What is FCFF with NI

A

NI + NCC + [int(1-t)] - WCinv - FCinv

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37
Q

What is FCFF with CFO

A

CFO + [int(1-t)] - FCinv

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38
Q

What is FCFF for EBIT

A

FCFF = [EBIT(1-t)} + NCC - WCinv - FCinv

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39
Q

What is the FCFE for NI

A

NI + NCC - WCinv - FCinv + net borrowings

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40
Q

What is FCFE for CFO

A

CFO - FCinv + net borrowings

41
Q

What is the justified P/B ratio

A

P0/B0 = (ROE-g)/(r-g)

42
Q

What is the justified P/S0 ratio

A

Justified P/S = ((E/S) x (1-b)(1+g))/(r-g)

43
Q

What is the justified dividend yield D0/P0

A

D0/P0 = (r-g)/(1+g)

44
Q

For RI what is the PVGo model

A

P = EPSt/r + PVGO

45
Q

What is the formula for the Intrinsic value of multistage residual income in layman terms?

A

V0 = B0 + (PV high-growth RI) + PV cont. RI

46
Q

What is justified leading P/E

A

(1 - b)/(r - g)

47
Q

What is justified trailing P/E

A

(1 - b)(1 + g)/(r - g)

48
Q

What is the P/CF ratio?

A

Justified P/CF = (FCFE0 x (1+g))/(r-g)

49
Q

What is the formula for the single stage RI model?

A

V0 = B0 + [(ROE-r)xB0/(r-g)]

50
Q

What is the breakdown of EVA breaking down NOPAT?

A

[EBIT x (1 - t)] - $WACC (dollar cost of capital) (Total Capital (LTD and SH Equity)

51
Q

What is the formula for the Intrinsic value of multistage residual income in layman terms?

A

V0 = B0 + (PV high-growth RI) + PV cont. RI

52
Q

How do you calculate the PV of cont RI

A

RIT/1+r-w where w is the persistence factor

53
Q

What is the total discount value using DLOC and DLOM?

A

1 - [(1-DLOC)(1-DLOM)]

54
Q

What is the formula for PEG are we looking for with PEGs

A

PEG ratio = (P/E)/g

Stocks with lower PEGs are more attractive than stocks with higher PEGs

55
Q

What is the formula for NI goodwill?

A

NI - Prorata Income of BV - prorata excess allocated to PPE

56
Q

How do you find CVA for bond with Probability of Default and LGD

A

Multiply them together then by the discount factor and you will then add them up

57
Q

What are PBO Components rather how do you get from Opening PBO to Closing PBO?

A

Opening PBO
+ Service Cost
+ Interest Cost
- Actuarial gains
+ Acturial losses
+ Past Service Costs
- Benefits Paid
= Closing PBO

58
Q

What is the formula for the ending fair value of the plan?

A

The ending fair value of plan assets
= beginning fair value + contributions + actual return – benefits paid

59
Q

What is book value?

A

Common Shares + Retained Earnings or total Equity

60
Q

How do you forecast BVPS

A

BVPSt + E1 - D1

61
Q

What is Market Value of Assets?

A

MVA = (market value of equity + market value of debt) - (Long-term debt + Common shares + Retained Earnings)

62
Q

What is value of firm from FCFF

A

FCFF1/(WACC-g)

63
Q

What is value of firm from FCFE

A

FCFE1/(r-g)

64
Q

What is the value of private firm using EBIT and WACC?

A

EBIT1(1-T)(1-b)/WACC-g

65
Q

How do you calculate the FFO

A

NOI
+ depreciation, amortization, impairments, and write-downs
- Gains from sales of property
+ Losses from sales of property = FFO

66
Q

What is AFFO

A

FFO (funds from operations)
- Non-cash (straight-line) rent adjustment
- Recurring maintenance-type capital expenditures and leasing commissions
= AFFO

67
Q

What is R2?

A

SST-SSE/SST or RSS/SST

68
Q

Adjusted R2

A

1- [((n-1)/(n-k-1)) x (1-R2)]

69
Q

What is the F statsitic

A

(SSER - SSEu)/q / (SSEu)/(n - k - 1) with q and (n-k-1) degrees of freedom q = number of excluded variables in the restricted model and k = independent variables in the full model

70
Q

What happens when monetary and fiscal policy are both expansionary and both restrictive in high and low capital mobility environments?

