General Flashcards
What does an adjustment spread running high -> low mean for how the adjustment is applied?
Subtract the adjustment
Which account represents a countries investment position?
Capital account
Which account represents a countries imports and exports?
Current account
Which is generally higher: inflation or interest rates?
Interest rates
What is the calculation for nil-paid price?
Ex-rights price - subscription price
What is the numerator for ROCE?
PBIT
What factors are used to calculate goodwill?
Fair value and net asset requirements
In perfect competition, what three factors equal eachother?
Profit maximisation = marginal cost = marginal revenue
What kind of index is DJIA?
Unweighted arithmetic index
What kind of index is the FTSE 250?
Weighted arithmetic
How do you calculate the time value of an option?
Premium - intrinsic value
How do you calculate the intrinsic value of a put?
Strike price - underlying
What are fixed charge debentures secured against?
Named assets of the company
Does an OEIC have a singe or double price?
Single
Who supervises the management of an OEIC?
Depositary
True/false: the writer of the option receives the premium?
True
Credit derivatives are based on what?
A reference asset
What is the minimum number of holdings for a REIT?
3
What 3 factors will make a bond more sensitive to interest rates?
Low coupon
Longer time to maturity
Low yield
How do you calculate the flat yield?
Coupon / price
How do you calculate the premium value of a warrant?
Warrant price - formula value
What percentage is stamp duty?
0.5%
What are the 4 services of a stockbroker/private client fund?
- Execution only
- Advisory dealing
- Portfolio advisory
- Portfolio discretionary
CDS and total return swaps are examples of what kind of credit derivative?
Unfunded
Credit linked notes and synthetic CDOs are examples of what kind of credit derivative?
Funded
How do you calculate the correlation coefficient?
Covariance / SDx * SDy
What are the four types of qualification an auditor can make on a company’s accounts?
- Fundamental uncertainty
- Material uncertainty
- Fundamental disagreement
- Material disagreement
What is the indexation lag for index-linked gilts issued after June 2005?
3 months
How do you calculate the new period rebase value?
(New period B value / Old period B value) x Old period A value
When you have more than one median, what type of mean do you use?
Arithmetic
What is the point of profit in a monopoly?
Marginal revenue = marginal costs
How do you calculate the price of an undated bond?
(Par value x coupon payment) / required yield
How does the demand curve look in perfect competition?
Horizontal
At what level of ownership does an entity get reported as a subsidiary?
More than 50%
At what level of ownership is an entity an associate company?
20-50%
At what level of ownership is an entity treated as an investment?
Less than 20%
How do you calculate Macaulay duration?
(Sum of PV cash flows x time to cash flows) / sum of PV cash flows
What is the multiplier?
1/MPS
What do you call it when the basis of a future is positive?
Backwardation
What do you call it when the basis of a future is negative?
Contango
How do you calculate the information ratio?
(Fund return - benchmark) / standard deviation
What M-number is the total notes in circulation called?
M0/M1
What M-number are longer term deposits and money market funds called?
M3
What M-number is money held by non-bank private sector?
M4
What is another term for M0?
Narrow money
What does the Y axis represent in the Phillips curve?
Inflation
What does the X axis represent in the Phillips curve?
Unemployment
What does the long-run Phillips curve look like?
Vertical
What is the shape of the short-term Phillips curve?
Downward sloping
What is unemployment due to high real wages known as?
Classical unemployment
How many strike prices are there in a straddle?
One
How many strike prices are there in a strangle?
Two
What aspects of an index linked gilt are linked to RPI?
The coupons and the principle
How do you calculate warrant value?
Formula value + premium value
What is another term for formula value when describing a warrant?
Intrinsic value
What is another term for premium value when describing a warrant?
Time value
How do you calculate the percent premium for a warrant?
(Warrant price - formula value) / (number of shares created x share price)
How do you calculate the price of a warrant?
(Value of equivalent Am. call option x no. Shares created) / (no. Shares in issue if warrant exercised / no of current shares)
What is another term for the buyer of an option?
The holder
What is another term for the seller of an option?
The writer
What is another term for Monte Carlo modelling?
Stochastic modelling
What does a government do to address a current account deficit?
Reduce the value of the currency
How do you define GDP?
All production with the borders of a country
How do you define GNP?
All production by a country, anywhere in the world
What is the equation for the money supply equilibrium?
G+X+I = t+M+S
How do you calculate aggregate demand?
C+I+G+(X-M)
How do you calculate consumption?
a+bYD
How do you calculate the multiplier for a closed economy with no government?
