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CFP - Review Cards > Investments Live Review > Flashcards

Investments Live Review Flashcards

A final pass of the investments live review section

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CFP® flashcards
1
Q

Yield Ladder

A

(Discount)
Yield to Call
Yield to Maturity
Current Yield
Nominal Yield
Current Yield
Yield to Maturity
Yield to Call
(Premium)

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1
Q

Brokered CDs are subject to what risk and why?

A

interest rate risk
they are traded (negotiable)

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2
Q

Current yield formula

A

Annual interest in dollars/bond’s market price

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3
Q

OIDs

A

zero coupons
no interest until maturity
phantom income

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4
Q

Are Treasury securities marketable?

A

ES

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5
Q

Taxation on treasury securities

A

no state of local income tax

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6
Q

STRIPS

A

zero coupon treasury securities
direct obligation of the federal government
phantom income earned annually

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7
Q

who normally buys STRIPS?

A

tax deferred entities like pensions/IRAs/annuites
given their deferred nature, the phantom income need not be recognized

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8
Q

EE Bond Basics

A

nonmarketable
nontransferable
nonnegotiable
Issued at face value
term is 20 years (can go for an additional 10 years)

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9
Q

EEs in an UTMA custodial account

A

owned by the child
taxed as ordinary income at redemption

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10
Q

EE education bonds

A

normally owned by the parent
Tax free if the parent’s AGI is less than the phaseout at redemption

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11
Q

taxation of EEs

A

Interst earned is not subject to fedearl income taxation until the bonds are redeemed
interest is not subject to state or local taxes

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12
Q

i bonds

A

non marketable
nontransferrable
nonnegotiable
sold at face value
no guaranteed rate of earnings
fixed base rate and an inflation adjustment additional amount

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13
Q

GOs vs Revenue

A

GOs are “safer” because the issuer promises to raise taxes

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14
Q

CMOs

A

A- fast pay
M - Medium pay
y - Slow pay
Z - NO coupon (most risk)

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15
Q

risks associated with corporate and muni bonds

A

DRIP

Default
Reinvestment
interest rate
purchasing power

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16
Q

risks of treasury bonds

A

RIP

Reinvestment risk
interest rate risk
Purchasing power risk

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17
Q

duration of preferred stock

A

duration is infinite
means riskier than bonds

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18
Q

ADRs

A

shares of foreign-based corps held in US banks

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19
Q

Dividends of ADRs

A

declared in foreign currency so there is some exchange rate risk

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20
Q

real estate and inflation

A

effective hedge against inflation
low correlation coefficient with the US common stocks
potential for diversification is one of the strongest arguments for including real estate in an individual’s portfolio

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21
Q

NOI calculation

A

Gross rental receipts
+ non rental income
= potential gross income
- vacancy and collection losses
- operating expenses
= NOI

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22
Q

intrinsic value of a property

A

NOI/Cap rate

23
Q

intrinsic value of options

A

minimum price the option will command as an option
Difference between the Market price and exercise price

24
Q

exercise price

A

price at which the stock can be purchased or sold

25
Q

time premium

A

the amount by which the market price of an option exceeds its intrinsic value

26
Q

when do investors buy calls?

A

when they are bullish

27
Q

call writers are?

A

pessimistic, they seek to keep the premium income

28
Q

put options do what?

A

gives the holder the right to sell a specific number of shares of one common stock at a set price for a given period of time

29
Q

why would investors buy puts?

A

when they are bearish

30
Q

intrinstic value of a put (formula)

A

IV= EP - MP

31
Q

protective put

A

buying a stock and a put for the same stock
a long position in both the stock and put
the put acts as insurance against a decline in the underlying stock

32
Q

warrants

A

right to purcahse
issued by corporations
several years to maturity (generally)
Not standardized

33
Q

futures short cut

A

if you’re long the commodity - go short
if you’re short the commodity - long the hedge

34
Q

correlation of physical and financial assets

A

typically low correlations

35
Q

Private placement (reg d)

A

max of 35 non accredited investors
unlimited # of accredited investors

36
Q

devaluation

A

lowering of the value of a currency relative to the currencies of one or more other nations

37
Q

revaluation

A

increase int he currency’s value

38
Q

Covariance/Correlation coefficient

A

measures the extent to which stocks are related to each other or how the price movements of one of the securities is related to the price movements of a second security

39
Q

coefficient of variation (CV)

A

relative variability to compare investments with widely varying rates of return and standard deviation

40
Q

Standard deviation vs beta

A

SD measures variability in a nondiversifed portfolio (measure of total risk)
Beta - volatility in a diversified portfolio (systematic risk)

41
Q

IRR

A

discount rate at which the present value of the future cash flow equals the cost of the investment
“effective return”

42
Q

Time weighted factors ____

A

percentages

43
Q

dollar weighted factors ____

A

cash flow

44
Q

Holding period return

A

HPR
total return (appreciation, margin interest, etc) divided by the price of the investment

45
Q

Yield to Maturity

A

assumes that the investor reinvests all coupons received from a bond at a rate equal to the computed YTM

46
Q

TEY

A

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

47
Q

bond duration

A

weighted average maturity of the bond’s cash flow on a present value basis

48
Q

aggressive investors and duration

A

aggressive investors should conisder bonds with high durations only when they anticipate that interest rates will decline (bond prices go up)

49
Q

what is the intersection of the CML called?

A

Rf or risk free (100% t bills)

50
Q

What is point B called?

A

the optimal risky portfolio, a proportional percent of all risky assets, or the tangent of the CML and the efficient frontier

51
Q

SML

A

relationship between risk and return for one individual asset

52
Q

ex dividend date for a stock

A

date of record is the first business day after the ex dividend date
to be listed as holder of record, the investor must purchase its stock before the ex dividend date

53
Q

are options marginable

A

no

54
Q

reg t

A

50%

55
Q

margin call formula

A

(1-intial margin)/(1-maintenance)
then multiply by the purcahse price of the stock

56
Q
A

CFP - Review Cards (17 decks)

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