Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP > Investments > Flashcards

Investments Flashcards

1
Q

Investment Policy Statement

A

RR TLLU

Objectives:

  • Return requirements
  • Risk tolerance

Constraints:

  • Time Horizon
  • Laws and Regs
  • Liquidity needs
  • Unique circumstances
    • Permitted investments
  • Prohibited investments
  • Tax constraints
  • No investment selection
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Primary Market

A

Market in which new issues of securities are sold to the public.

  • public offering
  • rights offering (give existing shareholders the rights to buy new issues)
  • private placement (not open market)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Secondary Market

A
  • provides investors way of buying and selling securities that were issued in primary market
  • NYSE, NASDAQ, OTC, AMEX
  • Provides liquidity to shareholders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

IPO Process

A
  • Investment banking firm or syndicate underwrites the IPO
    • Buys the stock from firm
    • Advises firm
  • Selling group: join and accept responsibility for selling shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Accredited investor

A
  • $200K/year income or
  • 1M of net worth excluding personal residence or
  • Trusts > 5M
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Underwriting types (3)

A

Underwriting takes 3 forms:

  • firm commitment - underwriter buys all the stock and takes risk it won’t sell
  • best efforts approach - any stock not sold is returned to the company
  • private placement
    • sold to no more than 35 unaccredited investors
    • avoids SEC registrations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

American Depository Receipts

A
  • A US Bank’s foreign branch holds stock of a foreign company
  • Bought and sold on US market
  • Prices quoted in US dollors
  • Exchange rate risk
  • Represent shares held in foreign foreign branch
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Yankee Bonds

A
  • No exchange rate risk
  • US$ denominated bonds sold by a foreign entity in the US
  • Because they are US denominated, there is no exchange rate risk.
  • Registered with SEC
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Securities Act of 1933

A
  • Regulates primary market
  • Deals with new security issues
  • Paper act
  • Prospectuses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Securities Act of 1934

A
  • Regulates secondary market
  • Gives SEC power to regulate markets, disclosure requirements of new and current securities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The Investment Advisors Act of 1940

A
  • Investment Advisors must disclose all relevant info about
    • Advice (investment advice)
    • Background
    • Conflicts of interest
  • If under 100M AUM register with the state
  • Greater than 100M AUM register with SEC
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Insider Trading and Fraud Act of 1988

A
  • Defines insiders as:
    • Directors, officers, shareholders, anyone who obtains nonpublic information.
  • Established penalties
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Sarbanes-Oxley Act of 2002

A
  • Protects against corporate fraud
  • requires instant disclosure of stock sales
  • tightened audit regulations
  • established conflict of interest guidelines.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

SEC Fair Disclosure (FD)

A
  • requires distribution of market-moving information
  • prohibits “pre-release” of information to market professionals.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

US Patriot Act

A

Requires broker-dealers:

  • to have anti-money laundering policies
  • to have anti-money laundering officer
  • gather information on clients
  • source large deposits and transfers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

initial margin

A
  • amount of equity that must be put up
  • Fed minimum margin amt is 50%
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

maintenance margin

A

the amount of equity that must maintained

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Debit balance

A
  • amount borrowed to purchase security
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Margin position equation

A

Margin position = (Value of sec. - Debit balance)/Value of securties

Margin call stock price = Debit balance/ (1 - Maintenance Margin)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Market Cap of Indexes

A

S & P: Large cap

Wilshire 5000: Broad index - all caps

Russell 2000: small cap

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Stop-limit order

A

Turns a stop-loss order into a limit order at a certain price

Prevents selling at a too-low price if the price declines rapidly.

Might not result in sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Stop-loss order

A

Executes a market order once the stock drops to a certain price (can sell for much lower if rapidly decline)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Required Rate of Return

A

Required Rate of Return = Real rate + expected inflation premium + risk premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Time-weighted return

A

The return of one security during the time period.

Investment’s cash flows

(InvestmenT, Time)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Dollar-weighted return

A

Return on the number of stocks that a specific investor transacts

Investor’s cash flows

(dollaR, investoR)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Systematic Risk

A

market-driven risk; Non-diversifiable risk

  • Purchasing power (inflation - cash, bonds)
  • Reinvestment Rate (risk that interest rates go down)
  • Interest rates
  • Market risk (general market movements, business cycle)
  • Exchange Rate

Measured by beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Unsystematic risk

A
  • diversifiable risk
    • business risk
      • accounting/audit risk
      • executive risk
    • country risk
    • default risk
    • financial risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Total Risk

A
  • Systematic risk + unsystematic risk
  • measured by Standard Deviation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Beta

A
  • Sensitivity of a security to market movement
  • indication of a security’s volatility relative to the market.
  • Only measures systematic, undiversifiable (market) risk.
  • Derived by plotting a security’s return vs. market return; slope = beta
  • Security return = Beta * Market change
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Standard Deviation

A
  • Absolute measure of risk.
  • Measure of total risk (systematic + unsystematic)
  • Based on an individual security’s historical return
  • Higher standard deviation = more risk
  • σ
  • Measures variation of return around an average
  • +1/-1 SD : 68% probability
  • +2/-2 SD: 95% probability
  • +3/-3 SD: 98% probability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Coefficient of Variation

A
  • compares assets that have different risk and different return.
  • higher CV, the greater the risk
  • Standard deviation/average expected return
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Semi-variance