1/(1-MPC)
How do you calculate the multiplier for a closed economy with a government?
1/(1-MPC(1-t)
How do you calculate the multiplier for an open economy with a government?
1/((1-MPC(1-t)+MPM))
How do you calculate the money multiplier?
1/reserve requirement
What is the quantity theory of money?
MV = PT
What does the X axis of the Phillips curve signify?
Unemployment
What does the Y axis of the Phillips curve signify?
Inflation
Are intangible assets amortised or depreciated?
Amortised
Are tangible assets amortised or depreciated?
Depreciated
How is inventory valued?
Lower of cost or net realisable value
Where are contingent liabilities disclosed?
In a note
How do you calculate straight line depreciation?
(Cost - residual value) / useful life
How do you calculate reducing balance depreciation?
1 - (nth root of (expected residual value / original cost))
Which cost flow assumption is not used in IFRS?
LIFO
What item does the income statement start with?
Sales revenue
Which item does the income statement end with?
Net profit
What is the starting point for the indirect method of recording cash flow?
Operating profit
What 4 changes do you make to net income to get FCFF?
+ non-cash charges
- investment in fixed capital
- investment in working capital
+ net interest payments
What 2 changes need to be made to FCFF to get FCFE?
- net interest
+ net borrowing
What adjustment do you make to cash flow if depreciation charges increase?
Add cash flow
What adjustment do you make to cash flow if receivables increase?
Subtract from cash flow
What adjustment do you make to cash flow if payables increase?
Add to cash flow
What adjustment do you make to cash flow if investors increases?
Subtract from cash flow
What turnover threshold makes a company a small company?
£10.2m
What balance sheet threshold makes a company a small company?
£5.1m
How do you calculate the forward rate adjustment?
Add the adjustment to the spot rate
What is the Fisher equation?
F/S = (1+iVAR)/(1+iBASE) = (1+rVAR)/(1+rBASE)
What is the typical length of a bill?
Less than 1 year
What is the length of a typical bond?
More than 1 year
How often is a coupon paid for a gilt?
Semi-annually
What is the settlement time for UK gilts?
T+1
What is the typical length of time for a medium conventional gilt?
5-15 years
What is another name for an irredeemable bond?
Undated
How do you calculate the number of strips on a gilt?
(Number of years of the bond * 2) + 1
Which 3 entities can create a strippable bond?
GEMMS
Bank of England
Treasury
How do you calculate the repo rate?
Sale price - purchase price
What is the order of seniority of creditors? (6)
Liquidator
Fixed charge holders
Preferential creditors (employees)
Floating charge holders
Unsecured creditors
Subordinated loan stock
What is the order or seniority of owners? (4)
Preference shareholders
Ordinary shareholder
Deferred shareholders
Warrants
Where does mezzanine capital sit in the seniority?
Between creditors and owners
Where do floating rate notes trade compared to par?
Near par
Callable bonds can be redeemed early by whom?
Issuer
Potable bonds can be redeemed early by whom?
Holder
How do you calculate the conversion premium?
(Price of bond / potential number of shares) - current share price
How do you calculate the conversion value?
Market price * conversion ratio
How do you calculate the conversion price?
Par value / conversion ratio
What is the duration of a zero coupon bond?
Time to maturity
How do you calculate a market weighted index?
(Price today * no. of shares) / (base price * no. of shares)
What are the three non-market weighted indices?
DJIA
Nikkei 225
FT30
How do you calculate the rebasing of an index?
(New B / Old B) * Old A
How do you calculate the EBITDA multiple?
EV / EBITDA
How do you calculate the dividend cover?
EPS / dividend per share
How do you calculate the dividend yield?
Dividends per share / market price per share
How do you calculate the debt to equity ratio?
Total debt / total equity
How do you calculate the operational gearing ratio?
(Sales revenue - variable costs) / trading profit
How do you calculate the current ratio?
Current assets / current liabilities
How do you calculate the quick ratio?
(Current assets - inventory) / current liabilities
How do you calculate ROCE?
(Operating profit / capital employed) * 100
How do you calculate capital employed?
Total assets - current liabilities
What is weak form market efficiency?
Market prices reflect information of historical share price
What is semi-strong form market efficiency?
Market prices reflect information of historical share price + publicly available information
What is strong-form market efficiency?
Market prices reflect information of historical share price + publicly available information + private information
How do you calculate holding period return?
(End value / start value) - 1
How do you calculate the time-weighted rate of return?
(Multiply each holding period together) -1
How do you calculate the money-weighted rate of return?
