Investment Planning Flashcards
Taxable Equivalent Yield (TEY)
Tax-exempt yield/
1-Marginal Tax Rate
Ex: Muni paying 5% @ 35% TB:
5/.65= 7.69%
Tax Exempt Yield
TEYx(1-Marginal Tax Rate)
Ex: Corp Bond Paying 7% @ 15% TB
7x(.85)= 5.95%
P/E Ratio
P/E Ratio equation:
Current Market Price=earnings x P/E Ratio
CV (Coefficient of Variation)=
Standard Deviation/Mean
- Variability
- Lower number is more predictable
Unsystematic Risk
Business Risk
Financial Risk, (leverage)
Diversifiable
Systematic Risk
Part of a system, cannot be diversified PRIME Market, Interest, (bonds) Reinvestment Rate, (bonds) Purchasing Power, (bonds) and Exchange Rate Risk Measured by Beta -With Unsystematic equals total risk-
Primary Bond Risks
DRIP- Default, Reinvestment, Interest Purchasing Power Risk
Standard Deviation percentages
1 SD- 68%
2-95%
3-99%
Coefficient of Determination
R^2
Intrinsic Value of Real Estate (Rental)
Net Operating Income/Cap Rate
Zero Growth Model (used for preferreds)
V= Dividend/current yields
Geometric Return
Takes Compounding into account
HPR-Holding Pertiod Return
= Sale Price+Div-Old/Old Price
Margin Interest and Dividends
Record Date
Date in which shareholder is entitled to Dividend
ADR
American Depository Receipts
expressed in $$’s, not in local currency, registered with SEC
Still have exchange rate risk
Preferred Stock Valuation
Do/r = Annual Div/Current Market Int Rate
Futures
The Procedure for removing your downside risk by taking opposite position. Also limits upside.
Muni Bonds-GO
General Obligation bonds are backed by taxing authority
Revenue-Muni Bonds
Pay higher rate, backed by project, riskier
STRIPS
Selling the coupon of a T-note as seperate securities. IE selling the 20th payment at 200k which will mature at 300k in 10 years
Bond Yield– Current Yield
Annual Coupon Amount/Current Bond Price
Yield Seesaw for Discount Bond
Lowest to highest Yield: Current Yield
YTM, YTC
Yield Seesaw for Premium Bond
Highest to Lowest-CY, YTM, YTC
Duration
Weighted Average amount of time it takes to get your money back on a bond
Zero Coupon bond has duration = to Maturity
Duration Impacts
Maturity-Directly Related
Interest Rates-Inversely related
-Lower Coupon-higher duration
-Higher Couplon-Lower Duration
Lower the market rate-higher duration
EMH-Strong Form
No one can beat the market (inside informaion does’t help)
EMH-Semi-Strong
All public information is factored into stock price-insder info helps
EMH-weak
Funamental Analysis works, no technical analysis.
SML vs CML
SML is Micro and uses Beta, CML uses SD
Monetary Policy
Controlled by Federal Reserve:
Through, Open Market Operations,
Discount Rate Changes,
Reserve Requirement
Expansionary
Fed Buys securities from public,
Lower’s Discount Rate,
Lower’s Reserve Requirements
Contractionary Monetary Policy
Sell Gov’t Securities-$$ transferred from public to Banks and Fed
Raise Discount Rate
Raise Reserve Requirement
Valuation of Real Estate
NOI/Cap Rate
Net Operating income
Cap Rate is subjective, cannot really calculate
Securities Act of 1933
Registrationn of IPO’s
Primary Markert, new issues with prospectus
Securities Exchange Act of 1934
Created SEC,
Broker Dealers must register with SEC
Secondary Market
Investment Co Act of 1940
Regulates MF’s and other investment Co’s
Investment Advisers Act of 1940
Adviser must register with SEC (ABC rule)
Securities Investors Protection Act of 1970
Protects against brokerage firm failures (SIPC)
National Securities Markets Improvements Act of 1996
> 25MM: SEC Regulation,
<25MM: State Regulation
Raised to 100MM in 2012-Dodd-Frank Wall street reform Act, 2010
Regulation FD 2000
Requires Companies to share Market moving info with the public at the same time it’s released to institutions, designed to level playing field
Sarbanes-Oxley Act of 2002
Executive accountabiliity for Exec’s
