Brainscape's Knowledge GenomeTM

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


See full index

CFP - Review Cards > Investments > Flashcards

Investments Flashcards

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

are CDs marketable?

A

yes

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

are CDs negotiable?

A

yes. they can be sold in the open market before maturity

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

What kind of risk do CDs carry?

A

interest rate risk and purchasing power risk

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

Commercial paper

A

$100k denominations
maturity of 270 days or less
sold at a discount and rated as to quality

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

banker’s acceptance

A

finance import and export transactions
9 months or less to maturity
trade at a discount to face value

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

Eurodollar

A

deposit in ANY foeign bank denominated in dollars

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

yankee bonds

A

dollar-denominated
issued in the US by foreign banks and corporations

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

when does a bond sell at a discount

A

when its par value is in excess of the bond’s purchase price

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

premium bond

A

when the bond’s purchase price is in excess of par value

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

Yield ladder

A

yield to call
maturity
current
nominal
current
maturity
call

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

nominal yield

A

stated rate of interest of the bond

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

interest is generally earned by a bondholder _______

A

daily

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

OID

A

original issue discount
discounted from par when it is issued
many are zero coupon bonds
no interest until maturity
phantom income

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

T Bill

A

3, 6, and 12 month maturity
$100 to $1M
NO risk
not callable
no coupon
subject to federal income/exempt from state and local income tax
weekly auction

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

Treasury Notes

A

1-10 years
$1k to $100k
What risk? reinvestment, interest, purchasing power
NOT callable
subject to federal income/exempt from state and local income tax
semiannual interest
monthly auction

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

treasury bonds

A

10 - 30 year maturity
$1k to more than $1M
RIP (risk)
No default rate risk
Callable 15 years prior to maturity
subject to federal income/exempt from state and local income tax
semiannual interest
quarterly auction

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

Treasury STRIPS

A

treasury issued zero coupon bonds
direct obligation of the federal govt
discount is taxable income, earned annually

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

TIPS

A

inflation protection
marketable
face value (principal) adjusted semiannually
the higher the inflation rate, the higher the face value of the bond
Sold in $1k denominations

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

EE Bonds

A

interest earned is NOT subject to federal income taxation until the bonds are redeemed or reach final maturity

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

I bonds

A

inflation-indexed accrual securities of the US govt
non marketable
nontransferable
nonegotiable
cannot be pledged for collateral
sold at face value
interest accumulates monthly

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

GNMA Risk(s)

A

interest rate risk - price falls when interest rates rise
reinvestment rate risk - prepayment when interest rates fall

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

debenture

A

corporate debt obligation backed only by the integrity of the issuer

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

bond rating

A

Standard & Poor’s
Moody’s

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

a convertible bond will not sell for less than…..

A

the larger of the following:
-its value as a bond (debt)
-its conversion value

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

when would an issuer call bonds?

A

likely to call a bond if interest rates have dropped in the market since the bond was issued

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

10Q vs 10K

A

reports from corporate to the SEC
q = quarterly
k = annually

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

qualified dividends with preferred stock

A

stockholder must own the stock for 90 days in a 181 day period that begins 90 days before the ex dividend date

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

ETF vs mutual fund

A

ETFs are generally more tax efficient than traditional open end mutual funds

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

unit investment trust

A

investment company with no day to day portfolio mgmt
unmanaged
handled by an independent trustee
passive investment
assets are not traded, they’re frozen
the trust collects income, and eventually, repayment of principal
self liquidating
NAV

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

mutual funds

A

open end investment companies
nonnegotiable, redeemable securities
NAV - daily
redemptions are always at NAV

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

closed end investment companies

A

issue stock once, then the books are “closed”
no new shares are issued
hold illiquid securities
shares are sold in the market (like any other stock)

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

Guaranteed investment contracts

A

GICs
issued by insurance companies
2-5 years

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

real estate and inflation

A

investment real estate can be an effective hedge against inflation
low correlation coefficient with US common stock (typically)

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

properties intrinsic value

A

NOI must be divided by the cap rate

CAP rate = rate of return

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

non public reits

A

not liquid or marketable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

REITs vs RELPs

A

REIT is a portfolio investment
RELPs are subject to passive loss rules
REITS are actively traded
RELPs are generally not marketable
REITs are managed by a board of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

derivative (definition)

A

financial instrument whose value is based on an underlying asset (such as a stock) or group assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Long term equity anticipation securities (LEAPs)

A

long term options
ranging up to 2 years and beyond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

warrant

A

similar to a call option
issued by corporations
several years to maturity
not standardized
issued with no intrinsic value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

taxation on collectibles

A

long term capital gains rate is 28%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Private placement (regulation D)