PV calculate using timeline
How do you calculate CAPM?
ER = RF + beta(RM-RF)
How do you calculate Jensen’s Alpha?
Return - CAPM
How do you calculate the Sharpe Ratio?
(Mean portfolio return - risk free return) / SD portfolio return
How do you calculate the Traynor ratio?
(Portfolio return - risk free rate return) / beta
How do you calculate the information ratio?
(Portfolio return - benchmark rate) / SD of excess returns
How do you calculate total risk?
Square root(variable M + variable S)
How do you calculate variance?
SD^2
How do you calculate beta?
Covariance(x,y) / variance of market return
What is the replacement for beta in bond calculations?
Duration
What is an alternative name for an OEIC?
ICVC
What tax do unit trusts pay?
20%
How do you calculate the unit value?
NAV / number of units
What is the maximum amount a UCITS can have deposited with a single institution?
20%
What is the maximum amount a UCITS can have invested in a single issuer?
5% (10% for up to 4 companies)
What is the maximum amount a UCITS can have invested in another CIS?
20%
What is the maximum amount a UCITS can have invested in a single government issuer?
35%
What is the maximum amount a UCITS can have invested in a single issue of government securities?
30%
What is the maximum amount a UCITS can own in a single company?
10%
What is the maximum amount a UCITS can own in a single CIS?
25%
What are the two types of Investment Trust Companies?
Conventional
Split Capital
What are the three share classes in a split capital Investment Trust Company?
Zero dividend
Income share
Capital share
Is an ETF subject to stamp duty?
No
What proportion of profits must be distributed by a REIT?
90%
What is the calculate for rental yield?
(Gross rent - expenses) / (property cost + buying costs)
Where are futures traded?
On an exchange
What level of profit is possible for a long future?
Unlimited
What level of profit is possible for a short future?
The price agreed
What is the maximum loss possible for a long future?
The price agreed
What is the maximum loss possible for a short future?
Unlimited
How do you calculate the fair value of a future?
The cash price of the underlying + cost of carry
How do you calculate the basis of a future?
Cash price - futures price
How do you calculate the number of futures required to hedge a position?
Value of long position / number of points x price per point
What is the maximum loss for a long option?
The premium
What is the maximum loss for a short option?
Unlimited
What defines a European style option?
The right to exercise on the expiry date only
What defines an American style option?
The right to exercise up to and including the expiry date
How do you calculate the break even point?
The strike price - premium
How do you calculate the premium of an option?
Intrinsic value + time value
What does delta stand for?
Underlying price
What does theta stand for?
Remaining life
What does vega stand for?
Volatility
What does rho stand for?
Interest rates
How do you calculate the delta of an option?
Change in value of option price / change in value of underlying
What is the scaling factor of a long gilt future?
1000
What are the increments of a long gilt future?
1p
What are the increments of a FTSE 100 future?
£10
What is the tick size of a FTSE 100 future?
0.5 points
What is the delivery cadence of FTSE 100 futures?
Quarterly (March, June, September, December)
What is the tick size of STIR?
1 basis point
What is the tick value of STIR?
£12.50
What is the definition of initial margin?
Good faith deposit based on worst probably daily move
What is the definition of variable margin?
Daily receipts and payment for unrealised profits and losses
How do you calculate the flat yield of a bond?
(Gross annual coupon / market price)
How do you calculate the gross redemption yield?
£coupon x 1/r (1-1/(1+r)^n) + CAP/(1+r)^n
How do you calculate the net redemption yield?
(£coupon * (1-t)) x 1/r (1-1/(1+r)^n) + CAP / (1+r)^n
How do you calculate the dirty price?
Clean price + accrued interest
What is another term for settlement price?
Dirty price
How do you calculate the Macaulay duration?
(Sum of (PV cash flows x time to cash flow) / sum of present value of cash flow
How do you calculate the ex-scrip price?
Current price / sum of numbers in scrip ratio
How do you calculate the ex-split price?
Market price / number of shares
How do you calculate the value of a perpetuity?
Cash flow / interest rate
How do you calculate the annual percentage rate (APR)?
(1+period rate)^n-1
What is the definition of a deferred share?
An ordinary share that has no rights until a pre-determined event has occurred?
How do you calculate total return?
((End value - beginning value) + dividends received) / beginning value
How do you calculate Gordon’s growth model?
D0 * (1+g) / (r-g)
How do you calculate the growth rate?
Retention ratio x return on equity
How do you calculate the retention ratio?
(Earnings - dividends) / earnings
How do you calculate return on equity?
Earnings / shareholder funds
How do you calculate the percent premium of a warrant?
(Warrant price - formula value) / market value of shares
What are the two other terms for a scrip issue?
Bonus issue, capitalisation issue
What type of index is the Nikkei 225?
Price-weighted
What date did the reference rate for RPI change?
June 2005
What is the RPI reference date after the change?
3 months
What was the RPI reference rate before the change?
Eight months
How do you calculate the retention ratio?
(Net income - dividends) / net income
How do you calculate the earnings growth rate?
Retention ratio x RoE
How do you calculate RoE?
Net income / shareholder funds
What is the definition of an open-ended fund?
Units can be issued/redeemed as required
How do you calculate conversion value?
Conversion ratio x current share price
If a gilt is trading above par, what does this mean for the relationship between the GRY and flat yield?
Flat yield will be higher than GRY
How do you calculate the premium of an option?
Intrinsic value + time value
Does the ex-rights price occur before or after an event?
After
Who is responsible for the upkeep of a commercial property?
Lessee
Who is responsible for the upkeep of a residential property?
Lessor
What is another term for a fixed capital structure?
Closed-ended
What kind of pricing does an Investment Trust Company offer?
Real time
Between which numbers would a price be inelastic?
-1 and 1
How do you calculate the cross-price elasticity of demand?
% change in quantity of good A / % change in quantity of good B
How do you calculate the risk adjusted return for a bond?
(Rp - Rf) / (Dp/Dm)
In the short run, which costs need to be covered for a firm to continue operating?
Average variable costs
In the long run, which costs need to be covered for a firm to continue operating?
Average total costs
What percentage of observations lie within 2 standard deviations of the mean?
95%
How do you calculate the position of the quantiles in a range of numbers?
(n + 1) / 4
Profit is a component of the which financial statement?
The income statement
Loan stock is what kind of liability?
Non-current
Trade creditor is what kind of liability?
Current
Overdraft is what kind of liability?
Current
Trade receivables is what kind of asset?
Current
What is another term for operating profit?
PBIT (or EBIT)
What does ILG stand for?
Index Linked Gilts
How do you calculate MPC?
Spending / disposable income
How do you apply a forward adjustment premium to the spot price?
Subtract
How do you apply a forward adjustment discount to a spot price?
Add
At what point is a put option in the money?
When the share price falls below the exercise price
Which of the three credit rating agencies uses “aa” in their ratings?
Moodys
How do you calculate modified duration?
Macaulay duration / (1+ yield)
How do you calculate the grossed up net redemption yield?
Net redemption yield / (1-t)
What is another term for an undated bond?
A perpetuity
How do you calculate the price of an undated bond?
Coupon£ / yield
Is the bid or ask price used if you want to sell the base currency?
Bid
Is the bid or ask price used if you want to buy the base currency?
Ask
Is the bid or ask used if you want to buy the variable currency?
Bid
What kind of contract is a FTSE 100 future?
Contract for difference (CFD)
How are CFDs settled?
Cash
What is basis risk?
The risk that a derivative contract is closed early
Which is cheaper, buying futures contracts or the underlying equities?
Futures contracts
How is a STIR contract settled?
Cash
How are transactions conducted on ICE Futures Europe?
Electronic order-driven
In an equity swap, who receives the floating interest payment?
The payer
In an equity swap, who pays for losses on the index?
The receiver
In an equity swap, who makes a floating rate interest payment?
The receiver
How are ICE Futures Europe settled?
Notional bond
A rights issue is an example of what kind of issuance?
Secondary issuance on the primary market
For a “1:5” rights issue, how many new shares are being issued?
1
How do you calculate the future value under continuous compounding?
PV x (exponent ^ (r x n))
What four factors are relevant to the arbitrage pricing model?
Inflation
Yield curve
GNP
Investor confidence
How do you calculate the credit creation multiplier?
1 / reserve requirement
Which entity must a company submit its annual accounts to?
The Registrar of Companies
Assets - liabilities =
Share capital + reserves
What are the three main headings under the IFRS cash flow statement?
Operating
Financing
Investing
How are provisions treated when getting from profit to cash flow?
Added back in
Revaluation surplus is included in which heading of the cash flow statement?
Investing activities
Reserves are subdivided into which parts of the balance sheet?
Share premium account
Revaluation reserve
Other reserves
How are goods sold under warranty or guarantee classified?
Contingent liabilities
Provisions appear in which financial statement?
The balance sheet
Extraordinary items are found in which financial statement?
The income statement
Proposed dividends would appear in which financial statement?
