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Investments Flashcards

1
Q

Margin Trigger Price Shortcut

A

Maintenance 25% = 2/3 buy price

Maintenance 30% = 2/3 buy price, then pick next highest #

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2
Q

Margin Call Formula

A

(1-initial margin % / 1-maintenance %) x Purchase price of stock

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3
Q

Holding Period Return Formula

A

[Sold for +- (What happened while holding) - OOP Cost] / OOP Cost

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4
Q

Identify Forumla & Symbols

COVij / σiσj

A

Correlation Coefficient AKA “R”

COVij = covariance
σ = stock standard deviation

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5
Q

Choosing between Sharpe, Treynor, Alpha

A

R squared > 60: Choose Highest Alpha
(If no Alpha, highest Treynor)

R squared <60: Highest Sharpe

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6
Q

Current Yield Formula

A

Annual Int. in $ / Current Market Price

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7
Q

Real Estate Intrinsic Value Formula

A

NOI / Cap Rate

What about Cap rate?:
NOI/Intrinsic Value

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8
Q

DDM Shortcut: 1st Grow Rate > 2nd Grow Rate

A
  1. Apply D(1+g) / (r-g) to 2nd rate
  2. Choose next HIGHEST answer from 1. calc

REMEMBER: 1st rate HIGHER, next HIGHER answer

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9
Q

DDM Shortcut: 1st Grow Rate < 2nd Grow Rate

A
  1. Apply D(1+g) / (r-g) to 2nd rate
  2. Choose next LOWEST answer from 1. calc

REMEMBER: 1st rate LOWER, next LOWER answer

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10
Q

DDM for Stock Value

A

D(1+g) / (r-g)

D = this year’s div.
r = req. ROR
g = growth rate

*Use decimals

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11
Q

Identify Formula & Symbols

rf + (rm-rf)B

A

Required Rate of Return AKA SML

rf = risk-free rate
rm = market return
B = Beta

Is used for the “r” in D(1+g) / (r-g)

*Use whole numbers

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12
Q

Identify Formula & Symbols

[D(1+g) / P] + g

A

Required Rate of Return

D = this years div
g = growth rate
P = stock price

Use when rf, rm not given

*Use decimals

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13
Q

-D[∆y / 1+y]

A

Change in bond price

D = duration
∆y = change in interest rate
y = YTM

Duration always entered as negative

*Use decimals

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14
Q

Stock Standard Deviation
(Covariance given)

A

σj = COVij / Pijσi

COVij = covariance
Pij = correlation coefficient
σi = stand dev of known stock

solve for σj

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15
Q

CML vs SML

A

CML
- Diversified
- Standard Deviation

SML
- All assets, diversified or not
- BETA

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16
Q

Bond Conversion Value Formula

A

(Par value / conversion price) x FMV of stock

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17
Q

Covariance v. Correlation Coefficient

A

Covariance tells the direction of a relationship (positive or negative)

Correlation Coefficient tells direction and strength

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18
Q

Duration Relationships

A

Duration ↑ YTM ↓
Duration ↑ Mkt. Int. Rate↓
Duration ↑ Coupon↓

Duration ↑ Yrs. to Maturity↑

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19
Q

NOI Formula

A

Gross Rental
+ Non-rental income
- Vacancy/collection loss
- Operating expense
= NOI

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20
Q

Geometric Mean Calc
“Time Weighted Return”

A

Step 1: +1 to all decimal returns
Step 2: MULTIPLE returns together = A

FV = A
PV = -1
N = Yrs. of investment

Solve for = I/YR

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21
Q

Risk Adjusted Return Formula

A

Return / β

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22
Q

Identify Formula & Symbols

Pijσiσj

A

Covariance

P = correlation coefficient
σ = stand dev of stock(s)

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23
Q

Identify Formula & Symbols

Pijσi / σm

A

Beta

Pij = correlation coefficient
σi = stand dev of stock
σm = stand dev of market

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24
Q

Standard Deviation Calc
(single investment)