A
  • only measures instances where returns are below the mean
  • used so risk isn’t understated by being influenced by high returns
  • better measure of downside risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Distributions of returns

A
  • normal distributions - bell curve
  • lognormal distribution - not symmetrical
    • skews either negative or positive
      • skewness - measures lack of symmetry
      • kurtosis - degree to which bell curves are flat or peaked
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Correlation

A
  • drives risk reduction in diversification
  • ranges from -1 to 1
  • r or Rho
  • -1: always move in opposite directions - no diversification benefit
  • 0: not correlated at all
  • 1: always move in the same direction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Calculating SD of a 2-fund portfolio

A

Wa = %age weight of stock a

Wb= %age weight of stock b

σ=standard deviation

COV = covariance = Rho * σa* σb

rho=correlation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

R2

A

Coefficient of determination

  • Correlation coefficient squared
  • Shows what percentage of return can be attributed to the market
  • The higher the r-squared, the better the measure to the benchmark
  • R2 should be at least .7 or 70%
  • If R2is > or equal to .7, then Beta is a good measure of risk because the market is not correlated enough to the investment for Beta to determine risk level.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Efficient Frontier

A
  • Portfolios that offer the highest level of return for a given level of risk
  • Created by Harry Markowitz
  • Portfolios that lie outside of the frontier - upper left - are not attainable
  • assumes that investors have perfect knowledge and want to maximize returns
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Capital Market Line

A
  • A well-diversified portfolio will fall along the CML,
  • Standard Deviation is the measure of risk
  • The CML is derived by drawing a tangent line from the intercept point on the efficient frontier to the point where the expected return equals the risk-free rate of return.
  • M represents the market portfolio, so named since all rational investors (minimum variance criterion) should hold their risky assets in the same proportions as their weights in the market portfolio.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Security Market Line

A
  • Provides a measure for fund performance
  • Beta is the measure of risk
  • Line from the risk free rate (x-axis)
  • CAPM is the equation of this line
  • M (market return) is the intersection between efficient frontier and SML.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Capital Asset Pricing Model

A
  • Gives a required or expected rate of return, given the riskiness of the asset
  • ri= Investors required rate of return
  • rf= Risk free rate
  • rm=Return of the market
  • ß= Beta
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Market Risk Premium

A

rm- rf= market risk premium

The difference between market returns and returns at the risk free rate.

The amount of returns required to undertake market risk (Beta = 1)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Arbitrage Pricing Theory

A

Multi-factor model.

Beta is not an input

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Probability Analysis

A
  • Probability Analysis used to determine the expected return or expected risk based on the likelihood of different scenarios
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Sensitivity Analysis

A
  • Quantifies how a client reacts to extreme low probability outcomes and determine how changes in risk/return impact asset allocations.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Monte Carlo Simulation

A
  • employs many scenarios to build a probability distribution table for retirement planning.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Traditional Portfolio Management vs. Modern Portfolio Theory

A
  • Trad: Based on diversifiying between sectors
  • MPT: Based on SD, Beta, Efficient frontier, low correlation securities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Fixed weighted asset allocation

A
  • predetermined asset class allocation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Flexible weighted asset allocation

A

Weights for each asset class are adjusted periodically based on market analysis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Tactical asset allocation

A

use stock-index futures and bond futures to change a portfolios asset allocation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Sharpe Ratio

A
  • how much risk-adjusted return are we receiving per unit of risk taken. The higher the better.
  • Risk measure is SD

Sp= Sharpe Index

rp= return of portfolio

rf=Risk free rate of return

σ= standard deviation of the portfolio.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Treynor’s measure

A
  • Uses the Beta of the portfolio to measure the portfolio’s return in relationship to risk.
  • The higher the better
  • Relative measure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Jenson’s measure (alpha)

A
  • Difference between actual returns and expected returns
  • Actual return minus CAPM
  • Positive returns are good.
  • Absolute measure - not relative
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

When to use Sharpe, Treynor or Alpha

A
  • if r2 is greater than or equal to .70, then it’s okay to use Treynor or Sharpe
  • If r-squared is less than .70 then use Sharpe
  • R-squared indicates how reliable Beta is as a measure of risk.
  • Sharpe is the only one not affected by Beta (low r-squared is an indication that Beta is not a good measure)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Dollar-cost averaging

A

Fixed dollar amount is invested at fixed intervals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Constant-dollar plan

A
  • portfolio has a speculative and a conservative portion
  • When the specualtive portion increases to a predetermined dollar amount, profits are transferred to the conservative
  • and vice versa
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Constant Ratio Plan

A
  • portfolio has a speculative and a conservative portion
  • When the specualtive portion increases to a predetermined percentage, profits are transferred to the conservative
  • and vice versa
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Variable ratio plan

A

Ratio varies based on market timing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Rights Offering

A

An offer to existing share holders to purchase new stocks (can be at a preferred price)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Stock spin off

A

Conversion of one of the firm’s subidiaries to a stand-alone company by distribution of stock in that new company to existing shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

Stock split

A
  • Increases the number of shares and decreases the value of the stock by an equal amount.
  • Mutiply number of shares times the ratio and share price times reciprocal. e.g. 5 to 3 = 5/3
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Treasury stock

A
  • Stocks that have been sold and subsequently bought back by the company.
  • Buybacks are considered a positive signal
  • Often used to fund management stock option plans rather than issue new shares.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Classified common stock

