Investments

Question 1

Holding Period Return =

Answer 1

Profit / Cost

Question 2

Dollar weighted

Answer 2

Use only with CFs: CF-0, CF-j, f-IRR

Question 3

Time weighted

Answer 3

Chain ‘em together

Question 4

Systemic Risk

Answer 4

Risk you can’t diversify. Measured by beta (R2 < 70%).

Question 5

Unsystemic risk

Answer 5

Firm risk: business, financial, default, regulation, country

Question 6

Standard Deviation

Answer 6

Enter the number followed by the Sigma + key. Then and g-s.

Question 7

Skewness: Meso, Lepto, Platy

Answer 7

Meso normal
Lepto skinny
Platy fat and flat

Question 8

Sharpe formula

Answer 8

(Rp-Rf)/SDp. Used when R2<70%. Use if not given R2.

Question 9

Treynor formula

Answer 9

(Rp-Rf)/Beta. Use when R2>70%. This is a relative measure and you use it when comparing 2+ investments

Question 10

CAPM

Answer 10

Rf + (Rm-Rf)*Beta

Question 11

Jenson’s Alpha

Answer 11

Rp - [Rf + (Rm-Rf) X beta]

Question 12

Nominal yield

Answer 12

Coupon yield

Question 13

Current yield

Answer 13

Income / Price

Question 14

Duration

Answer 14

Weighted avg of future CFs stated in years
Always shorter than maturity

Question 15

Convexity

Answer 15

change in bond price = (Duration X %rate change) / (1+YTM)

Question 16

DDM: FV Stock with constant growth rate

Answer 16

(Div X g) / (r-g)

Question 17

DDM formula

Answer 17

CF-0 = 0
CF-1 = Div x g1
CF-2 = CF1 x g1
CF-3 = CF2 x g1 + (CF2 x g X g2)/(r-g)

Question 18

Margin call price

Answer 18

(1-initial) / (1-maint) X purchase price

Question 19

Maintenance margin

Answer 19

How much equity you must maintain in the account value. Usually 30-40%.

Question 20

Initial margin

Answer 20

How much they’ll loan you as a % of the equity in your account. 50% is normal.

Question 21

Call intrinic value

Answer 21

MP-EP. Can never be <0

Question 22

Put intrinsic value

Answer 22

EP-MP. Can never be <0

Question 23

Time value of option

Answer 23

Premium - intrinsic value

Question 24

Protective put

Answer 24

Own the stock, buy a put

Question 25

Collar

Answer 25

Long the stock, sell a call, buy a put. Call pays for your put premium.

Question 26

Straddle

Answer 26

Buy a put, buy a call, same expiration date and stock price. Profit on vol

Question 27

Spread

Answer 27

Buy and sell the same contract. Profit on stability

Question 28

Futures: long hedge

Answer 28

Short the commodity, buy the futures contract.

Question 29

NPV calc on 12C

Answer 29

CF0, CFj, and Nj

Question 30

IRR on calc

Answer 30

N, PV, FV, PMT, i

Question 31

When is NPV better?

Answer 31

Comparing projects with unequal lives
Investing at ROR is more reasonable than at the IRR
You can get multiple IRRs with IRR calc

Question 32

Wash sale days?

Answer 32

30 before and 30 after. 61 days

Question 33

Wash sale cost basis rule?

Answer 33

If you don’t get the loss, you can add that amount to your cost basis of the stock you just bought.

Question 34

Systemic risk examples

Answer 34

Purchasing power risk
reinvestment risk
interest rates
market risk
exchange rate risk

Question 35

Unsystemic risk. what is it and what are the examples

Answer 35

Risk you can diversify: business financial default regulation country