Brainscape's Knowledge GenomeTM

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


See full index

Victor's Personal CFP > Investments > Flashcards

Investments Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

Brokered CDs vs. CDs

A

Extra word = Extra Risk.

Brokered CDs are issued by a commercial bank, but traded through a brokerage firm instead of issued directly. Since they’re negotiable, they have interest rate risk.

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

OID Bonds

A

Mostly Zero Coupons. Stands for Original Issue Discount.

Most have “Phantom Income” through Accretion each year.

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

OID Taxation, for Tax Exempt

A

Tax exempt accretion, UNLESS bought / sold on the secondary market. Any appreciation over and above the adjusted bond’s value becomes taxable.

Tax free if held to maturity (at least at the federal level, states sometimes)

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

Money Market Deposit Accounts vs. Money Market Funds

A

MMDAs are issues by commercial banks, and insured by FDIC (six transfers per month allowed)

MMFs are NOT insured (for exam purposes). Average maturity limited to 90 days. Can be taxable or tax exempt.

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

Commercial Paper

A

100K Denominations start. Issued by large companies, maturity 270 or less. Sold at a discount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Bankers’ Acceptance

A

Used for import / export. 9 months or less, sold at discount.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Yankees vs. Eurodollars

A

Eurodollar is deposit in any Foreign bank denominated in dollars

Yankee bonds are dollar-denominated bonds issued in the US by foreign banks and corporations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

T bills, notes, and bonds

A

Bills are < 1 year (quoted in terms of discounted yield) - $100 - $1,000,000 denomination

Notes are 1-10 years - $1,000 to $100,000

Bonds are 10-30 - $1K - $1MM

NO STATE OR LOCAL TAXES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Where should we put zeroes? (STRIPS, CATS, TIGRS)

A

TAX DEFERRED. Phantom income.

STRIPS - Direct treasury obligation

CATS, TIGRS - Brokerage obligation (made of treasuries)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Phantom Income impact on Basis

A

TIPS too. Basis is increased by phantom accretion (and even the inflation adjustment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

EE Bond Taxation

A

Tax deferred, not state or local.

Parents must own them to qualify for education tax treatment (under AGI limits)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

HH Bonds

A

NO more EE exchanges allowed

Pay interest semi-annually, by check. Can continue to defer EE bond appreciation until sale of HH bonds with exchange.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

I Bonds

A

Same as EE, except without guaranteed interest rate.

Base fixed, plus 6 month inflation adjustment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

GNMA vs. FNMA/FHLMC

A 
G = Guaranteed
F = Fleeced!
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Municipal Bond Insurers

A

Assured Guaranty and Berkshire

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Investment Grade Cutoff for Bonds

A 
BB = Bad Bonds
BBB =  Better Bad Bonds (investment grade)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Coupon for a Z Tranche MBS

A

ZERO coupons. Collateral remaining.

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

Corporate and Muni Bond Risks

A

DRIP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Government Bonds

A

RIP

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

Intrinsic Value of a Convertible

A

Higher of:
1. “Conversion Value”.
(Par / Conversion Price) * Current Stock Price

  1. Bond Value
    Using Face as FV, and market interest rate, figure out PV of the bond (to maturity).

Increase in comparable bond yields will drive the value down.

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

With Put bonds, when would the holder exercise the option?

A

If interest rates rise, driving the bond price down, you would exercise the put (at par), and reinvest at a higher interest rate. For this privelidge, coupon is a bit lower.

If interest rates go down, the issues wins.

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

Callable bonds issued at a higher or lower coupon rate than similar bonds without the priveldge?

A

Callable bonds are less attractive, higher coupon rates.

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

Price fluctuation of Preferred Stock vs. Bonds

A

Duration is basically infinite, with no maturity. Fluctuations often are greater than even LT bonds.

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

Do C corporations deduct bond interest and preferred stock dividends?

A

Yes to bond interest, NO to preferred dividends.

Corporations that own preferred stock, can exclude dividends partially (50%) from their income.

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

ADR Basics

A
  • Shares of foreign based Corp held in US bank vault.
  • Prices quoted in US
  • Dividends DECLARED in Foreign currency
  • Dividends paid in US
  • Investors get foreign tax credit
  • Can’t vote the shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Can you sell Mutual Fund shares?

A

NO. You REDEEM them.

