Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Exam Study > Investments > Flashcards

Investments Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

ETFs, govt bond funds, and tech mutual funds liquid?

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Can Alpha be used when R2 is lower then .6?

A

No, use standard deviation or sharpe ratio.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which risk does Beta measure?

A

Systematic Risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which Risk measure does Markowitz model use?

A

Standard Deviation (covariance, correlation coefficient, and return)

Not Beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Which form of Efficient Market Hypothesis are effected by Anomalies (January effect)

A

None, Anomalies contradict EMH

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Dividend Discount Model and SML/ required rate of return use decimals for rates%?

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When do bonds sell at Discount VS Premium?

A

Premium when rates have fallen
Discount when rates have increased

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Who is most likely to buy STRIPS?

A

Pension fund because plan is tax deferred.
STRIPS create taxable phantom interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Long term Bond VS Zero when rates have fallen?

A

Long term bond has price appreciation opportunity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How to calculate Gross Profit on stock

A

Total income + Growth/ basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Who is insider?

A

Officer
Board of Directors
Any person with information no one else has

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Current Yield on Bond calculation

A

Annual Interest / Current Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Calculate return of stock purchased with foreign currency

A

Apply return percentage to original value of yen
Divide that figure by new value of yen

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How to determine which stock is riskier?

A

Apply a relative measure of variability: Coefficient of Variation (CV)

CV= standard deviation/ expected return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Which tax rate when calculating TEY (tax equivalent yield)?

A

Use the tax rate they are avoiding

States tax rate for Treasury
Federal tax rate for Municipal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Which Formula?

A

Dividend Discount Model (constant growth)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Which Formula?

A

Required Rate of Return for DDM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Which Formula?

A

Covariance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Which Formula?

A

Standard Deviation of two assets based on weighting.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Which Formula?

A

Beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Which Formula?

A

Required Rate of Return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Which Formula?

A

Alpha (Jensen)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Which Formula?

A

Treynor Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Which Formula?

A

Change in Price of Bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Which Formula?

A

Tax Equivalent Yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Which Formula?

A

Sharpe Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Current Yield Formula?

A

Annual Interest in Dollars/
Bonds Market Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Property Intrinsic Value formula?

A

NOI/ cap rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Intrinsic value of Call?

A

Market Price - Exercise Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Intrinsic Value of Put?

A

Exercise Price - Market Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Return On Equity?

A

Earnings available per common (EPS)/
Common Equity (net worth or book value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Dividend Payout Ratio?

A

Common Dividends Paid/
Earnings available for common (EPS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Margin Call formula?

A

1- Initial Margin %. /
1-Maintenance margin %

X purchase price of stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Price / Earnings Ratio?

A

Current Market Price/ Earnings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Corp and Muni Bond risk (DRIP)

A

Default
Reinvestment
Interest Rate
Purchasing Power

36
Q

Govt Bonds Risk (RIP)

A

Reinvestment
Interest Rate
Purchasing Power

37
Q

Capitalization sizes (4)

A

Large- exceeds $10B
Mid- 2-10B
Small- less than 2B
Micro- less than 300M

38
Q

American Depository Receipt facts (3)

A

Prices of ADRs quoted in US Dollars
Dividends paid in US Dollars
Dividends declared in foreign currency

39
Q

Real Estate NOI formula

A

Gross receipts
+non rental income (laundry, etc)
= Potential Gross Income
-Vacancy and collection losses
-Operating Expenses (excluding interest/ depreciation)
=Net Operating Income

40
Q

Option Intrinsic Value

A

Difference between market price and exercise price

41
Q

Option Premium

A

market price of option, approaches IV near expiration

42
Q

Option Time Premium

A

amount the market price exceeds intrinsic value

43
Q

Call Option Taxability- writer

A

lapse-premium received is short term gain
exercise- premium added to sales price ( can be long term based on underlying)

44
Q

Call Option Taxability- holder

A

not exercised- short term loss or gain

45
Q

Option Straddle

A

buying a put and call- does not own stock

46
Q

Option Collar

A

sells call (out of money) and buys put at a lower strike price- owns stock

47
Q

Protective Put

A

buying put on stock owned to serve as insurance against decline

48
Q

Warrants VS Call Options (3)

A

Warrants issued by corp, calls created by individuals
Warrants have maturities of several years, calls 9 months
Warrant terms not standardized, call options are

49
Q

Future Contracts Long/ Short

A

Long- farmer needs short hedge, will sell contract to avoid price drop
Short-Kellogs needs long hedge, will by future contract to avoid increase

50
Q

Reg D Accredited VS Non-Accredited investor

A

Accredited- Net worth $1m or income of $200k ($300k joint)

Non-Accredited- sold to max 35 investors
must use purchaser representative if not sophisticated

51
Q

Coefficient of determination -R2

A

Describes percentage of a funds’ movement explained by movement in S&P 500.

