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CFP > Investment Planning > Flashcards

Investment Planning Flashcards

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CFP® flashcards
1
Q

Beta of Index Funds that track the market

A

1

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2
Q

As a measure for risk, the Capital Market Line uses the:

A

Standard deviation of the market

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3
Q

On the Markowitz Model, at the point of tangency, we have attained:

A

The optimal portfolio.

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4
Q

Shares repurchased by the corporation

A

Treasury shares

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5
Q

D1

A

Next expected dividend

D1 = current year dividend (1 + dividend growth rate)

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6
Q

In order to determine whether a stock is overvalued or undervalued, a planner would use which of the following formulas?

A

Intrinsic value formula

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7
Q

Debunture

A

Unsecured corporate debt

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8
Q

Treasuries maturity times

A

Treasury Bills - up to 52 weeks
Treasury Notes - 2 to 10 years
Treasury Bonds - greater than 10 years, typically 30 years

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9
Q

Bonds owned by whoever possesses them

A

Bearer bonds

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10
Q

Maintenance Margin

A

Price = Loan / (1 - MM)

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11
Q

The entity that establishes the initial margin requirement:

A

Federal Reserve

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12
Q

Long Hedge Position

A

The investor is short the underlying commodity and long the futures contract

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13
Q

To be on a corporations books as a holder-of-record (right to the next dividend payment) the investor must purchase stock:

A

Before the ex-dividend date

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14
Q

Market where exchange and broker dealer services are eliminated completely:

A

The fourth market

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15
Q

Effect of sale of Treasury securities

A

Reduction of cash in the market place causing an increase to the cost of money and a lessening of funds for investment

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16
Q

Holding period return

A

Holding Period Return = Selling Price - Purchase Price +/- Cashflows / Purchase Price or Equity Invested

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17
Q

If the risk/return performance of a stock lies above the SML, the stock is said to have a:

A

Positive alpha

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18
Q

On the Markowitz Model, at the point of tangency l, we have obtained:

A

The optimal portfolio

19
Q

Capital Market Line uses:

A

Standard deviation of the market

20
Q

Security Market Line uses:

A

Beta as it’s risk measurement

21
Q

The Securities Act of 1933

A

Regulates both initial and public offerings and subsequent secondary offerings by a public company

22
Q

Security Exchange Act of 1934

A

The legislation that concerns itself with securities in the secondary market

23
Q

Red herring

A

A preliminary prospectus issued by the managing house of an offering

24
Q

Capitalization method of valuation

A

Net earnings/capitalization rate factor

25
Q

Closed-end funds

A

Generally sold at a premium or discount to par value.

26
Q

Cumulative feature in a preferred stock

A

If dividends are not paid in a given cycle, they cannot be paid to anyone else until they are paid to preferred shareholders

27
Q

Expectations Theory

A

The theory of the yield curve that attempts to explain the yield curve based upon future rates of inflation

28
Q

Firm commitment

A

When an investment banker agrees to purchase an entire issue of securities from the issuing corporation and sell them to the general public

29
Q

Unit Investment Trust (UITs)

A

Managed by trustee, no investment manager
Self-liquidating
Passive management
No trading of assets within the trust

30
Q

Market risk premium

A

The difference between the expected return on a market portfolio and the risk-free rate

31
Q

Intrinsic Value of Call Option

A

Stock price - strike price

32
Q

Intrinsic Value of Put Option

A

Strike Price - Stock Price

33
Q

Call option

A

Right to buy a specified number of shares at a specified price

34
Q

Put option

A

Right to sell a specified number of shares at a specified price

35
Q

Bear market

A

Market experiences prolonged price declines

36
Q

Bull market

A

A period of time when major stock market indexes are generally rising

37
Q

Straddle

A

Investor purchases a put and a call in the same security at the same exercise price for the same period of time

Used if investor anticipates a significant move in a stock price but unsure if up or down

38
Q

Strip

A

Investor purchases two put options and one call option

Investor believes that the underlying price of the stock will plummet in the near term future

39
Q

Bottom up equity managers include

A

Value managers and technicians

40
Q

Bell Curve Probability Percentages

A

68%/95%/99%

41
Q

Qualified dividends are taxed at…

A

Long term capital gains rates

42
Q

Markowitz Efficient Frontier

A

A portfolio that offers the highest rate of return for a given degree of risk is on the efficient frontier

43
Q

To calculate time-weighted return you should use…

A

Geometric mean

CFP (7 decks)

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