A
  • different classes of stock have different benefits
  • e.g Class A - non-voting stock; Class B - voting stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Book Value for common stock

A
  • assets - liabilities - preferred stock = book
  • Book = shareholders equity
  • amount of equity shareholders have in the company.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Market value of common stock

A
  • the prevailing market price of the security
  • market capitalization = market value * number of shares outstanding
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Investment value

A
  • The amount that investors believe a security should be trading for or what they think it’s worth.
  • Based on expectations of risk and return and how return is expected from dividends and capital appreciation.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

EPS

A
  • Earnings per share
  • Profit after taxes - preferred dividends/number of shares outstanding.
  • Retained earnings are the percentage of EPS not paid to stockholders.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Date of record

A
  • Date on which one has to be a shareholder in order to receive the dividend
  • Takes 3 days to settle - must buy 3 days before Date of Record
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

ex-Dividend Date

A
  • 3 trading days up to and including the date of record (2 trading days before) where stocks trade without the dividend
  • if you sell on or after the ex-dividend date you still receive dividend.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Dividend Yield

A

Annual dividend/current share price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Dividend payout ratio

A
  • Ratio of amount paid out in dividends vs. amount reinvested in company
  • Dividends per share/earnings per share
  • High DPR could suggest difficulty in paying future dividends (not enough growth)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

Blue chip stocks

A

Issued by large, financially stable companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Income stocks

A
  • High dividend payouts
  • Sometimes have low growth potential
  • subject to interest rate risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

Growth Stocks

A
  • Issued by companies that are experiencing rapid growth
  • Usually pay little or no dividends
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Cyclical Stocks

A
  • issued by companies are closely linked to the overall economy
  • move up and down with the business cycle
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Defensive stocks

A

Pricing remains stable despite economic changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Mid-Cap Stocks

A
  • Market cap from 2 - 10 Billion
  • Good market return with less volatility than small-cap
  • baby blue chips: have same characteristics of blue-chips but smaller
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Small-cap stocks

A
  • Less than $2 Billion Market Cap
  • High risk exposure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Intrinsic Value

A
  • The determined value of a stock based on economic analysis, industry analysis, and fundamental analysis (analysis of the company’s financial and operations condition
  • dependent on future cash flows, discount rate used to determine future value, risk associated with future performance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

Economic Analysis

A

General study of the prevailing economic environment to establish a foundation for the valuation of common stock.

Looks at:

  • Fiscal policy
  • Monetary policy
  • Inflation
  • Consumer Spending
  • Currency rates
  • GDP
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Stock Dividends

A
  • Dividends are received as stock instead of cash.
  • Generally not taxable until sold.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

DRIP

A
  • Dividend Re-Investment Plan
  • Automatically re-invest in the security
  • Taxed as if received as cash
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

PE Ratio

A
  • Price to earnings ratio
  • How much investors are willing to pay for each dollar of income.
  • Price per share/Earnings per share
  • Value stocks have lower PE ratios
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

Industry Analysis

A
  • Perform SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.
  • Establish the competitive position of an industry relative to others..
  • Develop industry outlook
  • Looks at the following
    • monopolistic vs. competitive
    • regulation
    • labor relations
    • role of technology
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

Fundamental Analysis

A
  • Ratio study of particular company
  • Use financial statement, income statement, statement of cash flows.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

Company balance sheet

A
  • summary of assets, liabilities, and shareholder equity (assets - liabilities = shareholder equity)
  • at a point in time.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

Company Income Statement

A
  • Revenues and expenses over a period of time.
  • Reports net income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

Statement of Cash Flows

A
  • Summary of a firm’s cash flow and other events that caused changes in the cash position
  • Determines how cash was used or generated during period.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

Firm Liquidity Analysis

A
  • Measures company’s ability to meet day to day operating expenses and short-term obligations
  • Current Ratio = Current Assets/Current liabilities
  • Net Working Capital = Current Assets - Current liabilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

Activity Ratios

A
  • Measure how well a firm is managing its assets
  • The higher the better:
    • Accounts receivable turnover = Sales/Accounts Receivable (how many times/year are we able to collect our accounts receivable)
    • Inventory turnover = Sales/Inventory (how many times/year are we turning over our inventory)
    • Total Asset Utilization = Sales/Total Assets (how is a firm utilizing their assets to generate sales?)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

Leverage Ratios

A

How much fixed financing has the firm been using?

  • Debt to equity ratio = Long-term debt/shareholder equity
  • Times interest earned = Expenses Before Interest and Taxes (EBIT) /Interest expense (the higher the better)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

Return on Equity

A
  • Return on the amount invested
  • Net income/equity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

Profitability Ratios

A
  • Measures relative success:
    • Net profit margin = Net income/sales
    • Return on assets = Net profit after taxes/Total assets (assets = liabilities + equity)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

PEG Ratio

A

Stock’s PE Ratio/3-5 year growth rate in earnings

  • If less than or equal to 1: growth is dues to earnings
  • If greater than 1: PE is outpacing earnings growth
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
94
Q

Book Value per Share

A
  • Shareholders’ equity/Number of shares outstanding
  • Compare to market cap to determine if overvalued or undervalued.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
95
Q

Price to Book Ratio

A
  • Market price/Book value per share
  • Book value = Shareholder’s equity/number of shares.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
96
Q