Index funds/ diversified funds close to 100%

52
Q

Standard Deviation VS Beta

A

Std Dev- measures variability of returns in non-diversified portfolio- total risk

Beta -index of volatility in diversified portfolio- systematic risk

53
Q

Geometric VS IRR return

A

Geometric- time weighted, evaluates portfolio manager

IRR- dollar weighted, compares absolute dollar amount changes

54
Q

Holding Period Return

A

total return including appreciation and dividends less margin interest over the entire period divided by out of pocket cost of investment

55
Q

Duration positive VS inverse related

A

Positive- years to maturity

Inverse- annual coupon, current yield or yield to maturity

56
Q

Zero Coupon Bond facts (5)

A

Duration equal to maturity
No coupon interest, yet produces “phantom” income
No reinvestment rate risk
Sold at deep discounts to par
Price fluctuates more than coupon bonds with same maturity

57
Q

Using Duration to Manage Bond Portfolios (rates rise vs fall)

A

Interest rates expected to rise- shorter duration (buy high coupon bonds with short maturities)

Interest rates expected fall- lengthen duration (buy low coupon bonds with long maturities

58
Q

Greater Bond Price fluctuation when (3)

A

low coupon
longer term to maturity
lower the market interest rate

59
Q

What is Convexity for bonds and when largest (3)

A

the degree which duration changes as yield to maturity changes
largest:
low coupon
long maturity
low yield to maturity

60
Q

3 types of efficient market hypothesis

A

Strong Form- prices reflect all information
Semi-Strong form- all publicly known information is reflected in price (except insider info)
Weak Form- historical price data (technical analysis) priced in, fundamental analysis may product superior results

61
Q

Dow Jones

A

30 industry stocks, price weighted

62
Q

S&P 500

A

value/cap weighted

63
Q

Russell 200

A

smallest 200 stocks- value/cap weighted

64
Q

Wilshire 5000

A

overall stock market- value/cap weighted

65
Q

Valueline

A

1700 equally weighted stocks

66
Q

NASDAQ

A

OTC trading- value/cap weighted

67
Q

Europe, Australia, and Far East (EAFE)

A

major foreign markets, value/cap weighted

68
Q

Barclays Aggregate Bond

A

5000 US Bonds

69
Q

Tax Basis of Mutual Fund (3)

A

FIFO
Specific ID- seller identifies shares sold
Average Cost

70
Q

When to use Sharpe ratio

A

when low R2 (less than 60)
use highest Sharpe number

71
Q

When to use Jensen /Alpha or Treynor ratio

A

High R2 (60+) or diversified portfolio
Use highest positive alpha, then highest Trynor

72
Q

Margin Call at what price (formula)

A

1-initial margin% / 1-maint margin % X purchase price

73
Q

Arbitrage Price Theory (4)

A

Unexpected Inflation
Unexpected change in production
Unanticipated shift in risk premium
Unanticipated change in yields

74
Q

Unsystematic Risk (2)

A

Diversifiable risks:
Business risk
Financial Risk

75
Q

Systematic Risk

A

Risk of overall market, non-diversifiable

76
Q

Types of Systemic Risk (PRIME)

A

Purchasing Power
Reinvestment
Interest Rate
Market Risk
Exchange rate

77
Q

Yield Ladder (YMCA

A

Yield to Call
Yield to Maturity
Current Yield
Nominal Yield (Annual Coupon Rate)

78
Q

EE / I Bonds Rates

A

EE-Interest Rate (fixed) based on 10 year Treasury
I Bond fixed rate + inflation adjustment every 6 months

79
Q

EE/ I Bonds Taxation

A

Subject to Federal Taxation when redeemed (unless for education)
Not subject to state or local taxes

80
Q

Types of Municipal Securities (3)

A

General obligation bonds- backed by full faith, credit, taxing power
Revenue Bonds- backed by specific source of revenue
Insurer Muni Bonds- insured by AMBAC and MBIA

81
Q

Indenture / Bond Agreement parts (5)

A

Form of bond
Amount of issue
Protective covenants/ sinking fund
Ratios- working capital and current ratio
Redemption rights (call, put, conversion)

82
Q

Who regulates disclosures on form ADV?

A

SEC

83
Q

Calculate Bond’s Market Price

A

Annual interest/ Current Yield

84
Q

How to calculate Geometric Mean?

A
  1. Multiply each return by the preceding
    1.3 x 1.4 x.6 x .8= .8736
  2. Solve for i
    FV .8736 PV -1 N 4
85
Q

What is R2?

A

Coefficient of determination

It is square of Correlation Coefficient

Describes % of funds movement that corresponds with movement of S&P 500

CFP Exam Study (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions