Final Review Flashcards
Final Review
Describe the bank discount yield.
The bank discount yield is equal to face value minus price divided by face value multiplied by 360 over days to maturity.
Describe the effective annual yield or EAY.
The effective annual yield is equal to one plus the holding period yield raised to 365 over days to maturity minus one.
Describe the money market yield
Take the holding period yield and multiply 360 over days to maturity.
Describe how you would calculate a quantile.
Take the number of observations, add one, and multiply by the percentile you are looking for.
Describe Chebyschev’s (pronounced Chevy Chev) inequality.
one minus one over k squared
When a distribution is negatively skewed, the peak is to the ________ (left or right) and the mean is _________ than the median which is ________ than the mode.
right (tail to the left)
less than
less than
A distribution that is Platykurtic, has excess kurtosis that is ________ than 0, and is __________ (more or less?) peaked around the mean
less than
less
What is the addition rule (as it relates to probability)?
The probability of A or B is equal to the probability of A plus the probability of B minus the joint probability of AB.
What is the Multiplication rule (as it relates to probability) for joint and independent events? Unconditional?
Joint: The probability of AB is equal to the probability of A given B multiplied by the probability of B.
Independent: The probability of AB is equal to the probability of A multiplied by the probability of B.
Unconditional is the same as independent, but is additive.
Describe how to calculate portfolio variance.
Variance multiplied by weight squared + 2 multiplied by the weights, standard deviations and correlation.
When order does not matter, which labeling method do you use? (nCr or nPr)?
nCr ‘Combination’
When order does matter what labeling method is used? (nCr o nPr)
nPr ‘Permutation’
What is the difference between nCr and nPr ?
nCr has (n-r)!r! in the denominator vs (n-r)!
Describe the binomial formula.
P(x) = nCr multiplied by p raised to the x multiplied by the one minus p raised to the n minus x.
Describe the formula for calculating Z scores.
hypothesized value minus population mean divided by standard deviation. ( X - mu) / std dev
When the distribution is normal, variance is known, and population is either small or large what test statistic is used?
z
When the distribution is normal, variance is unknown, and population size is either small or large what test statistic is used?
t
When the population is non-normal, variance is known, and the population size is large, what test statistic is used?
z
If the distribution is non-normal, variance is unknown, and population is only large, what test statistic is used?
t
Describe the t statistic.
the test statistic is x bar minus mu not over standard error. OR sample mean reduced by hypothesized mean divided by standard deviation over square root of n
Describe the Chi Squared calculation.
Chi Squared is equal degrees of freedom (n-1) multiplied by sample variance, divided by hypothesized variance
Describe the F test.
Largest variance divided by smaller variance
What makes an equilibrium stable or unstable?
An equilibrium is stable if supply cuts the demand line from above.
Describe how Elasticity of Demand is calculated?
Is the ratio of % change in Q over % change in P.
Describe how the Elasticity of Demand ratio is interpreted for Normal Goods, Inferior Goods, and Luxury Goods.
Normal Goods: > 0
Inferior Goods: < 0
Luxury Goods: > 1
Describe ho the Crossprice Elasticity ratio is interpreted for Substitutes and Complements.
Substitutes: > 0
Complements: < 0
Describe the following abnormal Goods: Veblen & Giffen
Veblen: higher prices increase demand
Giffen: Negative Income effect > positive substitution
What is the difference between accounting profit and economic profit?
Implicit Costs (or equity compensation)
Describe the fundamental equation. S is equal to …..
S = I + (G-T) + (X-M)
*Savings are either funded from the deficit or a trade surplus.
What are the components of Economic Growth?
= Growth in Total Factor Productivity + Growth in Capital + Growth in Labor
Describe Growth in per capita potential GDP.
=Growth in Technology + Growth in Capital to Labor ratio
Describe the three different CPI Indexes Laspeyres, Paasche, and Chained.
Laspeyres: basket wt. from a base period
Paasche: basket wt from current period
Chained: geometric mean of two
Describe the fiscal multiplier.