Estimate future stock price

A

Look at future:

  • Sales
  • Profit margin
  • earnings
  • dividends per share
  • PE
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
97
Q

Zero Growth Dividend Valuation Model

A
  • Best for Blue Chip Stocks with constant dividend
  • Stock price = Dividend/Required Rate of Return
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
98
Q

Constant Growth Rate Dividend Valuation Model

A
  • Assumes dividends will grow at a constant and determinable rate
  • D1 = D0 + (1 + g) = Next year’s expected dividend
  • V= Value of stock
  • r = Required rate of return
  • g = growth rate of dividend
  • P = Market price for security
  • V = D1 / (r-g)
  • r = ( D1/P )+ g
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
99
Q

Variable Growth Model Dividend Valuation

A
  • Solve for return at and beyond the time period of constant growth using constant growth model
  • Use cash flows to calculate NPV. Cash flow 0 is 0. Final cash flow solution from constant growth model. Input interest rate and solve for NPV.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
100
Q

Expected Growth Rate

A
  • g = ROE * rr
  • g= growth
  • ROE = Return on Equity
  • rr = rentention rate (amt. retained after dividend payout = 1 - dividend payout rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
101
Q

P/E approach to valuation

A
  • Stock Price = EPS * P/E ratio
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
102
Q

Technical Analysis

A
  • Forcasting stock prices based on
    • charting of stock movements
    • looking for patterns
    • looking at supply and demand for stocks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
103
Q

The Dow Theory

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
104
Q

Market Technical Indicators

A
  • Supply and demand
  • Volume
  • Breadth of the market (number of advancing stocks is greater than the number declining)
  • Short interest (lots of short selling indicates future demand, measures pessimism/optimism)
  • Odd-lot trading
  • Advance-decline line
  • New highs, new lows
  • charting
  • Moving average
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
105
Q

Random Walk

A
  • Stock prices are unpredictable and follow a random pattern
  • Contradicts techinical analysis
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
106
Q

Efficient Market Hypothesis

A
  • Markets have a large number of knowledgeable investors who react quickly to new information
  • Asset prices reflect all relevant information.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
107
Q

Weak-form Market Efficiency

A
  • Past prices and volume is reflected in market pricing.
  • If markets follow weak-form efficiency
    • techical analysis is not useful
    • fundamental analyis is useful
    • inside information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
108
Q

Semi-strong form market efficiency

A

All relevent public information is reflected in market prices:

  • Technical analysis not useful
  • Fundamental analysis not useful
  • Inside information useful
109
Q

Strong-Form market efficiency

A

All public and private information is reflected in market pricing.

Diversification is helpful; manage risk.

110
Q

Market Anomalies

A
  • January effect
  • Small-firm effect
  • Earnings announcements - drift
  • P/E effect
111
Q

Behavioral Finance - Overconfidence

A

Investor’s underestimate risk associated with investment

112
Q

Behavioral Finance - Biased Self-Attribution

A

Attributes success to self, failure to others/factors

113
Q

Loss Aversion

A
  • Investors dislike loss more than gain
  • Investors will hang on to losers thingking they will bounce back
114
Q

Narrow framing

A
  • Investors analyze stocks in isolation while ignoring larger conflicts
  • e.g. ignoring asset allocation
115
Q

Belief perserverance

A
  • investors ignore information that conflicts with their existing beliefs
116
Q

Recency Effect

A

What has just happened will continue to happen.

117
Q

Use behavioral finance to improve results

A
  • Sell losing stocks
  • Don’t chase performance
  • Be humble and open-minded
  • Review performance periodically
  • Don’t trade too much
118
Q

Interest Rates and Bonds

A
  • Interest rates and bond values are inversely related
  • Interest rates are the single biggest determinant of bond price
  • Bond markets are bullish when interest rates are falling.
119
Q

Bond Risk

A
  • Interest rate risk (price risk)
  • purchasing power risk (inflation)
  • liquidity risk
  • Call risk
120
Q

Coupon Rate

A
  • Annual interest payment of a bond stated as a percentage of par value
  • usually paid semiannually
121
Q

Par Value

A
  • Principal amount
  • face value
122
Q

Maturity Date

A
  • Date that the principal must be paid back
  • Longer maturity more risky - the closer to the maturity date, the closer the value gets to par.
  • Longer maturity more sensitive to interest rate changes.
123
Q

Term Bond

A
  • Has one maturity date
124
Q

Serial Bond

A
  • Has several maturity dates
  • Portions of the bond mature at different dates
125
Q

Freely Callable Bond

A

Can be called at any time.

126
Q

Non-callable Bond

A

Can never be called.

