Investments Flashcards
Coefficient of variation
Cv= standard deviation/ avg return
Amortization calculation
First calculate the payment of the mortgage. Then you do 1,input, # of months the ask for (ex 10years of payments into mortgage they want to refinance), gold AMORT then hit equal and it gives you principal interest and balance remaining
Solve for correlation coefficient or standard deviation in the covariance formula
Pij= cov/stand dev of each stock multipled by each other
Solving for standard deviation of one stock= cov/ correlation coefficient multipled by other stock stand dev
Tax exempt yield
Taxable yield x (1-marginal tax rate)
Coefficient of variation
Standard deviation/mean
Higher % is riskier. Means you are taking on more units of risk to get return
Standard deviation
Enter into sigma then hit gold 8
Lower standard deviation is good because it means the returns are tighter to the mean
It measures variability, total risk and non diversified portfolio
Beta
Measures volatility, diverse portfolio, systematic risk
Risk adjusted return
Realized return/ the funds beta
Highest is best
Simple mean
Arithmetic mean simple or compound. Use sigma gold 7
Geometric mean (time weighted return)
Measures the performance of the fund manager
-1pv fv=multiply each return by last ex. 15 1.15 -30 .70 solve for I. If the price didn’t move in a year enter it as 1 n= number of years you held
Dollar weighted return
The investors actual return
Use cash flows and solve for IRR
Stock split
5 for 2
Stock shares 5/2 times the stock shares currently held
Price= flip it 2/5 times current share price
Current yield and current selling price
Yield= Annual interest in dollars/ bond market price
Price=annual interest in dollars/ current yield
Property intrinsic value
Net operating income/ cap rate
Intrinsic value of call and put
POEM and COME
exercised - market
Market- exercise
The intrinsic value can’t be negative lowest is 0
Return on equity
Earnings available for common (eps)/
Common equity (net worth or book value)
Dividend payout ratio
Common dividends paid/
Earnings available for common (eps)
Margin call
1-initial margin percent/
1- maintenance margin percent =
X purchase price of stock (original purchase)
Price/ earnings ratio P/E ratio
Current market price/ earnings
Conversion value for bond
Par/ conversion price given= this x current market price of the stock
When calculating the current bond value you use comparable debt yields as the interest.
Holding period return
What you sold for-/+(what happened when holding might have to add back here what you had to pay off if you margined it plus interest paid from margin, dividends earned also go here) -out of pocket/
Out of pocket price of investment
What you sold for + earned while held - bought for/
Bought for is another way if it doesn’t have margin
Efficient frontier (markowitz model)
Above line unattainable
Below line in efficient
Point A is t bills risk free return
Risk adverse person will be steeper line at beg
Capital market line cml
Macro view (looks at relationship between risk and return) tangent with efficient frontier
Looks at standard deviation
Point b is optimal risky or tangent of the cml
Intersection of cml is risk free or rf tbills
Security market line sml
Looks at micro and beta for an individual asset
Points above sml are undervalued, below line is overvalued
Sml and cml are components of the capital asset pricing model
Efficient market hypothesis
Strong form all added in even illegal activity
Semi strong insider trading would create superior results
Weak all data added in but fundamental analysis may produce superior results
Anomalies- active
P/e effect
Small firm effect
Januarys effect
Neglected firm effect
Value line
Long weekend effect
Active styles of investing
Fundamental analysis-looks at balance sheets in one statements, int rate GDP unemployment
Ratio analysis
Technical analysis- looks at charts or computer programs ex. Dow theory, Barton’s confidence index, mutual fund cash position, advance decline line, moving average 200 day, investment advisor opinions
Charting support floor resistance ceiling
Dividend payment
Purchase date
Ex dividend date
Date of record
Private placement regulation d
Offering can be sold to a max of 35 non accredited investors and unlimited accredited investors, given offering memorandum
Accredited investor ind with net worth of 1,000,000 income of 200,000 or joint income of 300,000 1,2,3 rule (home doesn’t count in NW)
NA investor must sign investment letter
Qualified purchaser is $5 mil in investments
YMCA bond ladder
Discount
Y yield to call
M yield to maturity
C current yield (coupon/ bond market price)
A annual rate or coupon
C
M
Y
Premium
Tips and I bonds
Both have a dual tax structure they have phantom income plus their interest payment
Basis is increased semiannually by inflation
Interest rate is fixed and interest payments vary as principal changes for inflation
I bonds have the option to defer paying tax tips do not
Debenture and indenture
Debenture IOU, corporation debt obligation back by integrity of issuer
Indenture formal agreement, (deed of trust)
Standard and Poor
Moodys
A.M. best (insurance company review)
Investment grade SP AAA, Aa, A, BBB
Moodys Aaa, Aa, A, Baa
Speculative grade sp BB and Below junk bonds
Moodys Ba and below junk bonds
Am best looks at historical date on insurance companies A++ to F