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

Fixed UITs

A

UITs are passive, buy and hold securities with fixed asset lineups. Informal secondary market for them. No new securities are purchased, and those purchased are rarely sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Closed end investment companies

A

Funds have a one-time stock issuance. The shares are then traded on an exchange like a security (supply / demand dictates price, not NAV alone)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is a GIC

A

Guaranteed Investment Contract. Basically CDs issued by insurance companies. 2-5 year duration and have guaranteed rate of interest. Value doesn’t fluctuate with interest rate changes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What does NOI exclude?

A

Mortgage / Financing costs (operating and vacancy/collection only)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Annual Cash Flow for Real Estate vs. NOI?

A

INCLUDES debt service. This is picky, but happens.

32
Q

Equity REIT vs. Mortgage REIT

A

Net income from the property should exceed the REIT’s borrowing costs (for Equity)

Mortgage REITs are highly leveraged. Making their income from teh spread between the lending and borrowing rate. (Inflation is really bad for Mortgage REITs).

33
Q

REIT qualification

A

75% of income must come from Real Estate.
90% must be distributed.

May qualify for the QBI deduction, 199A, since they’re pass through. (ordinary dividends tax treatment)

GREAT for tax deferred (because of ordinary income)

34
Q

Hedges for Inflation

A

High inflation is bad for Mortgage REITs, and Common stock generall does poorly in high inflation times.

Improved land, however, is a good hedge (can get a mortgage, fixed against inflation, and also rents go up)

35
Q

Formula for Premium Components for Derivatives

A

IV + TV = Premium

IV is NEVER negative, 0 is as low as it goes.

36
Q

Black Sholes variable / value correlation

A

Think Call UP. Everything being higher, except exercise price, makes value of the option increase.

  1. Exercise
  2. Time remaining
  3. Interest rate
  4. Volatility of stock
  5. Price of stock
37
Q

Taxation of Call Options

A
  • Premium is ST Gain for writers of options (if they expire)
  • If covered call, the premium is added to the stock’s sales price (if held >12 months, it’s LTCG, otherwise STCG)
  • If the holder sells it before expiration for gain or loss, it’s a ST Gain or Loss
38
Q

Short Sale Requirements

A
  • Must be in Margin account
  • No time limit
  • Dividends declared must be covered by the short seller.
39
Q

LEAPs

A
  • 9 month to 3 year terms
  • LTCG if owned for a year
  • When you excercise a LEAP, you have to hold the underlying stock for 12 months before it qualifies for LTCG treatment. (AKA, the clock starts at EXERCISE)
40
Q

Capital Gains for Collectibles

A

28%

41
Q

Regulation D

A

Private Placements (Remember 1-2-3)

  • Accredited, 1MM net worth (excluding primary), 200K single income, or 300K JNT income.
  • Non-accredited limited to 35, must be sophisticated (signing a letter, and use of purchaser representative lawyer or accountant)
  • Reg D / Offering MemoranDUM (required)
  • Exempt from registration requirement of public offerings.
42
Q

Liquidity vs. Marketability

A

Liquidity: Can’t lose value, or time

Marketability: Time only. Value not considered

43
Q

Are Mutual Funds Liquid or Marketable

A

NEITHER. They are redeemable and their value fluctuates (not negotiable).

44
Q

Range of Correlation Coefficient

A

-1 to 1

When 1, the Standard Deviation of Portfolio = Weighted average of standard deviations of individual securities.

45
Q

Shortcut:
If a portfolio correlation coefficient goes from 1 to .6, what happens to the risk of the portfolio standard deviation

What about if correlation coefficient goes from positive to negative? Or to 0?

A

It goes down!

Calculate the weighted average, as if it were 1, and pick the next lowest answer

IF negative, pick the number near 0 (makes returns predictable). If it goes to 0, it’s not going to swing all the way to 0, but will swing pretty far lower.

46
Q

What is Coefficient of Variation

A

Risk per unit of return!

Average Return / Average Risk (simple risk adjusted return)

47
Q

Normal Distribution Bands and Percentages

A

68% within 1 ST. Dev (34 / side)
95% within 2 St. Dev (47.5 / side)
99% within 3 st. dev (49.5 / side)

48
Q

Inflation-adjusted return if Return is 4%, and inflation is 6%

A

-1.8868

49
Q

Arithmatic vs. Geometric vs. Dollar-Weighted

A

Arithmatic is R1 + R2 / N (doesn’t really show anything)

Geometric is TVM return. Measures performance of the manager. Also known as time weighted.