127
Q

Deferred Call Bond

A

Not callable for a specified period, then callable

128
Q

Call Premium

A

Additional amount paid to bond holder upon call

129
Q

Call Price

A

Par value + call premium

130
Q

Refunding Provision

A
  • Prohibits premature retirement of a bond in order to issue another bond at a lower rate.
  • Issuer can use cash on hand to issue a bond at a lower rate (just not the proceeds from the first bond)
131
Q

Sinking Fund

A
  • Repayment schedule for the bond
  • Only applies to term bonds
  • Issuer is obligated to pay off bond over time.
  • Issuer must systematically put money aside to pay off the debt or must pay off the bond over time.
132
Q

Senior Bonds

A

Back by a legal claim to specific assets

133
Q

Mortgage bonds

A
  • Backed by real estate
134
Q

Collateral Trust Bond

A

Backed by securities or bonds

135
Q

Equipment Trust Certificates

A

Backed by specific pieces of equipment

136
Q

Junior Bonds

A

Unsecured bonds

Backed only by good faith

137
Q

Debenture Bonds

A
  • Unsecured bonds (junior bonds)
138
Q

Subordinated Debenture Bond

A
  • Unsecured bond whose claim is secondary to other claims
139
Q

Income Bond

A
  • Requires interest to be paid only after a certain amount of income has been earned
  • least secure type of bond
140
Q

Premium Bond

A
  • Sells for more than par value
141
Q

Discount Bond

A
  • Sell for less than par value
142
Q

Treasury Bond

A
  • Considered default-risk free
  • Interest exempt from state and local taxes
  • Sold in $1,000 denominations
143
Q

Treasury Bills

A

Mature in less than 1 year

144
Q

Treasury Notes

A

Mature in 2 - 10 Years

145
Q

Treasury Bonds

A

Maturity greater than 10 years

146
Q

TIPS

A
  • Treasury Inflation Protected Securities
  • Principal adjusts based on inflation
  • Interest payments based on current principal amount.
  • At maturity pays at greater of par value or inflation adjusted par value.
147
Q

I Bonds

A
  • Inflation-adjusted bonds
  • Up to 30 years
  • Returns = fixed rate plus semi-annual CPI-adjusted rate
  • Can be redeemed after 12 months
148
Q

Agency Bonds

A
  • Issued by US Government Agencies
  • Almost no default risk
  • Moral obligations of the US government - only the
  • Interest rates higher than treasury bond
149
Q

General Obligation Municipal Bonds

A
  • Backed by the taxing authority that issues the bonds
  • Safer than revenue bonds
150
Q

Municipal Revenue Bonds

A
  • Paid from the revenues of the project being financed.
  • If not enough revenues, bond may default
151
Q

Private Activity Bonds

A
  • Usually issued to finance stadiums
  • Can be subject to AMT
152
Q

Municipal Bonds Taxation

A
  • Interest income exempt from Fed taxation
  • May be non-taxable by issuing state if holder is resident.
  • TEY: Taxable Equivalent Yield = Yield on Muni/(1 - tax rate)
153
Q

Corportate Bonds

A
  • Fully taxable
  • Higher rate of return than gov’t bonds
154
Q

Zero-coupon Bonds

A
  • Does not pay interest
  • Sold at deep discount from par value - value increases the closer it gets to maturity.
  • Subject to high price volatility from interest rate changes.
  • Treasury Strips are zero-coupon bonds created from Treasury bonds
  • Interest must be reported and taxed annually despite not receiving any payment until maturity.
155
Q

Mortgage Backed Securities

A
  • Secured by mortgages
  • Investor received payments of both interest and principal (only interest taxed)
  • Collaterallized Mortgage Obligations (CMO) created as pools of mortgages
  • Tranches created based on maturity. Principal goes to shortest term tranche
156
Q

Asset-backed securities

A
  • Backed by pools of loans:
    • auto loans
    • credit cards
    • home equity loans
  • High yields and high credit quality because loans are greater than bond issuance.
  • Short maturities - 3-5 years
  • Interest and principal payments are monthly.
157
Q

Junk Bonds

A
  • High yield bonds
  • Highly speculative
  • Below BBB rating
158
Q

Dollar-denominated bonds

A
  • Sold in US - Yankee Bonds
  • Eurodollar bonds - Can be sold outside the US; not registered with SEC
159
Q

Bond quotes

A
  • Stated as a percentage of Par Value - e.g. 97 would be 97% of par
160
Q

Convertible Bonds

A
  • Can be exchanged for a predetermined amount of common stock
  • Said to have an “equity kicker”
  • Company can sometimes force conversion if the bond is called
  • Limits downside risk - if price of stock goes too low, can remain as bond
  • Current income is usually higher than dividend
161
Q

Conversion Value of Convertible Bond

A

Convertible Value (CV) = (Par Value/Conversion Price) * Stock Price

Conversion Ratio = Par Value/Conversion Price

162
Q

Conversion Period

A
  • Time during which convertible issue can be converted
  • Can be freely convertible or not.
163
Q

Conversion Price

A
  • Stated price per share that convertible issues can be converted into
164
Q

Conversion Premium

A
  • Pay a premium for the opportunity to hold the stocks in the convertible issue as opposed to simply purchasing the stocks.
  • = market price of convertible issue - conversion value
165
Q

Conversion Equivalent

A
  • how much would a share of the stock have to sell for to make it worth it to pay conversion premium.
  • = Market price of convertible bond/conversion ratio
166
Q

Current Bond Yield

A
  • Annual interest (coupon) / Market price
167
Q

Bond Duration (Macauley Duration)

A
  • Measures bond’s sensitivity to changes in interest rates.
  • Weighted average time until an investor receives all coupon payments and principal
  • The moment in time an investor is immunized against interest rate and reinvestment rate risk
  • Y = yield
  • t = term (n)
  • C = coupon
168
Q

Duration Effects

A
  • Longer duration = higher price volatility
  • Higher YTM = Shorter Duration
  • Longer maturity = longer duration
  • Higher coupon = shorter duration
  • The INterest rate variables are INversley related to duration.
169
Q

Bond Immunization

A
  • Occurs when duration equals investment time horizon
  • Seeks to offset the opposite changes in bond valuation caused by price effect (caused by interest rate changes) and reinvestment effect (as income is received, it is reinvested at a higher or lower rate).
  • Zero coupon bonds have no reinvestment rate risk (duration = maturity).
170
Q

Convexity

A
  • In a low interest rate environment, interest rate affect bond price more significantly than in a higher interest rate environment.
  • If there are large changes in interest rates, duration price change formula is not effective.
  • Convexity is good. Higher = better. Pay more for convexity so lower yield.
  • Duration overstates price depreciation when interest rates rise and understates price appreciation when interest rate decline.
171
Q

Bond Risk

A

Risk premium depends on:

  • Default risk
  • Term-to-maturity
  • Call risk
172
Q

Yield Spread

A
  • Difference in interest rates between different types of securities
173
Q

Yield Curve

A
  • Shows the relationship between YTM and Term to maturity.
  • Upward sloping (normal) - short-term rates lower than long-term rates
  • Downward sloping - Short-term rates higher than long-term rates.
174
Q

Expectations Hypothesis

A
  • Inflation is determining factor
  • Explains both normal and inverted yield curve
  • If investors expect higher inflation they demand higher interest rates on longer maturities
  • Decreasing inflation expectations may result in inverted curve
175
Q

Liquidity Preferences Theory

A
  • Only explains upward sloping yield curve
  • Because short-term securities have more liquidity, rates are lower.
  • Compensated for lower-liquidity in long-term investments.
176
Q

Market segmentation theory

A
  • Supply and demand
  • Explains both upward-sloping and downward-sloping curves.
  • Higher demand on the part of the borrower/issuer pushes interest rates up. If demand is high for long-term securities rates are higher. And vice versa.
177
Q

Bond price sensitivity

A
  • long-term bonds are more price-sensitive when interest rates change (more volitile)
  • short-term are less affected by interest rate changes
178
Q

Yield-to-Maturity

A
  • Approximates the true return if bond is held to maturity.
  • Solve for i
  • Assumes reinvestment rate as same rate as yield (market rate at time of purchase)
179
Q

Yield-to-call

A
  • Calculates yield using time to first date of call and call price
180
Q

Bond Premium/Discount

A
  • If selling at a discount, Coupon < CY < YTM
  • If selling at a premiun, Coupon > CY > YTM
181
Q

Effective Rate of Return on Bond

A

Takes into account changes in interest rates for reinvestment of bond cash flows.

  • Step 1: Calculate future value of only coupon payments at reinvestment rate
  • Step 2: Add that future value to redemption/sale value of the bond and to get new FV of bond to calculate I.
  • NO PMT because that is already accounted for in step 1
182
Q

Determining Price Change of a Bond Using Duration

A
  • Step 1: Calculate Duration - Y: YTM, C: Percent Coupon (as decimal), T: Years to Maturity.
  • Step 2: Calculate Modified Duration: Duration / (1 + YTM)
  • Step 3: Modified Duration * Change in interest rates
  • OR
  • Step 2: Calculate Percentage Change:
    • -D [(Percentage change in interest rates)/(1 + YTM)]
183
Q

Preferred Stock

A
  • Hybrid security with characteristics of stocks and bonds
  • Dividends are fixed amounts as a percentage of par value
  • Preferred dividends paid before common dividends
  • Yields are similar to high-quality bonds.
  • For corps that own stock, they are able to exclude 70% of received dividends from taxes.
  • Many preferred dividends taxed at ordinary income tax rate (trust preferreds)
  • Some preferred stock is convertible
184
Q

Preferred stock valuation

A
  • Price of preferred stock = Annual Dividend Income (percent of par value)/Prevailing Market Yield (or required rate of return)
  • Inversely related to interest rates.
185
Q

Adjustable Rate Preferred

A
  • Dividend rate is not fixed.
  • Can change with interest rates.
186
Q

Preference (Prior) Preferred

A
  • Paid before other preferred stock
187
Q

Cumulative/Noncumulative Provisions

A
  • Cumulative: all past unpaid dividends must be paid before common stock dividends are paid (including all those in arrears)
  • If buyer buys after dividends are in arrears, does not receive extra dividends.
  • Noncumulative: don’t have to pay all dividends in arrears
188
Q

Book Value of Preferred Stock

A
  • (Assets - Liabilties) / preferred stock outstanding
189
Q

Dividend Yield of preferred stock

A
  • Annual dividend income/current market price of stock.
190
Q

Open End Mutual Funds

A
  • Investors buy and sell shares directly through the fund
  • Unlimited number of shares
  • All purchases and sales completed at EOD
  • NAV = Fair market value of assets - liabilities/number of shares outstanding
191
Q

Closed End Mutual Funds

A
  • Investment company only sells in the intial offering
  • Later trading happens on secondary market
  • Purchase and selling price based on supply and demand (not NAV)
  • Usually sell at a discount to NAV
192
Q

ETF’s

A

Exchange-Traded Funds

  • Trade like individual stocks
  • Trade immediately
  • Trade close to NAV
  • Diamonds - track DJIA; Spiders - track S & P; Qubes - track NASDAQ
  • Haven’t been tested to a significant degree
  • no phantom capital gains
193
Q

