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Ben cfp help > Investments > Flashcards

Investments Flashcards

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CFP® flashcards
1
Q

Initial margin

A

Amount of equity an investor must contribute to enter margin transaction

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2
Q

Maintenance margin

A

Min amount of equity required before margin call

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3
Q

Margin call formula

A

Loan / (1- maintenance margin)

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4
Q

Margin position formulas

A

Equity: stock price per share - loan per share
Margin: equity per share / FMV

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5
Q

Required Equity (margin formula)

A

Stock price x maintenance Margin

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6
Q

Actual equity (margin)

A

Investor must contribute difference between required equity and actual equity
Stock price - debt

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7
Q

Standard deviation

A

Total risk of undiversified portfolio
Bigger SD, the riskier

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8
Q

Standard deviation %

A

1 standard deviation : 68%
2: 95%
3: 99%

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9
Q

Covariance of Variation

A

= standard deviation / average return
Higher , more risky
Useful for comparing 2 assets with different avg returns

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10
Q

Correlation coefficient

A

Measure movement of security relative to another
+1 is perfectly correlated
= stand Dev1 x stand Dev2 x correlation

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11
Q

Beta

A

Measures Systematic risk
Beta of market is 1

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12
Q

Coefficient of determination (r squared)

A

Correlation coefficient squared
Tells investors if beta is appropriate measure of risk
If rsquarwr over 70% use beta

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13
Q

Holding period return

A

(Selling price - purchase price +/- cash flows) / purchase price

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14
Q

Treynor index

A

Uses beta to measure reward achieved relative to risk
Needs to be compared to another Treynor index

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15
Q

Sharpe ratio

A

Provides measure of portfolio performance to risk
Uses standard deviation

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16
Q

Jensens alpha

A

Uses beta
Higher the alpha, better the performance
Negative alpha is underperformance

17
Q

Dollar weighted return

A

Cash flows of investor, not stock

18
Q

Time weighted return

A

Cash flows of the investment
Ex mutual fund

19
Q

Price to earnings ratio (PE ratio)

A

Amount an investor is willing to pay
= price / earnings per share

20
Q

Dividend payout ratio

A

% of firms earnings being paid as dividend
= common stock div / earnings per share

21
Q

Return on Equity

A

Overall profitability of company
= earnings per share / stockholders equity per share

22
Q

Dividend yield

A

Annual dividend as a % of stock price
= div per share / stock price

23
Q

Efficient market hypothesis

A

If market was perfectly efficient, price would be reflective of all info

24
Q

Weak form of efficient market hypothesis

A

Stock prices can be beaten by inside information
Rejects technical analysis

25
Q

Semi strong efficient market hypothesis

A

All public info reflected in price
Rejects technical and fundamental analysis

26
Q

Strong form efficient market hypothesis

A

Assumes inside info is already reflected in stock price
Cannot beat market
Rejects fundamental, technical analysis and inside info

27
Q

Duration of zero coupon bonds

A

Zero coupons always have duration = to maturity
Coupon bonds have duration less than maturity

28
Q

Call options
When to buy and sell

A

Buy: believe price will rise
Sell: believe price will fall or stay same

29
Q

Put options
When to buy or sell

A

Buy: believe prices will fall
Sell: believe prices will rise or stay the same

30
Q

Selling options

A

Produces income

31
Q

Purchasing options

A

Protect portfolio from downturn in market

32
Q

Intrinsic value

A

Call: stock price - strike price
Put: strike price - stock price
Cannot be less than 0

33
Q

Yields at discount
Highest to lowest

A

Call Moms Cell Now when discount
YTC, YTM, CY, NY

34
Q

Real Return Formula

A

[(1 + investment return) / (1 + inflation)] - 1 x 100

35
Q

conversion value of bond formula

A

(Par Value / Conversion Price) x Stock Price

36
Q

Tax Exempt Yield Formula

A

corporate rate x (1 - marginal tax rate)

37
Q

Preemptive Rights

A

right of existing shareholders to purchase newly issued stock before offered to public
-able to keep same % of ownership

38
Q

When to use Treynor VS Sharpe Ratio

A

Treynor: uses Beta - use for Diversified Portfolio
Sharpe: uses Stan Dev - use for Undiversified Portfolio

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