Investment Planning Flashcards
Margin Call Formula
Margin Call = Loan / 1- Maintenance Margin
Research Reports
Know that Value Line ranks stocks
Morning Star primarily ranks mutual funds. Also know the rankings and whether they are a buy or sell signal
Dividend
to receive the dividend, an investor must purchase the stock prior to the ex-dividend date or 2 business days before the date of record.
Security Regulations
Money Market Securities
Investment Policy statement
The IPS establishes “RR TTLLU” = Risk, Return, Taxes, Time-line, Liquidity, Legal, and Unique circumstances
Price Weighted Avg vs Value Weighted Index
Simple price-weighted averages do not take into account the percent allocation of the position within the portfolio.
A value-weighted index - incorporates market capitalization of individual stocks into the average.
Behavioral Finance Terms
Behavioral Finance (cont)
Behavioral Finance (cont 2)
Standard Deviation
Memorize the 68%, 95%, 99% depending if the return is +/- 1,2,or3 standard deviations away from the average.
How to calculate Standard Deviation
Example
COEFFICIENT OF VARIATION FORMULA
CV = Standard Deviation / Avg Return
Example
Covariance
Systematic Risk
Remember the mnemonic PRIME for systematic risks.
See bottom for more
Unsystematic Risks
Remember - Unsystematic risks are ABCDEFG
Capital Market Line
Capital Asset Pricing Model
The CAPM formula is on the formula sheet and you will need to use it. You may be asked to calculate an expected return or requested rate of return using the CAPM. Also, you may be given the market risk premium rather than return of the market. BE SURE TO REMEMBER THAT THE MARKET RISK PREMIUM (Rm -Rf).
Capital Asset Pricing Model
The CAPM formula is on the formula sheet and you will need to use it. You may be asked to calculate an expected return or requested rate of return using the CAPM. Also, you may be given the market risk premium rather than return of the market. BE SURE TO REMEMBER THAT THE MARKET RISK PREMIUM (Rm -Rf).
Summary of Performance Measures
If the exam doesn’t give you r-squared, then select Sharpe!
Sharpe
Uses Beta to measure risk
Diversified and Non diversified
Standard deviation is used for nondiversified and Beta is used for well-diversified portfolio.
HOLDING PERIOD RETURN
HOLDING PERIOD RETURN = Selling Price - Purchase Price +/- Cashflows / Purchase Price or Equity Invested
EAR
EFFECTIVE ANNUAL RATE
GEOMETRIC AVERAGE
Net Present Value
NPV = PV of Cash Flows - Initial Cost
If NPV = 0, then YES make the investment
ARBITRAGE PRICING THEORY (APT)
DOLLAR WEIGHTED VS TIME-WEIGHTED RETURN
Dividend Discount Model
Expected Rate of Return
Stock Price
Dividend Payout Ratio
Return on Equity (ROE)
ROE = EARNINGS PER SHARE / STOCKHOLDER EQUITY PER SHARE
Efficient Market Hypothesis
Exam Tip
Know that EE bonds are not marketable securities
Exam Tip
Municipal Bonds
3 types
General Obligations
Revenue Bonds
Private Activity Bonds
Exam Tip
TAX EQUIVALENT YIELD
TEY = R/(1-T)
T.E.Y. BOTH FEDERAL AND STATE TAXES
Exam Tip
Yield to Maturity
Exam Question
BOND HPR
YIELD SUMMARY
EXAM TIP
YIELD LADDER
BOND DURATION
EXAM TIP
CALCULATING BOND DURATION
CONVERTIBLE BONDS
Net Operating Income
Exam Tip UIT
Exam Tip - ADR
Exam Tip Options
Exam Tip. - Call OPTION
Options - In the Money, At the Money, Out of the Money
Calculating Gain or Loss for Options
OPTIONS - Protecting profits or locking in gains.
Option Pricing Models
Exam Tip - Capital Assets
Wash Sale Rules - Index Funds
Exam Tip - Govt Losses
The government does not like losses.
Treatment of Capital Gains on Property
Exam Tip - Gifting Related Party
Exam Tip - Section 1231 and Section 1245
Exam Tip
Exam Tip
Child Tax Credit
Child & Dependent Care
Exam Tip - Kiddie Tax
EXAM TIP - AMT Preferences
EXAM TIP - Default vs RIP
EXAM TIP Coefficient Of Variation
Coefficient Of Determination
Exam Tip Duration SHORT CUT
Educational Funding Example