Load and no-load funds

A
  • only apply to open-end mutual funds
  • low-load fund is 2-3%
  • 12 (b)1 fees: annual fee charged by mutual find company. Max: 1% of assets.
  • For no-load funds, max 12(b)1 fee: .25%
  • Max total load and 12b1 charges: 8.5%
194
Q

UIT’s

A
  • Unit Investment Trusts
  • Fixed pool of securities
  • Sold in units, not shares
  • Passively managed; securities are fixed
  • Can be costly due to high upfront sales charges.
195
Q

Hedge Funds

A
  • Private limited partnerships
  • Not subject to same regulations as mutual funds
  • General partners takes 10-20% of profits
  • Only sold to accredited investors
196
Q

Growth Fund

A
  • Emphasis on capital appreciation
  • Few dividends
  • Moderately risky
  • High P/E ratio
197
Q

Aggressive Growth Fund

A
  • Highly speculative
  • High P/E
  • smaller companies
  • High risk
  • Turnaround situations
198
Q

Value funds

A
  • High dividend yields
  • low P/E ratios
  • more appropriate for conservative investors
199
Q

Equity-income Funds

A
  • High current income with long-term gains
  • Blue-chip stocks
  • Dividends
  • Preferred stocks
  • less risky
  • less volatility
200
Q

Balanced Fund

A
  • Combination of stocks and bonds
  • allocation typically remains constant
  • relatively conservative
  • diversified
201
Q

Growth-and-income funds

A
  • Stocks and bonds
  • higher percentage in stocks than in a balanced fund
  • more risky than balanced fund
  • long-term capital appreciation with some income
  • Moderate risk investment
202
Q

Bond Funds

A
  • More liquid than individual bonds
  • Steady income
  • some price volatility because of interest rates
  • cannot be held to maturity
203
Q

Money Market Funds

A
  • Invest in short-term securities with maturities of less than 90 days
  • interest rates move up and down with market rates
  • cash substitute
204
Q

SEC mandated yields

A
  • SEC Yield - compares yields on bond funds
  • Money Market funds 7 day yield
  • Money Market funds 7 day compound yield
  • Mutual fund 30 day yield
205
Q

Asset Allocation Funds

A
  • invest in stocks, bonds, and money market securities based on asset allocation
  • age-based funds
206
Q

International Funds

A
  • International - exclude US
  • Global - include US
  • for CFP - conservative investor would want some international
207
Q

Mutual Fund buy/sell

A
  • Buy at offer (ask)
  • Sell at NAV (bid)
208
Q

Warrants

A
  • written by a corporation
  • in effect for years
  • illiquid and nonstandarized
209
Q

Fundamental (instrinsic) Value of a Call

A

(Market price of underlying security - strike price) * 100 shares

210
Q

Fundamental value of a put

A

(Strike price - Market value of underlying security) * 100 shares

211
Q

Option Premium

A

Price of the option

212
Q

Time value of option

A

Difference between premium (price of option) and fundamental value of option

213
Q

In-the-money

A

Call option - buyer: Market price greater than strike price

Call option - seller: Market price less than strike price

Put option - buyer: Market price less than strike price

Put option - seller: Market price greater than strike price

214
Q

Out-of-the money

A

Call: Market price less than strike price

Put: Market price greater than strike price

215
Q

Futures Contract

A
  • Both seller and the buyer have an obligation to either make delivery of a good or purchase delivery of a good.
  • All trading is done a margin basis
216
Q

Call

A
  • Option to buy a security at a certain price (strike or excersize price) at a certain point in time
  • Person who buys the option is the long position
217
Q

Put

A
  • Option to sell a security at a certain point in time for a certain price (strike price)
  • Person who buys the option has the long position
218
Q

Option Writer

A
  • Seller of the option
  • short position
219
Q

Naked Option

A

An option sold by a writer on a security the option writer does not own.

Unlimited loss; most risky option.

220
Q

Portfolio insurance/Hedge/Married Put

A
  • Buy a put option on one’s long position to protect price or
  • buy a call option on one’s short position to protect sale
221
Q

Value of an option

A

Value = price of option = premium

Intrinsic (fundamental) value + time value

If option is out of the money, intrinsic value is 0

222
Q

Intrinsic Value

A

Amount an option is in the money. If out of the money, intrinsic value is 0.

223
Q

Black-Scholes Option Pricing Model

A
  • Value of a call option
  • in - interest rate (risk free rate)
  • V - volatility
  • E - exercise price (inversely related)
  • S - stock price
  • T - time value
224
Q

Long Straddle

A
  • Buy a call and a put on the same stock at the same strike price
  • Breakeven points are price changes above or below total premiums paid
  • Used when volatility is expected
225
Q

Short Straddle

A
  • used when volatility is not expected
  • appropriate in a flat market
  • sell both a call and a put on the same stock at the same strike price.
226
Q

Stock-index options

A

Options bought on entire market.

