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2018 CFP > Investment Planning > Flashcards

Investment Planning Flashcards

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CFP® flashcards
1
Q

Eurodollars are ____ denominated deposits held in foreign banks

A

US dollar deposits in foreign banks

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2
Q

Conversion ratio for convertible bonds =

A

par value of convertible security / conversion price

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3
Q

Preemptive stockholder rights mean that you have a right to retain your ____ ownership

A

maintain your % ownership

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4
Q

The time value of an option is the _____ minus the _____

A

is the option premium (price) minus the intrinsic value

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5
Q

LEAPs are long-term equity anticipation securities and are basically puts and calls with ______

A

lengthy expiration dates

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6
Q

REMICs are real estate mortgage investment conduits and are self-_____

A

self-liquidating

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7
Q

Systematic risk is summarized as PRIME:

A 
purchasing power
reinvestment risk
interest rate risk
market risk
exchange rate risk
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8
Q

Unsystematic risks are:

A 
business risk
financial risk
default risk
political risk
investment manager risk
liquidity and marketability
tax
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9
Q

Leptokurtic means the distribution is _____ than normal

A

skinnier - taller

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10
Q

A lognormal probability distribution means that there is a ____- chance that an observation selected at random will fall to the left of the mean

A

50% chance.

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11
Q

The coefficient of determination (R^2) is calculated by squaring pij (COV) and describes the percentage variability of the dependent variable (a stock) that is explained by the changes in the independent variable (the ______

A

overall market

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12
Q

If R^2 = 1 (coefficient of determination), then there is no ______

A

unsystematic risk

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13
Q

Beta is a relative measure of _____ risk

A

systematic

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14
Q

Betas for portfolios are relatively _____ over time

A

stable

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15
Q

For normal distributions, approx ___% is within 1 STD, ___% within 2 STD, and ____% within 3 STD

A

68%, 95%, 99%

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16
Q

The z-score measures the number of STDEVs a data value is from the _____

A

mean

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17
Q

Semivariance measures the variability of _____ below the average or expected return

A

returns below the average

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18
Q

Holding period return =

A

(ending - beginning +/- cash flows) / beginning

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19
Q

The real rate of return (inflation adjusted) =

A

((1+Rn)/(1+i) -1)x 100

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20
Q

Effective annual return (EAR) =

A

[1 + (i / n)]^n -1

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21
Q

The Treynor, Sharpe, and Jensen measures are measures of ______ returns

A

risk-adjusted

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22
Q

For weak, semistrong, and strong EMH, what are the type of information reflected in price

A 
weak = technical analysis
semistrong = technical & fundamental
strong = technical, fundamental, and insider
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23
Q

The first market is where the _____ trades

A

NYSE

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24
Q

The second market is where the ____ trades

A

NASDAQ

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25
Q

The third market is where the _____ trades

A

OTC

26
Q

The Fourth market is where traders trade without the help of _____

A

brokers

27
Q

The current yield =

A

annual interest payment / current market price

28
Q

Are bonds with high coupons or low coupons more volatile?

A

low coupons

29
Q

The unbiased expectations theory for bond yields states that long-term rates consist of many _____ and will be the ____ mean

A

short term rates, the geometric mean; can be used to explain a normal or inverted yield curve

30
Q

the liquidity preference model for bond yields is the unbiased expectations theory PLUS ______

A

liquidity premiums

31
Q

he market segmentation theory of bond yields relies on the concepts of _____ and _____

A

supply and demand

32
Q

A simplified duration calculation is the NPV of cash flows / ______

A

current market price of the bond

33
Q

Zero coupon bonds have a duration equal to their _____

A

maturity

34
Q

A coupon bond will always have a duration less than its _____

A

time to maturity

35
Q

Convexity (how much duration changes with change in YTM) will always be greatest for the following types of bonds:

A

low coupon
long maturity
low YTM bonds

36
Q

The dividend discount model =

A

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

37
Q

An example of a perpetuity dividend model security is a ______

A

preferred stock

38
Q

The capitalized earning valuation for stocks =

A

Earnings (E) / discount cap rate (Rd)

39
Q

The sales comp approach to real estate valuation is most commonly used for _______

A

personal residences

40
Q

The cost approach to real estate valuation is most commonly used for ______

A

special use buildings (e.g. a church)

41
Q

THe income capitalization approach to real estate valuation is most commonly used for ______

A

commercial real estate / income producing real estate

42
Q

M1 is the sum of _____

A

demand deposits, coins, travelers checks, and currency

43
Q

M2 is the sum of _____

A

M1 + savings accounts, time deposits under $100k, and balances in retail money market funds

44
Q

The acid test or quick ratio =

A

(CA - INV) / CL

45
Q

Inventory turnover ratio =

A

COGS / Avg INV

46
Q

Accounts receivable turnover =

A

sales / Avg. AR

47
Q

Fixed asset turnove r=

A

annual sales / fixed assets

48
Q

ROA =

A

net income / total assets

49
Q

ROE =

A

net income / equity

50
Q

times interest earned ratio =

A

EBIT / annual interest expense

51
Q

Dividend payout ratio =

A

dividends / net income

52
Q

PEG ratio =

A

PE / expected growth rate

53
Q

Stocks with PEGs below _____ are considered value stocks

A

less than 1

54
Q

The Dow theory of technical analysis uses the ____ and ____ indices as market indicators

A

DJIA and the Dow Jones Transportation Average

55
Q

Appropriate benchmarkts should be ______

A 
unambiguous
investable
measurable
appropriate
reflective of current investment opinions
specified in advance
56
Q

The sharpe ratio should be used to compare _____

A

alternative investments

57
Q

If a portfolio has no unsystematic risk, then the sharpe ratio should be the same as the _____ and ____

A

treynor and jensen measures

58
Q

Why is the sharpe ratio better than the Treynor ratio?

A

Because stdev measures total risk and beta only measure systematic risk

59
Q

Jensen’s alpha is an _____ measure of performance, vs the treynor and sharpe which are ____ measures

A

absolute, treynor and sharpe are relative

60
Q

The information ratio =

A

alpha / stdev —-> higher means better

61
Q

The _____ is used as the risk free rate

A

TBILL

62
Q

The coefficient of variation (NOT covariance) =

A

stdev/expected return

2018 CFP (10 decks)

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