A

In EE and RR with high capital mobility it is uncertain and for low ee will lead to depreciation and rr will lead to appreciation

71
Q

What is the formula for full goodwill considering percent owned?

A

Full goodwill = (purchase price / % owned) - (fair value of net identifiable assets of the subsidiary)

72
Q

What is the accruals ratio with NI?

A

(NI - CFO - CFI)/ (NOAend + NOAbeg)/2

73
Q

What is the expanded CAPM for private companies

A

Required return = rf + Bpeer x ERP + Size Premium + Firm Specific Premium

74
Q

What is the neoclassical growth theory?

A

Sustainable growth rate is a function of
population growth, labor’s share of income, and the rate of technological advancement.
* Growth rate in labor productivity driven only by improvement in technology.
* Assumes diminishing returns to capital.

75
Q

what is the underwriting ratio

A

[(claims + change of loss reserves) + cost of investigating claims]/net premium earned

76
Q

What are the two values in the beneish model that are negative

A

SGAI -Sales general and administrative expense over sales
LEVI - Leverage index (total debt/total assets)

77
Q

What are the rationales for share repurchases?

A
  1. Tax advantage to shareholders
  2. Signal to shareholders
  3. Added flexibility
  4. Offsetting Dilution
  5. Increase leverage
78
Q

What is the formula for FCInv

A

end net PPE - beg. net PPE + depreciation +/- loss/(gain) on sale

79
Q

How do we unleaver a beta?

A

Bpublic / [1 + (1-t)(D/E)]

80
Q

What is the market conversion price

A

Market price of convertible bond/conversion ratio

81
Q

What is the VT of the long position of the dividend-paying stock using PVD

A

[St - PVDt] - [FP/(1+Rf)^(T-t)]

82
Q

What is the Forward Price of an equity security

A

(Spot Price - Present Value of Expected Dividends) x (1 + Rf)^T
[S0 x (1+Rf)^T] - FVD

83
Q

What is the formula for the black scholes model for calls?

A

S0e^(gT)N(d1) - e^(-rT)XN(d2)

84
Q

What is the formula for the black scholes model for puts?

A

e^(-rT)XN(-d2) - S0e^(-gT)N(-d1)

85
Q

What is the formula for futures price from spot price?

A

Spot price + Storage costs - Convenience Yield

86
Q

What is the optimal active risk?

A

std devA = (IR/SRb)std devb

87
Q

The Sharpe ratio of portfolio with optimal level of active risk is?

A

SRp = sqr rt(SRB^2+IR^2)

88
Q

What is the total risk of the portfolio or std devp?

A

std devp^2 = std devB^2 + std devA^2

89
Q

What is the IR and value of a constrained portfolio?

A

IR = TC IC sqr rt(BR)
E(RA) = TC IC sqr rt(BR)std devA

90
Q

What is the optimal level of active risk using TC?

A

std CA = TC (IR/SRB) std devB

91
Q

What are the equilibrium term structure models?

A
  1. The Vasicek Model
  2. The Cox-Ingersoll-Ross Model
    These are both single-factor models
92
Q

General formula for value added of active return? hint add

A

Sum (change of weights x Expected Benchmark return) + Sum (Portfolio Weights x Active return within asset classes)

First part is for active return from asset allocation and then second part is active return from stock selection

93
Q

What is the formula for the optimal aggressiveness from total risk?

A

IR/SR x Total Risk

94
Q

What is the IC for an active management

A

IC = 2 (% correct) - 1

95
Q

What is the SR for an active constrained portfolio?

A

SRp^2 = SRB^2 + (TC)^2 (IR)^2

96
Q

What is the upfront payment for a protection buyer for a CDS?

A

= (CDS spread − CDS coupon) × duration × notional principal

97
Q

What is the difference between Breusch Pagan and Breusch Godfrey stats?

A

BP - heteroskedasticity tet
BG - for AR models and tests for serial correlation

98
Q

What is the formula for MSE

A

SSE/n - k - 1

99
Q

What is the Futures Price formula for bonds?

A

(1/Conversion Factor)[(Clean price + AI0)x(1+Rf)^T - AIC - FVC]

CFA II (2 decks)

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