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CFP > Investments > Flashcards

Investments Flashcards

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CFP® flashcards
1
Q

Indifference Curve: Where is the optimum portfolio located?

A

At the tangent of the indifference Curve and the efficient frontier.

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2
Q

Indifference Curve: What indicates a conservative investor?

A

The steeper the curve, means the investor wants more return for any additional risk.

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3
Q

Capital Market Line: What is a lending portfolio?

A

A combo of 90 day t-bill and diversified portfolio.

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4
Q

Capital Market Line: What is a Borrowing Portfolio?

A

Leverage and diversified.

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5
Q

Efficient Market Hypothesis: Nonbeliever, what info is reflected in price and what infos useful?

A

Price: None
Useful: T, F, I

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6
Q

Efficient Market Hypothesis: Weak Form Believer, what info is reflected in price and what infos useful?

A

Price: T
Useful: F, I

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7
Q

Efficient Market Hypothesis: Semi-Strong Form Believer, what info is reflected in price and what infos useful?

A

Price: T, F
Useful: I

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8
Q

Efficient Market Hypothesis: Strong Form Believer, what info is reflected in price and what infos useful?

A

Price: T,F,I
Useful: None

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9
Q

Bond Yield: When a bond is selling at Par, how are CY, YTM and YTC ranked?

A

They are all the same

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10
Q

Bond Yield: When a bond is selling at a premium, how are CY, YTM and YTC ranked?

A

Highest to lowest: CY, YTM, YTC

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11
Q

Bond Yield: When a bond is selling at a discount, how are CY, YTM and YTC ranked?

A

Lowest to Highest: CY, YTM, YTC

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12
Q

What is one of Technical Analysis’ Mantra’s?

A

A trend once established is more likely to continue then reverse

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13
Q

What is the lowest rating of an investment grade bond?

A

BBB and above is investment grade

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14
Q

What is the current yield formula?

A

CY=Ann Int Pmt/ Current Price

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15
Q

When using TVM on calc to find YTM remember:

A

Adjust N, I/Y and Pmt

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16
Q

When using TVM on calc to find YTC remember to adjust:

A

N and Pmt

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17
Q

What is convexity?

A

The degree to which duration changes

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18
Q

What is a zero coupon bond’s duration

A

It’s maturity

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19
Q

What is duration?

A

The weighted average number of years until investment is recovered?

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20
Q

How are coupon payment and duration correlated?

A

The higher the coupon, the lower the duration

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21
Q

Duration is a measure of?

A

Interest sensitivity

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22
Q

Convertible Securities: What is the Conversion Ratio?

A

Par value/Conversion Price

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23
Q

Convertible Securities: What is the Conversion Value?

A

Conversion Ratio * Market Price of stock

24
Q

When should time-wighted returns be used?

A

To analyze a portfolio managers performance

25
Q

When should dollar-weighted returns be used?

A

To assess an investors actual performance

26
Q

What is considered an aggressive allocation?

A

<=25% bonds, 15% SC and 5% EM

27
Q

Benchmarks: What R^2 do you want?

A

High, it means the benchmark is correlated?

28
Q

What is the small cap benchmark?

A

Russell 2000

29
Q

What is the International benchmark?

A

MSCI EAFE (Europe, Australia, Far East)

30
Q

What is the overall US Market Benchmark?

A

Wilshire 5000

31
Q

What is Reinvestment Rate risk?

What is Interest Rate Risk?

A

When rates fall

When rates rise

32
Q

What is a barbell?

A

Short and long term bonds

33
Q

What is a bullet?

A

Bonds purchased slowly with maturities around date needed.

34
Q

Concentrated Portfolio Strategies: What are the 4 strategies for dealing with a concentrated portfolio?

A

ESOP, CRT, Put Options Exchange Fund

35
Q

Concentrated Portfolio Strategies: How does and ESOP help?

A

Creates makes when shares can’t be sold on the market. May be able to sell to ESOP, receive the proceeds and pay no tax.

36
Q

Concentrated Portfolio Strategies: How does a CRT help?

A

A charitable deduction is available for the present value of assets that will pass to the charity.
Assets transferred to CRT can be sold without tax impact because nontaxable.

37
Q

Concentrated Portfolio Strategies: How does an exchange fund help?

A

contribute stock to a fund in exchange for shares of the fund which is diversified

38
Q

Margin Terms: Initial Margin, Debit balance

A

I M: % of purchase price that is provided by investor.

DB: Amount owed: Amt borrowed + interest

39
Q

Margin: At what price will a margin call occur?

A

Debit balance( 1-initial margin)/ 1-maintenance margin

40
Q

Margin: How much is required when a margin call occurs?

A

Run-Away(Required-Actual)
Required: New stock price* maintenance margin
Actual: New stock price -loan amount

41
Q

Futures Questions:

A

What is their natural position? Do they naturally want the price to increase or decrease?

42
Q

Options: How to determine the value of an option?

A

Time value + intrinsic value

43
Q

Options: How to determine if in the money?

A

COM-E, POE-M

44
Q

How to determine what option to have as the market goes up or down:

A

Puts Can Save Fortunes: Up arrow(market): P in short part and CSF in long part, opposite for down market

45
Q

Options: What is a cashless collar:

A

Short a call and long a put

46
Q

What is R, what does it measure and what is the range and goal?

A

R is the Correlation coefficient
It measures price movements, not the magnitude of the correlation
-1 to +1, the goal is low correlation not necessarily -

47
Q

What is COV and what does it measure?

A

Covariance, the extent to which two variable move together, either positively or negatively

48
Q

What is B and what does it measure?

A

Beta is a relative measure of systematic risk

49
Q

What is R^2 and what does it measure and what is the appropriate level?

A

R^2 is the Coefficient of Determination, it explains the price movements in my security or portfolio that are explained by changes in the market (systematic). As long as R^2=.75 you are okay to use Beta. Remember that if R=.8 R^2=.64

50
Q

What is the coefficient of variation, what does is measured, how do the variable impact?

A

Standard Dev/r Looking for the the lowest; higher St.Dev. =higher number, higher r=lower number; Return adjusted risk is what is being measured

51
Q

What does Standard Deviation measure?

A

Measures total risk, where Beta only measures systematic risk. An absolute measure

52
Q

Z-Score=

A

The # of standard deviations away from the mean

53
Q

Kurtosis Facts:

A

Plat is fat, Lep is less risky

54
Q

Sharpe Ratio measures:

A

The portion of return that has risk associated with it. Higher return=higher sharpe ratio, the higher the Stand. Dev. the lower the sharpe ratio. Higher is better

55
Q

Jensens Alpha:

A

Actual return- expected return

56
Q

Information Ratio measures

A

Consistency with which a manager beats a benchmark. Standard deviation of historical alpha’s.

CFP (5 decks)

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