Dollar-Weighted is also known as IRR

50
Q

What to look out for in IRR calculation

A

Make sure if it asks for “Annual” return, and you calculate quarterly, etc., that you multiply it to annualize.

Don’t forget zeroes, and to net period cashflows.

51
Q

For bond calculator questions, P/Y and BEG/END

A

2 P/Y, even for zeroes

Keep calculator on End mode.

52
Q

Duration Estimate Shortcut

A

Start with the Duration if the bond was a zero, and depending on the size of the coupon, pick the next lowest (just realistic. It can’t be too close to the term of the bond).

53
Q

Relationship Between interest rates and duration

A

Duration is inversely related to the current yield on comparative bonds.

Interest rates go down, duration goes up.
Interest rates go up, duration goes down.

54
Q

Immunization Strategy

A

PASSIVE strategy. Matches average duration to your time goal.

55
Q

What kind of risk does Duration not describe?

A

Quality / Default risk

56
Q

y in Price Change Duration formula

A

Yield to Maturity! (Triangle y is the change in rates)

57
Q

ROE Formula

A

EPS / Common Equity per share

58
Q

Dividend Payout Ratio

A

Dividends per share / EPS

Percentage of EPS paid to SH in cash.

59
Q

Dividend Yield

A

Over stock price (think “Current Yield”)

60
Q

What is the intersection of the CML Called?

A

Risk Free rate, 100% t bills.

61
Q

What is Point B called on the CML

A

The optimal risky portfolio. Tangent of the CML and the efficient frontier. Proportional percentage of all risky assets.

62
Q

What does a portfolio at Point C on the CML look like?

A

MUST include leverage.

63
Q

In order to move from Point B to Point A (intersection) on the CML, what do you need to do?

A

Sell risky assets, and buy t-bills.

64
Q

SML Use

A

To falue any asset, whether an individual asset or a portfolio of assets. CAPM is the formula.

Rate of Return on Y, Beta on X

65
Q

Both SML and CML

A

Are expressions of the Capital Asset Pricing Model

66
Q

Anomalies to the EMH

A

Active strategies:

  • P/E Effect
  • Neglected Firm effect
  • Small-firm effect
  • Value Line
  • January effect
67
Q

Technical Approaches

A

Active!

  • DOW Theory
  • Barron’s confidence index
  • Mutual fund cash position
  • Advance/decline line
  • 200-day moving average
  • Investment advisor opinions

They don’t care about financial position of company

68
Q

Alternative name for R Squared

A

Coefficient of determination. Correlation coefficient squared.

69
Q

Ex-Dividend Date

A

To receive the dividend, the stock must be purchased two days before the date of record (T+2 is trade settlement).

“If Wednesday July 6th is date of record, when must the investor purchase the stock to get the dividend?”
(Friday 7/1)

70
Q

Margin Call Formula

A

(1-initial margin %) / (1-maintenance margin %) * PURCHASE PRICE of stock

71
Q

If the stock drops below margin call, how much must be called??

A

Maintenance % of the current stock price - Current Equity in stock (original loan less current stock price)

Page IV-54 has a great series of questions.

72
Q

Strategic vs. Tactical asset allocation. Active or passive?

A

Tactical is active, while Strategic is passive.

73
Q

Who is the client for a JNT account?

A

BOTH are clients.

74
Q

When you purchase a bond mid-year, and soon after receive a bi-annual interest payment?

A

You buy “Accrued Interest” in addition to the cost of the bond and the commissions. You can subtract what you paid from the interest reported.

75
Q

What does the Deed of Trust between the issuer of bonds and the trustee cover?

A

Considerations such as:

  • Property pledged
  • Working Capital & Current Ratio
  • Sinking fund provisions
  • Call provisions
76
Q

TIPS are subject to what types of risk?

A

RIP
(They have coupons!)
Not DRIP because they are treasury issued.

77
Q

Of the following stocks, which is riskier?
A: Mean of 8%, Standard deviation of 10%
B: Mean of 4%, Standard deviation of 6%

A

A: 10% / 8% = 125%
B: 6% / 4% = 150%

Stock B is riskier per unit of return.

Victor's Personal CFP (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions