Investments Flashcards
When are bonds most likely to be called?
- Bond is selling at premium
- Yield goes down and price goes up. Refinance at a lower yield.
Are mutual fund shares tradable?
No, they are redeemable at NAV.
- CLOSE ENDED FUNDS ARE TRADABLE.
- What are Guaranteed Investment Contracts (GICs)?
- When are they used?
CD-Like Instruments issued by insurance companies.
- Popular for defined benefit plans.
What is a REMIC?
Real Estate Mortgage Investment Conduit. Pool of mortgage interests that are released as Mortgage Backed securities. Can be operated as a partnership, trust, or coporation.
If a REMIC is established as a corporation, how is the income taxed?
- Pass through income because corporations are pass through entities.
Current Yield Formula
Annual dividend (coupon) in dollars / Current Mkt Value
Are hedge funds required to register with the SEC?
The hedge fund itself is not required. However, the MANAGER is required to register if they have OVER $100 million in AUM.
The elements of risk quantified by standard deviation
- Variability
- Non-diviersified Risk
- Total Risk
What is the main use of geometric mean?
Evaluate the performance of the portfolio manager.
Steps to compute geometric mean.
- Add 1 to the yearly returns. 50% = 1.50. -20% = 0.80
- Multiply the returns. 1.50 x 0.80 = 1.20
- 1.20 becomes the FV
- -1 = PV
- Time (n) would be 2 for the 2 years represented.
- Geo Mean = i = 9.54%
How do the following effect bond duration individually
- Years to maturity.
- Annual Coupon
- YTM
Years to Maturity = Positively Related
Annual Coupon = Inversely Related
YTM = Inversely Related
Constant Growth Model
Price = OG Dividend (1 + Growth of Dividend) / Required Rate of Return - Growth of Dividend
Risk Tolerance
Amount of risk a client is willing to take.
Risk Capacity
Amount of risk the client needs to take.