A

offered privately
max of 35 non accredited investors and an unlimited number of accredited investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

qualified purchaser

A

when a person owns at least $5M in investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

systematic risk

A

non diversifable risk
AKA: PRIME

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

total risk vs systematic risk

A

Total risk = standard deviation
systematic risk = beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

liquidity

A

BOTH transaction speed and stability of price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

marketability

A

speed of a transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

correlation coefficient and covariance

A

BOTH express the extent to which the movements of stocks/securities in the same portfolio are similar or not

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Covariance

A

considers an infinite possibility of outcomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

correlation coefficient

A

falls within a specific range

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Correlation coefficient of +1.0

A

expose the maximum risk to the portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

coefficient of variation

A

(CV)
measure of relative variability used to compare investments with widely varying rates of return and standard deviation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

CV equation

A

average (or mean)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

standard deviation

A

measures variability of returns in a nondiversified portfolio and is a measure of total risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

beta

A

volatility of returns used in a diversified portfolio and is a measure of systematic risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

simple return

A

arithmetic mean

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

geometric mean

A

compound returns over more than one time period
AKA time-weighted return

57
Q

dollar weighted return

A

measures changes in total dollar value, treating additions and withdrawals of capital as part of the return along with income and capital gains and losses

58
Q

nominal return

A

actual returns produced over a given period computed without accounting for the purchasing power of the dollar inflation

59
Q

total return

A

annual return on an investment including appreciation or loss and dividends or interest

60
Q

holding period return

A

total return (income plus price appreciation and dividends less margin interest) over the period from purchase to end of period or sale divided by the price of the investment

61
Q

Yield to maturity

A

effective yield of a bond
takes into account both the market price of the bond as well as any capital gains or losses on the bond if held to maturity
ALWAYS USE SEMIANNUAL COMPOUNDING (even with zero coupon bonds)

62
Q

yield to call

A

presumes that the bond will be redeemed by the issuer at the first call date specified in the indenture agreement

63
Q

current yield

A

takes into account the interest in dollars and current market price of the bond

Annual interest in dollars/ bond’s current price

64
Q

taxable equivalent yield

A

(tax exempt yield)/
1-tax rate

65
Q

taxation of muni bonds

A

exempt from federal tax, but subject to state and local tax

66
Q

bond duration

A

weighted average maturity of the bond’s cash flow on a present value basis

67
Q

what is the purpose of duration

A

compare price volatility of bonds with equal coupons but different terms

68
Q

risk averse investors prefer what bonds?

A

short duration

69
Q

aggressive investors prefer what bonds?

A

long duration WHEN they anticipate that interest rates will decline
short duration when they anticipate interest rates will rise

70
Q

immunization

A

portfolio is immunized if the duration of the overall portfolio is equal to a preselected time horizon

71
Q

interest rate risk (bonds)

A

interest rate risk describes the realationship between bond prices and required rate of return

72
Q

reinvestment rate risk (bonds)

A

uncertainty about the rate at which future income can be reinvested

73
Q

zero coupon bonds

A

durations equal to their maturities

74
Q

zero coupon bond fluctuations

A

because they have no coupons, their prices fluctuate more than those of coupon bonds with the same maturities

75
Q

if interest rates are expected to rise (bonds)

A

buy higher coupon bonds with short maturities to shorten duration

76
Q

if interest rates are expected to fall (bonds)

A

buy low coupon bonds with long maturities to lengthen duration

77
Q

when the bond coupon is smaller….

A

the relative price fluctuation is greater

78
Q

when the term to maturity (on bonds) is longer

A

the relative price fluctiation is greater

79
Q

when the market interest (of bonds) rate is lower the price fluctuation is?

A

greater

80
Q

convexity

A

expresses the degree to which duration changes as a bond’s yield to maturity changes

81
Q

convexity is the largest for…..

A

low coupon bonds, long maturity bonds, and low yield to maturity bonds

82
Q

book value

A

accounting value of the equity shown on the balance sheet

83
Q

Return on equity

A

EPS/common equity

84
Q

capital market line

A

expresses the MACRO aspect of modern portfolio theory

85
Q

CML reveals

A

the expected return on a fully diversified portfolio
that a diversified portfolio should fall somewhere along the CML
that individual securities or inefficient portfolios fall below the CML
cannot be used to evaluate the performance of a single security or a portfolio that lacks full diversification
that Rf is the risk free return

86
Q

efficient frontier provides

A

the highest return for any given level of risk or the lowest risk for any given level of return

87
Q

Inefficient (attainable)

A

all the dots below the efficient frontier are feasible but are inefficient
they carry to much risk relative to their expected return

88
Q

not feasible (unattainable)

A

portfolios outside (or above) the boundary of the efficient frontier are not feasible because they cannot function for any period of time under the model

89
Q

Anomalies (exceptions to EMH)

A

P/E effect - low P/e performs better than high p/e

Small firm effect
Janaury effect
Neglected firm effect
value line phenomenon

90
Q

anchoring

A

investors become fixated on certain price points, often their purchase price

91
Q

fundamental analysis

A

examines balance sheets and income statements to forecast future stock price movements

