Investments Flashcards

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0
Q

“Top Down” Fundamental Analysis

A
  • 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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1
Q

Alpha Calculation

A

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

Same as
Rp-(Capm)

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2
Q

Systematic Risk what is it?

A

Diversify able risk

PRIME

Purchasing Power
REINVESTMENT
INTEREST RATE
MARKET
EXCHANGE RATE
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3
Q

What is a CMO

3

A

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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4
Q

Seeding financing

A

Early stage business funding for research and development of an idea

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5
Q

Coefficient of Determination

A

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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6
Q

Instructor value of a security

A

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

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7
Q

Hardship withdrawals from 401k can be taken for

5

A

Purchase of a primary residence

College tuition

Medical expense

Burial of spouse of dependent

Prevent eviction

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8
Q

What’s is a Zero Cost Collar

A

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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9
Q

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

A

Decrease they have an inverse relationship

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10
Q

Futures contracts

A

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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11
Q

Futures:

Someone that produces a commodity is:

A

Long the position because they own it and would take a

SHORT HEDGE positions by selling wheat futures

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12
Q

Futures:

When someone needs the commodity

A

They are shirt the position and would use a

LONG HEDGE AND buy the commodity in the future

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13
Q

European Options can only be expired

A

On date of expiration

American options anytime until expiration

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14
Q

Black Scholes option Valuation

A

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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15
Q

What are the riskiest options

A

Writing a naked option

Or a short straddle

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16
Q

Correlation coefficient is?

A

The measure of two securities against each other

Goes from -1 to 1…

17
Q

Covariance is

COV

A

Measure how assets returns move together

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

18
Q

Beta

A

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)

19
Q

Coefficient of Determination

A

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

20
Q

Sharpe Ratio is?

A

Risk adjusted of a portfolio

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

21
Q

Treynor ratio is

A

Risk adjusted measure of a portfolio using Beta

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

22
Q

Jensen Alpha

A

The risk adjust value added by the portfolio manager

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

Alpha=return portfolio-(CAPM)

23
Q

Indifference curves are?

A

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

24
Q

Efficient market hypothesis

A

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

25
Q

Technical analysis is

A

Uses charts past history and patterns to predict future results

26
Q

Fundamental analysis is

A

Uses the revenues financials of a company to predict results

27
Q

Immunization

A

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

28
Q

Duration is?

A

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

29
Q

Concepts of duration

A

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)

30
Q

Convexity is

A

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

31
Q

Duration price change calculation

A

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

32
Q

YTC and YTM calculation tricky ending what is it?

A

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

33
Q

Zero coupon bands have no?

A

Current yield

34
Q

Dividend Growth model calculation

A

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

35
Q

Holding period return VS
Time weighted return VS
Dollar weighted return

A

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

36
Q

Coefficient of variation

A

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)

37
Q

Make sure you know the difference between

Correlation coefficient

Covariance

Coefficient of determination

Coefficient of variation

A

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

38
Q

Current yield

A

The annual coupon/current price

39
Q

Premium bonds which is highest

Coupon, current yield, YTM, YTC

A

In a premium bond

Coupon
Current yield
YTM
YTC

Opposite for discount bonds