The fiscal multiplier is one over 1 minus MPC times one minus the tax rate.
How would you calculate the real exchange rate?
Nominal (d/f) x CPI foreign / CPI Domestic
Describe how you would find the no-arbitrage forward exchange rate.
Forward (a/b) / spot (a/b) = ia / ib
Describe the process for finding the breakeven production quantity.
The breakeven quantity is when your contribution margin covers your fixed costs. BEQ = FC / (ASP - VC)
Describe the winners and losers of tariffs.
Winners: domestic producers & governments
Losers: Domestic consumers
How is inventory reported under IFRS?
- Lower of cost or NRV
2. Can write down or up (only to cost)
How is inventory reported under GAPP?
- Lower of cost or market (replacement cost)
2. Can write down but not up
Describe Degree of Operating Leverage.
DOL = % chg EBIT / % chg Sales OR
Sales - Var Cost) / (Sales - Var Coast - Fixed
Describe the Degree of Financial Leverage
DFL = % chg Net Income / % chg operating income OR (Sales - Var Cost - Fixed) / Sales - Var Cost - Fixed - Interest
Describe the Degree of Total Leverage
DTL = DOL x DFL OR % chg Net Income / % chg number of units sold OR (Sales - Var Cost) / (Sales - Var Cost - Fixed - Interest)
Describe the kinked demand model applicable to oligopolies.
Competitors will match a price below but not above. Thus, the demand curve is more elastic above and less elastic below.
Describe the LIFO conformity rule under US GAAP and what it means for US LIFO reporters book and tax records.
The LIFO conformity rule requires US companies to use LIFO for financial reporting if they also use LIFO for tax purposes.
When prices are rising and inventory quantities are stable or increasing: LIFO results in what four things?
(higher/lower) COGS
(higher/lower) Gross Profit
(higher/lower) Inventory Balances
(higher/lower) inventory turnover
- Higher COGS
- Lower Gross Profit
- Lower Inventory balances
- Higher Inventory Turnover
When prices are rising and inventory quantities are stable or increasing: FIFO results in what 4 things?
(higher/lower) COGS
(higher/lower) Gross Profit
(higher/lower) Inventory Balances
(higher/lower) inventory turnover
- Lower COGS
- Higher Gross Profit
- Higher Inventory Balances
- Lower Inventory Turnover
(FIFO/LIFO) is the best inventory cost method for balance sheet purposes because it more accurately reflects the current cost of inventory.
FIFO
(FIFO/LIFO) is the best cost flow method for the Income Statement COGS because it reflects the most current prices into the Cost of Goods Sold.
LIFO
Under IFRS, inventories are carried at the lower of ________ or __________. Inventory write-ups (are/are not) allowed.
Lower of Cost
Net Realizable Value
are allowed: only to the extent they reverse a previous writedown.
Under US GAAP, inventories are carried at the lower of _____ or ________.
Market = replacement cost, but can not exceed net realizable value. OR be less than NRV - profit margin.
Lower of Cost
Market
NRV (remember to net selling cost)
Market
NRV - Profit Margin
Under IFRS, inventories are carried at the lower of ________ or __________. Inventory write-ups (are/are not) allowed.
Lower of Cost
Net Realizable Value
are allowed: only to the extent they reverse a previous writedown.
Under US GAAP, inventories are carried at the lower of _____ or ________.
Market = replacement cost, but can not exceed net realizable value. OR be less than NRV - profit margin.
Lower of Cost
Market
NRV
Market
NRV - Profit Margin
EBITDA Coverage (Leverage Tolerance) = ?
EBITDA / Interest Expense
Describe the Fixed Rate Payer Calculation.
The fixed rate payer = (Swap Fixed Rate - LIBOR) x (# days / 360) x notional
In an arbitrage trade, two general conditions are present.
- There (is/is not) risk.
- There (are/are not an initial investment.
An arbitrage trade has NO RISK and requires NO INITIAL INVESTMENT.
