Investments Flashcards by Justin Pagan

“Top Down” Fundamental Analysis

the analysis of companies by sales management and competition

A stocks intrinsic value is composed of its current market price in order to determine if it is undervalued or overvalued

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Alpha Calculation

Alpha= Rp-(Rf + (Rm-Rf)Bp)

Same as
Rp-(Capm)

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Systematic Risk what is it?

Diversify able risk

PRIME

Purchasing Power
REINVESTMENT
INTEREST RATE
MARKET
EXCHANGE RATE

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What is a CMO

Collateralized Mortgage Obligations

Issues serval maturities based on repaying loan mortgage

CMOS offer investors protection- prepayment risk

Within a Tranche principal repayment may be made on a pro rata basis

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Seeding financing

Early stage business funding for research and development of an idea

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Coefficient of Determination

Is the correlation coefficient squared

It tell you the amount a portfolio is effected by the market.

It also tells you the opposite of how much is unsystematic risk by subtracting 1-r2

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Instructor value of a security

The present value of expected future cash flows discounted at an appropriate discount rate. Taking the risk into consideration

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Hardship withdrawals from 401k can be taken for

Purchase of a primary residence

College tuition

Medical expense

Burial of spouse of dependent

Prevent eviction

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What’s is a Zero Cost Collar

It’s a long position in anatomy I protected by:

Buy a long out to protect and also writing a call to create the premium to cover the cost of the options.

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An increase in expiration price will cause an option drive to?

Decrease they have an inverse relationship

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Futures contracts

Trade on the Mercantile Exchange

Usually commodities or trill/bonds, munis, foreign currency

Daily settlement on Margin accounts

Taxed at 60/40 long term to short term and position must be treated as closed by year end

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Futures:

Someone that produces a commodity is:

Long the position because they own it and would take a

SHORT HEDGE positions by selling wheat futures

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Futures:

When someone needs the commodity

They are shirt the position and would use a

LONG HEDGE AND buy the commodity in the future

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European Options can only be expired

On date of expiration

American options anytime until expiration

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Black Scholes option Valuation

Measure the call price of the option based on effecting variable:

Current price of stock =directly related. Price goes up option price goes up

Exercise price = inversely related(the lower the call option price the more in the money the more it costs)

Time to expire= directly related. Longer more expensive

Volatility= directly related more vomited more expensive

Risk free rate increases= directly raelated

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What are the riskiest options

Writing a naked option

Or a short straddle

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Correlation coefficient is?

The measure of two securities against each other

Goes from -1 to 1…

Covariance is

COV

Measure how assets returns move together

COV= (Correlation Coff)(Stda)(stdB)

Beta

Is the measure is diversifiable systematic risk

Beta of 1 is as risky as market

Beta=COVam/stdM squared

Beta=(correlation coefficient of AB)(stdab/stdMaeket)

Coefficient of Determination

Measure the movement of a portfolio and how it’s effected by the market

R= correlation coefficient squared

If R is greater than 60% you use Treynor not sharpe

Sharpe Ratio is?

Risk adjusted of a portfolio

Sharpe=(return portfolio-risk free rate)/std portfolio

Treynor ratio is

Risk adjusted measure of a portfolio using Beta

Trey=(return of port-risk free rate)/beta of portfolio

Jensen Alpha

The risk adjust value added by the portfolio manager

Alpha=Return Port-(tbill+(Ret mark-tbill)Beta))

Alpha=return portfolio-(CAPM)

Indifference curves are?

Curves that intersect the efficiency frontier twice unless They are tangent.

Efficient market hypothesis

Weak form of you have access to fundamental analysis and insider information you can achieve superior results Semi strong- only access to insider information may achieve superior results Strong form- not even i disembark information achieve superior results

Technical analysis is

Uses charts past history and patterns to predict future results

Fundamental analysis is

Uses the revenues financials of a company to predict results

Immunization

The bond Portillo's duration equals the maturity or goal year

Duration is?

The present value of all bind cash flows (coupon payments and maturity value)

Concepts of duration

The higher the coupon the lower the duration Zero coupon bonds the duration equals the maturity Duration is always less than maturity because of coupons(look out for higher quality bonds might have lower duration because their coupons are lower)

Convexity is

Is the degree to which duration changes as a result of changes in the YTM Same direct or inverse relationships as duration to coupon rates and YTM

Duration price change calculation

Change in Price= -D(change in price/1+original interest) Pay attention to if interest rate goes up or down. If it goes down price has to go up so the duration number has to be positive after you multiply the two negatives Opposite of interest rate go up the bond price will go down so the duration calculate has to be negative

YTC and YTM calculation tricky ending what is it?

Be artful and make sure multiply the final interest rate by 2 if you were di indigo by two initially

Zero coupon bands have no?

Current yield

Dividend Growth model calculation

D1/ Required rate-Div growth rate This has an inverse relationship to value of stock the lower the - required rate of return the higher the stock price The higher the required rate of return the lower the stock price

Holding period return VS Time weighted return VS Dollar weighted return

Holding period is total return simple: Ending value-starting value(+- dividends)/starting value Time weighted= the cash flow of original investment and dividend(NOT ANY ADDITIONAL SHARES PURCHASED) Dollar weighted return= cash flow totals with additional purchases and dividends

Coefficient of variation

Is the measure if total risk per unit of expected return(kind of like a measure of sharpe or Treynor by uses STD) STD/expected return or mode)

Make sure you know the difference between Correlation coefficient Covariance Coefficient of determination Coefficient of variation

1- the relationship between two positions how they move together 2- is the measure of there returns hoe the move together 3- is the measure of systematic risk 4- is the measure of risk per unit of return

Current yield

The annual coupon/current price

Premium bonds which is highest Coupon, current yield, YTM, YTC

In a premium bond Coupon Current yield YTM YTC Opposite for discount bonds