A

*Year return ± ∑
Gold, 8 key = stand dev

*apply for each year return given

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25
What does Sharpe ratio measure?
- Excess return over standard deviation - Total risk (unsystematic + systematic) - Non-diversified portfolio Must be used in comparison to another portfolio/fund
26
Elements of systematic risk?
Diversification won't eliminate! “PRIME” Purchasing power Reinvestment Interest Rate Market Exchange Rate
27
What creates greater bond price volatility?
SMALLER coupon LONGER term to maturity LOWER mkt interest rate
28
Call option Intrinsic Value
MP - EP
29
Put Option Intrinsic Value
EP - MP
30
What does Treynor ratio measure?
Excess return over portfolio Beta (return per unit of systematic risk) Higher Treynor # is better
31
Jenson/Treynor Keys
1. Risk measured in BETA 2. Volatility 3. Systematic risk
32
Bond Intrinsic Value Calc
(END MODE) (2 P/YR) FV = Face Value (par) PMT = (annual coupon/2) N = Yrs to maturity I/YR = Comprable yield Solve for PV
33
Coefficient of Variation Formula
Stand Dev / Mean Return Relative risk per unit of return ↑# = BAD (more risk)
34
IRR Calc "Dollar Weighted Return"
1. Enter Purchase Price (-), CFj 2. Enter all Inflows/Outflows ±, CFj; 3. Gold, IRR/YR
35
Sharpe Ratio Keys
1. Risk measured in Standard Deviation 2. Variability 3. Total risk
36
Real ROR Formula
[(1 + return) / (1 + inflation)] -1 x 100 Note: "1 +" always use decimal
37
Identify Forumla & Symbols rp - [rf+(rm-rf)β]
Alpha rp = portfolio return rf = risk-free return rm = market return β = beta Note: (rm-rf) = "market premium" *Use whole numbers
38
Dividend Payout Ratio Formula
Dividend Paid / EPS
39
Bond YTM Calc
(END MODE) (2 P/YR) PV = (-)FMV of Bond FV = Face Value (par) PMT = (annual coupon/2) N = Yrs to maturity Solve for I/YR
40
Corporate & Municipal Bond Risk
“DRIP” Default Reinvestment Interest Rate Purchasing Power
41
What does Jenson measure?
"Alpha" Contribution of a portfolio manager - requires a diversified portfolio
42
Government Bond Risk
“RIP” Reinvestment Interest Rate Purchasing Power
43
Yield Ladder "YMCA"
Bond at Discount: Y - Yield to Call M - Yield to Maturity C - Current Yield A - Annual (nominal) yield Bond at Premium: A - Annual (nominal) yield C - Current Yield M - Yield to Maturity Y - Yield to Call
44
Tax Equivalent Yield (TEY) Formula
Muni Yield / (1-tax you don't pay)
45
After-tax Yield Formula (Tax Exempt Yield)
TEY × (1-marginal rate)
46
Reg. D Keys (Private Placement)
- Unlimited accredited investors - Max. 35 non-accredited - Accredited = $1mil. net worth (no primary residence) - $200k AGI single; $300k AGI MFJ - Non-accredited must sign investment letter or need purchaser rep.
47
LEAP Keys
- Expiration 9mo - 3yr - After exercising, must hold stock >1yr for LTCG
48
Futures Hedge Keys
- Selling an asset - Potential price decline, hedge SHORT - Buying an asset - potential price increase, hedge LONG
49
REIT Tax Keys
- Conduit Status - Min. 75% of income from Real Estate Investments - Min. 90% net income distributed - Income dist. are ordinary dividends - May qualify for QBI deduction up to 20% - Good for tax-deferred accts.
50
UIT Keys
- Generally unmanaged - Passive investments, assets are frozen - Units are sold, not shares - Self-liquidating, funds are distributed to Unit holders, not reinvested
51
CMOs Keys
- Payments distributed on "Cash Flow" basis - Z Tranche - No coupon, most risk - Receives PMT last - High duration
52
I Bond Keys
- Non-marketable, nontransferable, can't be used for collateral - Two Interest rates - Fixed base rate - Inflation adjusted rates (every 6mo.) - Sold at face value
53
GNMA v. FNMA/FHLMC
G-NMA: Guaranteed by Fed. gov't F-NMA/FHLMC: Fucked. Not guaranteed
54
Identify Formula & Symbols COVim / σm^2
BETA - COVim = Covariance of stock to market - σm = Standard Dev. of market
55
Efficient Frontier Keys
- Points along the frontier are efficient portfolios; highest return for risk taken - Points below the frontier are feasible but not efficient - Points above the frontier are not feasible - Indifference curve = Investor preference, tangent to frontier; Optimal portfolio for that investor