Balance sheet
What is price elasticity of -1 also known as?
Unit elastic
Complementary goods have what kind of price elasticity?
Negative
Substitute goods have what kind of cross-price elasticity?
Positive
An increase in demand for a good causes what change in the demand curve?
Shift to the right
What are accounting profits?
Profits in excess of explicit costs
What are supernormal profits?
Profits in excess of all opportunity costs and explicit costs
What is another term for supernormal profits?
Economic profits
How does the industry supply curve look if all firms have the same cost curve?
Upward sloping
Which portion of the demand curve will the monopolist produce in?
Elastic
How do you calculate economic profit?
Accounting profit - the cost of the entrepreneur’s time and capital
What is the elasticity of demand under perfect competition?
Infinity
What does a high EV/EBITDA show about a company?
High future growth prospect
What is the calculation for prospective P/E?
Current share price / future estimated earnings
What is the calculation for prospective P/E if you are given the earnings growth?
Historic P/E / earnings growth
Will a company with low P/E have low or high dividends?
Low
Are VCTs closed or open ended?
Closed
Are VCTs allowed to borrow?
Yes
What does a question want you to do when it asks fort the “time-weighted average rate of return”?
Geometric mean of returns
Which profit is used to calculate dividend cover?
Profit after tax
What is the calculation to get the hedge ratio?
Value of the portfolio / (number of points x tick size)
What factor do immunisation strategies take into account when choosing bonds?
Duration
How do you calculate the duration based return for a portfolio?
(Rp - Rf) / (Dp/Dm)
What is done with the premium in regards to finding the forward rate?
Subtracted
What does OEIC stand for?
Open ended investment company
Is commercial paper secured or unsecured?
Unsecured
What price is commercial paper paid at compared to par?
At par
How do you calculate the total risk of a well diversified portfolio?
Variance of the market x beta^2
On which financial statement do extraordinary items appear?
Income statement
Which body develops international financial reporting standards?
IASB
On which financial statement do provisions appear?
Balance sheet
Which financial statement do provisions not impact?
Cash flow statement
What deposit amount is STIR based on?
£500,000
What holding period is STIR based on?
3-months
What is the tick size of STIR?
1 basis point (0.01%)
What kind of risk is the risk that the position is closed before delivery?
Basis risk
What is the tick size for a FTSE 100 Future?
0.5
Which two markets cover energy derivatives?
NYMEX
ICE
What market covers financial derivatives?
MEFF
What tax rate do basic rate taxpayers pay on a REIT?
20%
What is another term for a floating rate note?
Variable rate bond
What type of debt are debentures?
Secured debt
Which of the rating agencies use + and - in their ratings?
S&P
What do falling interest rates do to the slope of the yield curve?
Downward sloping
Which type of bond does liquidity preference theory suggest investors demand a higher premium for?
Longer dated
When do gilts go ex-coupon?
7 days before payment date
For a long straddle/strangle, are you buying or selling the options?
Buying
At what level of ownership does a company need to start preparing consolidated accounts?
50%
Which items on the balance sheet will a rights issue increase?
Share capital account
Share premium account
How do you calculate the value of a right?
Ex-rights price - right price
How do you calculate the theoretical value of a nil paid price?
Ex-rights price - subscription price
What is the maximum amount that a single shareholder can hold of a REIT?
10%
How do you calculate net operating income (property)?
Gross potential income - expenses
How do you calculate a property value?
NOI / market capitalisation rate
How do you calculate TWRR?
(End 1 / Start 1) x (End 2 / Start 2) - 1
Are hedge funds regulated by the FCA?
No
Are hedge fund managers regulate by the FCA?
Yes
Does selling a unit of a unit trust affect the NAV?
Yes
What happens to the time value of an option as the life of the option increases?
Greater time value
What is the formula for Beta?
Cov / var
Do high beta stocks have high or low volatility?
High
Do high covariance stocks have high or low volatility?
High
At what point does a good become elastic?
When price elasticity is greater than 1
At what point does a good become inelastic?
When price elasticity is less than 1
At what point does stamp duty apply?
When purchasing a security
How is goodwill recorded on the balance sheet?
At cost less accumulated impairment charge.
Who are the legal owners of a unit trust?
Trustees
How do you calculate the weighted average cost flow?
Total cost of purchase / total number of units purchased
What proportion of observations lie within 1 standard deviation of a normal distribution?
68.3%
What proportion of observations lie within 2 standard deviations of a normal distribution?
95.5%
What proportion of observations lie within 3 standard deviations of a normal distribution?
99.75%