92
Q

top down method

A

an investor first looks at trends in the general economy, selects industireis, and ultimately selects companies that should benefit from those trends

93
Q

bottom up method

A

individual stock search with outstanding performance before considering the impact of economic trends

94
Q

activity ratio

A

measures how rapidly a firm is able to convert various accounts into cash (or sales)
the sooner a company can convert assets into sales or cash, the more effectively the firm is being run

95
Q

technical analysis

A

generally use charts or computer programs to identify and project price trends

96
Q

technical approaches

A

dow theory
barron’s confidence index
odd lot theory
investment advisor opinions
advance/delcine line
moving average
mutual fund cash position

97
Q

dow theory

A

aggregate measure of securities prices and thus does not predict the direction of changes in individual stock prices

98
Q

barron’s confidence index

A

differential between the retruns on quality bonds and bonds of lesser quality will forecast future price movements

99
Q

dow jones

A

price weighted

100
Q

S&P 500

A

float weighted

101
Q

russell 2000

A

cap weighted index of the smallest 2000 stocks in the russell 3000

102
Q

wilshire 5000

A

value weighted index consists of over 7000 issues

103
Q

value line

A

equally weighted index of 1700 issues

104
Q

ex dividend date for common stock

A

the date of record for the corporation is the first business day after the ex dividend date

105
Q

sharpe ratio

A

expressed as the ratio of the excess return of the portfolio to its standard deviation

106
Q

treynor ratio

A

ratio of the excess return of the portfilio to its beta

107
Q

jensen ratio

A

AKA alpha
portfolio reutnr actually attained and subtracts from it what the retne should have been based on the risk assume din the portfio

108
Q

what does r^2 reveal?

A

the percentage of a fund’s movement that is explained by movements in the S&P 500.
aka the correlation coefficient

109
Q

how do you decide which ratio to use? in relation to R^2

A

if R2 is less than 60, the portfolio is nondiversified. look for the highest share number
if r2 is greater than 60 the portfolio is diversified. so look for the highest positive alpha, if this isn’t a choice, select the highest treynor

110
Q

stock option collar

A

investor owns a stock and wants to hedge against the stock declining in value
sells a call at one strike price (out of the money) and buying a put at a lower strike price (out of the money). they then own three positions

111
Q

laddered bond portfolio

A

bonds are purchased with different maturity dates
as each bond matures, a new longer term bond is purchased

112
Q

bullet (bonds)

A

investor purchases intermediate duration bonds and does not acquire long duration or short duration bonds

113
Q

options and mutual fund shares in relation to margin

A

NOT marginable

114
Q

maintenance margin formula (NOT on the formula sheet)

A

(1-initial margin percent)
———————————– x purchase price
(1 - maintence margin percent)

115
Q

types of unsystematic risk

A

known as diversifiable risk
business risk
financial risk

116
Q

how do you reduce unsystematic risk

A

diversification

117
Q

total risk is ________

A

standard deviation

118
Q

Brokered CDs vs regular (bank) CDs

A

brokered CDs have interest rate risk, but bank/regular CDs do not

119
Q

types of risk for CDs (non brokered)

A

purchasing power
reinvestment rate

120
Q

Income from TIPS

A
  1. fixed interest (that I pay taxes on)
  2. if interest rates rise, I’ll owe taxes on the phantom income on the increase but I’ll add this to my basis
121
Q

EE bonds are issued at what value

A

face value

122
Q

EEs in an UTMA

A
  • owned by the child
    -taxed as ordinary income at redemption
123
Q

EE (education bonds)

A

-normally owned by parent
-tax free if the parent’s AGI is less than the phaseout at redemption

124
Q

i bonds are sold at?

A

face value

125
Q

taxation of i bonds

A

the same as EE bonds and may qualify for “education” bond status

126
Q

GNMA vs FNMA/FHLMC

A

Ginnie Maies are guaranteed
the others are technically NOT for the exam

127
Q

GO bonds vs Revenue

A

GOs trump Revenue

128
Q

CMOs

A

-A = fast pay
M = medium pay
Y= slow pay
Z tranche which bears no coupon (most risk)

129
Q

Zero coupon bonds don’t have what risk?

A

reinvestment risk

130
Q

why is there a premium on convertible debt?

A

there is an embedded call option

131
Q

duration on preferred stock

A

it’s infinate

132
Q

who buys preferred stock?

A

c corporations

133
Q

an ETF is most similar to….

A

an open end fund

134
Q

what type of investment can ALWAYS be purchased at NAV?

A

no loan balanced mutual fund

135
Q

when the market price of a stock is lower than the exercise price of the option, the put is _____

A

in the money

136
Q

The return on _______ assets is normally negatively correlated with returns on _____ assets

A

physical
Financial

137
Q

intrinsic value

A

difference between the underlying stock price and the exercise price

138
Q
A

CFP - Review Cards (17 decks)

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