227
Q

Warrant

A
  • Option that gives a right to buy a stock at a specified price
  • Issued by companies
  • Can be long-term
  • Non-standardized
  • Can be added to a bond issue
  • Not as liquid as listed options
  • Valued the same way as options (intrinsic value plus time value)
228
Q

Futures long/short position

A

Buyer of contract is long position

Seller of contract of short position

229
Q

Characteristics of futures

A
  • obligation to buy and sell
  • to get out of contract, short the same contract.
  • delivery price set by supply and demand
  • bought on margin - leverage
  • no limit on potential loss
  • priced daily - “marked-to-market”
230
Q

Futures Hedgers

A
  • Producers and processors
  • Protecting interest in underlying commodity or financial instrument
231
Q

Futures speculators

A
  • Investors who buy/sell futures contracts between origination and delivery
  • provide liquidity for the market
232
Q

Real Estate Advantages

A
  • Hedge against inflation
  • diversification
  • Tax benefits - deduct mortgage interest, property tax
233
Q

Income approach to real estate valuation

A
  • The discounted present value of future cash flows.
  • NOI/Cap rate
  • NOI: (income less all expenses including vacancies) plus depreciation and interest expense (for CFP questions - depreciation and financing not generally included)
  • Capitalization rate: required rate of return
  • Gross income multiplier: sales price/annual gross income
234
Q

REIT

A
  • Closed-end diversified portfolio of real estate
  • securitized real estate
  • Must distribute 90% of income as dividends and must keep 75% of assets in real estate investments
235
Q

3 types of REITS

A
  • Equity REITs - own real estate
  • Mortgage REITs - holds mortgages
  • Hybrid REITs - holds both real estate and mortgages.
236
Q

Gold

A
  • Diversification
  • Hedge against inflation
237
Q

Guaranteed Investment Contract

A
  • Guarantees a fixed or floating rate of return over a period of time.
  • issued by insurance companies
  • have higher rate of return than savings account
  • purchasing power risk
238
Q

Beta

A

security return/market return

239
Q

Muni Bond Insurance Companies

A

AMBAC

MBIA

240
Q

Tax-equivalent Yield

A

Yield a coporate bond must pay to be equivalent to a muni bond.

=Tax-exempt yield/ (1-marginal tax rate)

241
Q

Tax-exempt yield

A

After-tax yield of corporate bond

=Corporate rate * (1-Marginal Tax Rate)

242
Q

Bond discount

A

IF you see a discount: Call Mom’s Cell Now

YTC (highest)

Yield to Maturity

Current Yield

Nomimal Yield - coupon - (Lowest)

243
Q

Black Scholes

A

Values a call option using the following variables:

  • Price of underlying asset
  • Time until call
  • Volatility of underlying asset
  • Risk free rate
244
Q

Put Call Parity

A

Values a put option based on the price a of call option on that security

245
Q

Binomial Pricing Model

A
  • explains prices based on the underlying asset price moving in opposite directions; can be extrapolated out over time.
246
Q

LEAPs

A

Long Term options.

  • Term is up to 2 years.
  • More expensive than regular options
247
Q

Subsitution Swap

A

Designed to take advantage of anticipated and potential yield differentials between bonds that are similar with regard to coupons, rating, maturities, and industry.

248
Q

Rate anticipation swaps

A

Rate anticipation swaps utilize forecasts of general interest rate changes.

249
Q

yield pickup swap

A

The yield pickup swap is designed to alter the cash flow of the portfolio by exchanging similar bonds having different coupon rates.

250
Q

tax swap

A

The tax swap replaces bonds with offsetting capital gains and losses.

251
Q

Bottom up analysis

A

Detailed look at specific companies

Value managers and technicians do this.

252
Q

Top down analysis

A

Analysts look at overall market conditions

Group Rotations and Market timers

253
Q

Components of interest rates

A
  • Real Risk-Free Rate
  • Expected Inflation
  • Default-Risk Premium
  • Liquidity Premium
  • Maturity Premium
254
Q

Modified Duration

255
Q

Registered Bonds

A

Pay interest to whoever is the registered owner

256
Q

Investment grade bonds - lowest rating

A

Baa - Moody’s

BBB - S & P rating

257
Q

Barbell strategy - bonds

A

Bonds for the portfolio are purchased with both long and short periods of time to maturity, with little in between

258
Q

Weighted average Beta

A

Use dollar value of portfolio not number of shares.

259
Q

12b1 fees

A

Used for marketing and distribution costs.

260
Q

Limited general obligation bond

A

The limited general obligation bond is a bond issued by an entity that has some ability to levy taxes to support itself (for example, a school district). However, this ability is limited when compared to that of the general taxing power of the state.

261
Q

Head of household - dependent

A

Can file HOH if dependent qualifies but doesn’t live with taxpayer.

262
Q

Tax Payer subject to accuracy related penalty

A
  • makes a substantial understatement of tax liability, generally more than 10 percent of the correct tax liability and
  • at least a $5,000 tax deficiency.
263
Q

Basis for property

A

All costs of making property ready for use are capitalized and added to basis.

(can include legal fees)

264
Q

Medical Expense Deduction Non-dependent exception

A

Can deduct medical expenses paid on behalf of another individual who would qualify as a dependent except that his/her income is too high.

265
Q

Life annuity with cash refund

A

Guarantees payments for life, but refunds principal amount to beneficiary if not fully distributed in life

266
Q

Section 1244 stock

A

First $1M in stock issued by company. $50K/100K MFJ in losses can be deducted against OI.

267
Q

Financial Risk

A

It is the possibility of loss due to the overuse of debt financing for a company

268
Q

Put Bond

A

the bondholder has the right to sell the bonds back to the issuer at a specified date for its principal.

269
Q

point-in-time risk

A

uncertainty that the initial portfolio returns may have a drastic effect on the likelihood of the portfolio successfully providing the income required for the client’s lifetime

CFP (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions