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CFP Missed Concepts > Investments > Flashcards

Investments Flashcards

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1
Q

What is the purpose of Securities Act 1933

A

To regulate Primary Markets and new issuers

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2
Q

What is the purpose of Securities Act of 1934

A

To regulate Secondary markets and exchanges

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3
Q

What is the purpose of the Investment Company Act 1940

A

For SEC to regulate investment companies as Open, Close and Unit Investment Trusts

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4
Q

What is the purpose of Investment Advisor Act 1940

A

Have Investment Advisors register with the SEC or State

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5
Q

What is the purpose for Securities Investros Protection Act of 1970

A

Established SPIC to protect investors from Brokerage firms failures. Does not cover bad investment decisions

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6
Q

What was the pjs pose of Insider Trading and Securities Fraud Enforcement Act 1988

A

Defines an insider as anyone with info that is not available to the public. Insiders cannot trade on that info.

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7
Q

What are the characteristics of T bills

A

Issued up to 52 weeks.
Denominations of $100 up to 5 million
Larger amount up for competitive bid

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8
Q

What are the characteristics of commercial paper

A

Maturity up to 270 days or less
Uses to finance between companies
Does not have to register with the SEC
Denominations of $100k sold at discount

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9
Q

What’s re the characteristics of bankers acceptance

A

For imports/exports
Maturities up to 9 months
Can be held up to maturity or traded

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10
Q

What are the characteristic of Eurodollar

A

Deposits in foreign banks that are denominated in U.S. dollars

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11
Q

What is the IPS and what it encompasses

A

Investment policy statement
RRTTLLU
Risk, return, time horizon, taxes, liquidity, law and regulation and unique circumstances of the client

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12
Q

What is Affect Heuristic

A

Judging something based in non-financial issues

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13
Q

Anchoring

A

Reference point event though there may be no logical relevance or is not pertinent to the issue in question

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14
Q

Availability Heuristic

A

This may cause investors to overweight recent events of patterns while paying little attention to longer term trends

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15
Q

Bounded rationality

A

Their rationality is limited by the available information

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16
Q

Bounded rationality

A

Their rationality is limited by the availabile info

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17
Q

Confirmation Bias

A

People tend to filter info and focus on info supporting their opinions

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18
Q

Disposition effect

A

Investors create mental accounts when they purchase stocks and continue to mark their value to purchase prices even after market prices changed

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19
Q

Familiarity Bias

A

Investors tend to overestimate or underestimate risk of investments which they are unfamiliar/familiar with

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20
Q

Gambler’s Fallacy

A

Investors often have incorrect understanding of probabilities with lead to faulty predictions

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21
Q

Herding

A

People tend to follow the masses

22
Q

Hindsight bias

A

People tend to use the past to predict the future

23
Q

Ilusión of control bias

A

Tendency of people to overestimate their ability to control events

24
Q

Overconfidence Bias

A

Investor only listens to their selves

25
Q

Prospect theory

A

Giving to much weight to recent events

26
Q

Similarity heuristic

A

Rescisiones made when an apparently similar situations occurs even though the situations may have very different outcomes

27
Q

Naïve Diversification

A

When inversor thinking diversifying enough is when they are using all their possible options

28
Q

Representativeness

A

Thinking a good company without regard to investment analysis

29
Q

What are the risks that are systematic

A 
PRIME
Purchasing Power
Reinvestment Risk
Interest Rates 
Market risk 
Exchange rate risk
30
Q

What are the unsystematic risks?

A

ABCDEFG

Accounting risk, Business risk, Country risk, Default risk, Executive risk, Financial Risk, Government/regulation risk

31
Q

What does the CML use as measure of risk

A

Standard deviation = total risk

32
Q

When is appropriate to use treynor or alpha?

A

When the portfolio is well-diversified which beans you may use B.

33
Q

How do you know when a portfolio is a well-diversified portfolio

A

You find the r-squared= correlation tot be power of 2 and if it’s equal or higher of .70 it is a well diversified portfolio

34
Q

When is appropriate to use Sharpe ratio

A

When it is not a well-diversified portfolio because it uses total risk (standard deviation)

35
Q

How do Mutual funds report returns?

A

Using time-weighted average

36
Q

What is arbitrage pricing

A

It’s a multi-factor middles that attempts to explain based on factors.
Anytime a factor has. Value of 0, it has no impact
Attempts to take advantage or price Imbalance
Inputs are inflation, risk premium, expected return. beta and STD are not factors

37
Q

What is the dividend payout ratio

A

= common stock dividend / earnings per share

38
Q

What is used in fundamental analysis

A

Ratio analysis, financial statement analysis

39
Q

What does it involve technical analysis

A

Determining resistance levels and support levels, monitoring supply and demand, analysis of trading volume

40
Q

What is charting

A

Plotting hair rocks stick prices to determine trading pattern and adding 50, 100 and 200 day moving average with historical pricing

41
Q

What is short interest

A

When short selling is done so pent up demand will come back to purchase stocks back

42
Q

What is the Dow Theory

A

Signals an end to a bull or bear market. It does not indicate when it will happen just confirms that it had ended

43
Q

What is the breadth of the market?

A

Measure the number of stock that increase in value versus the number of stocks that decline in value

44
Q

What is strategic asset allocation

A

Assessing various assets mixes and their likely outcomes and redone every few years. It is an active allocation strategy

45
Q

What is tactical waste allocation?

A

It is an active asset allocation strategy abs done frequently. Determines expected returns for assets clases and then rebalances to take advantage of expected returns

46
Q

Are US treasury securities tax exempted at what level?

A

State and local

47
Q

What rating are investment grade and junk bonds from Moody’s bong rating agency?

A

Aaa - Baa good

Ba and below junk

48
Q

What’s re the rating for investment grade and junk bonds for Standards and Poors bond rating agency?

A

AAA - BBB good

BB and below are junk

49
Q

Name the types of muni bonds and their characteristics

A

General obligation bond (backed by the US Gov)
Revenue bind (backed by revenue of a project)
Private activity bond (stadiums)

50
Q

Name the two insurancecompanies that insure muni bonds

A

American municipal bond assurance corp

Municipal bond insurance association corp

51
Q

Characteristics of bind duration

A

The bigger the duration the more price sensitive or volatile the bind is to interest rates
Duration is the moment in time where the investor is immunized from interest reinvestment risk
Bond portfolio should ah e the matching duration tot he tile horizon of the investor to effectively immunize the investor

CFP Missed Concepts (6 decks)

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