56
What is the intersection of the CML called?
Rf (Risk-free, 100% T-Bills)
57
What is the point of tangent on the CML?
Optimal risky portfolio (proportional % of all risky assets)
58
What happens if a portfolio moves from point of tangency to Rf?
Investor sells risky assets & buy T-Bills
59
Relationship of assets to SML
OVER the line = Undervalued; BUY UNDER the line = Overvalued; SELL
60
Identify Formula & Symbols (rm-rf)β
Stock risk premium rm = market return rf = risk-free return β = Beta *Use whole numbers
61
Identify Formula & Symbols (rm-rf)
Market risk premium rm = market return rf = risk-free return *Use whole numbers
62
Efficient Market Anomalies
- P/E Effect: Low P/E outperform - Small-firm: Small COs = Higher returns - Jan. Effect: Stocks rally in January - Neglected Firm: Less-followed earns extra - Value Line: Top-rated predicts outperformance
63
Technical Analysis Approaches
- Dow Theory - Barron's Confidence Index - Mutual Fund Cash Position - Advance/Decline Line - Moving Avg. (200 Day) - Investment Advisor opinions
64
Formula & Symbols βσm / σi
Correlation Coefficient β = BETA σi = Standard deviation of investment σm = Standard deviation of market
65
GIC Keys
Guaranteed Insurance Contracts - Like a CD, Issued by an Ins. Co. - 2-5yr Term - Popular with DB Plans - No interest rate risk
66
Bond Duration Shortcut
If you have a coupon, duration has to be less than maturity. Choose a duration that makes common sense relative to the coupon PMT
67
Formula & Symbols [D(1+g)/P] + g
Required Rate of Return D = This year's dividend g = growth rate P = Stock price *Use when rf, rm not given*
68
Preferred Stock Keys
- Issued at $25 par or $100 par - Pays FIXED dividend rate - Cumulative preferred = missed dividends must be made up - Suitability: Corporations with excess funds (Dividend is 50% tax-excluded)
69
REIT Keys
- Invest in income-producing properties - Can't invest in LPs - Income generated from rental - Max 15% income from GNMAs
70
Mortgage REIT Keys
- Make loans to develop property, finance construction - Vulnerable to purchasing power risk - Produce substantial taxable income
71
CALL Option Taxation
SELLING: - Option Lapses: Premium = STCG - Option Exercised: Premium + Sale Price BUYING: - Not Exercised: Premium Paid = STCL - Exercised: Premium + Basis
72
Formula & Symbols COVij / Pijσi
Standard Deviation COVij = Covariance Pij = Correlation Coefficient σi = Stand Dev of known investment
73
What is the basic concept of MPT
Quantify the relationship between risk and return
74
T-Bill Keys
- Maturity: 3mo, 6mo, 12mo - $100 - $1mil. - NO RISK - No coupon, sold at discount
75
Treasury Note Keys
- Maturity 1yr. - 10yr. - $1000 - $100k - RIP risk - Semi-annual coupon
76
Liquid Securities
- CDs (short maturity) - Money market fund - Life insurance cash value
77
Marketable Securities
- REITS - ETFs - closed end mutual funds - Stocks, bonds - Brokered CDs
78
Standard Deviation vs. BETA
Standard Deviation: - TOTAL RISK (unsystematic + systematic) - Variability in a non-diversified portfolio BETA: - SYSTEMATIC RISK - Volatility in a diversified portfolio
79
Correlation Coefficient/Standard Deviation Shortcut
If Pij < +1 Then Standard deviation will be < weighted average Shortcut: Add risks and divide by # of investments, choose next LOWEST answer
80
Wash Sale Keys
30 days ← Date of Sale → 30 days - Disallowed loss added to the basis of stock purchased during wash period - Spouse purchases and buying calls count toward disallowance
81
Ex-Dividend Timeline
Purchase Deadline → Ex-Div Date → Record Date - Watch for holidays/weekends
82
When do you use RROR?
When you see “today’s dollars” in a question. Otherwise, disregard inflation.
83
Time-weighted v Dollar Weighted
Time-weighted evaluates manager performance, disregards cash flows - How well the INVESTMENT did Dollar-weighted (IRR) considers additions and withdrawals as part of the return - How well YOU did
84
Real return definition
Spread between rates and inflation

CFP (8 decks)

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