Investments Flashcards
For REIT shareholders, income received is considered
investment (not passive) income.
What is used as a measure of risk on the security market line?
Beta
What may be beneficial under the weak form of the EMH?
fundamental analysis, such as analyzing financial statements
Seed financing
funding for the purpose of research and development of an idea
First-stage financing
for initial manufacturing and sales
Bridge financing
for companies that expect to go public within approximately 1 year
Tactical asset allocation
Tactical asset allocation continuously adjusts the asset allocation and class mix in an attempt to take advantage of changing market conditions and overall investor sentiment.
Private activity bonds
Private activity bonds derive their debt service only from their revenues and do not depend upon the issuing municipality. More than 10% of the proceeds are used for private business use. They are issued by municipalities to provide local industries with funds.
What does a correlation coefficient of zero mean?
A correlation coefficient of zero means that the two stocks will move independently.
After tax yield
multiply
Taxable yield
divide
standard deviation measures
total risk (systematic & unsystematic
A distribution that is more peaked than normal
leptokurtic
A distribution that is flatter than normal
platykurtic
short selling
borrow, sell, buy, replace
The highest level of diversification will occur when the correlation coefficient is closest to
-1
Coefficient of variation (CV) =
standard deviation ÷ expected return
Selling a call
This is known as the covered call strategy and is used to increase the income of the portfolio when the price of the underlying stock is expected to remain flat for a period of time.
Capital Market Line
Focuses on portfolio rather than specific investment
Security Market Line
Specifies the relationship between risk & return for an individual asset
Liquidity
Described both transaction speed & stability of price
Arithmetic mean
Aka simple return
Risks of corporate and muni bonds
DRIP
Default risk
Reinvestment risk
Interest rate risk
Purchasing power risk
Protective Put
Involves holding a long position in a stock and buying a put for the same stock
This entails a long position in both the stock and put
Marketability
Refers only to the speed of a transaction
*can be sold quickly
Standard deviation
Measures variability of returns used in a non-diversified portfolio and is a measure of total risk
Net Operating Income (NOI)
Gross Rental Receipts
+
Non-rental income
=
Potential Gross income (PGI)
-
Vacancy and collection losses
=
Effective gross income
-
Operating expenses
*excluded interest & depreciation
Eurodollars
A deposit in any foreign bank that is denominated in dollars
Modern Portfolio Theory (MPT)
It assumes that investors must be compensated for assuming risk
Yankee bonds
Yankee bonds are foreign issued and dollar denominated
not sold in the us. sold to yankees
REITS - redeemable or not redeemable
NOT redeemable. They are negotiable and trade on exchanges
Interest on federal bonds
Interest on federal bonds not subject to state and local taxes but IS subject to federal taxes
which index is price-weighted?
Dow Jones (DJIA)
which performance evaluation measures total risk?
Sharpe
Treasury bills
No 9 month increment
*Bill can’t get pregnant
Brokered CD’s
interest rate risk
Traditional CD’s
no interest rate risk
Commercial paper
money market 270 days or 9 months
OID
most are zero coupon bonds
GNMA
Government guarantee, but not issued by government
taxable at federal, state, and local levels
Debenture
unsecured corporate bond
LEAP
long term options ranging up to 2 years and beyond
What is not used in Markowitz efficient frontier?
Beta
standard deviation is used
Who are STRIPS normally purchased by?
tax-deferred entities
Geometric return shortcut
yr 1 +30
yr 2 +40
yr 3 -40
yr 4 -20
yr 1 +30 = 1.30
yr 2 +40 = 1.40
yr 3 -40 = .60
yr 4 -20 = .80
1.30 x 1.40 x .6 x .8 = .8736
n = 4
I = solve
pv = always -1
pmt = n/a
fv = .8736
Which can defer income, I bonds or Tips?
I bonds
Z tranche coupon
there isn’t one. it functions like a zero-coupon bond
convertible bond calculation
Par / conversion price x current market price of underlying stock
_ % of all return outcomes will fall within + or - one standard deviation of the average or mean
68%
_ % of all return outcomes will fall within + or - two standard deviation of the average or mean
95%
_ % of all return outcomes will fall within + or - three standard deviation of the average or mean
99%
RATS example if funds are mixed
choose the fund with the highest Sharpe
