PEST: Economic factors

Question 1

PEST: economic factors elements

Answer 1

inflation/deflation
interest rates
employment rates
exchange rates

Question 2

what are the pillars of the Canadian financial system

Answer 2

banks and alternate banks
specialized lending/saving intermediaries
investment dealer

Question 3

banks and alternate banks

Answer 3

-make deposits, borrow money
-small and medium enterprises (SMEs) primary lending source
-primary source for businesses and SMEs

Question 4

specialized lending/saving intermediaries

Answer 4

-for mid-large businesses
-private equity financing and borrowing
-offers more money then a bank
-private
-for investing in businesses

Question 5

investment dealer

Answer 5

-for large and established companies
-for going public; stocks and bonds
-for large organizations
-for businesses who are willing to give up privacy

Question 6

debt

Answer 6

borrow money
retain control
must be repaid
must pay interest(tax deductible)
legally binding

Question 7

equity

Answer 7

give up ownership
no interest or repayment
share control and profits

Question 8

whats capital gain

Answer 8

what you make on a stock

Question 9

how do you calculate capital gain

Answer 9

selling price-purchase price-relevent expenses

Question 10

whats yield

Answer 10

percentage return expected or recieved on investment

Question 11

why use yield

Answer 11

enables comparison of investment returns and pricing of investments

Question 12

whats expected yield

Answer 12

risk free return+risk free premium

Question 13

risk free return

Answer 13

what the bank pays on your deposits

Question 14

risk free premium

Answer 14

extra return expected for riskiness of investment

Question 15

YIELD formula

Answer 15

coupon rate x face value + (FV-price paid/time to maturity)
__________________________________________
price paid

Question 16

characteristics of bonds

Answer 16

legal, binding agreement
fixed annual return (paid semiannually)
fixed term principal repaid at maturity
priority over stock holders

Question 17

assumptions to make about bonds

Answer 17

pay semiannually and compound semiannualy

Question 18

what happens to bond prices after interest rates rise

Answer 18

they fall, and other way around

Question 19

is bond equity or debt

Answer 19

debt

Question 20

is stock equity or debt

Answer 20

equity

Question 21

whats a bond

Answer 21

When you buy a bond, you’re lending money to a company, government, or other organization. In return, they promise to pay you back the amount you lent (called the principal) after a certain amount of time (the maturity date), plus interest payments along the way (called the coupon).

Question 22

stocks charateristics

Answer 22

voting rights
no fixed term
variable return(capital gain upon selling)
discretionary payment (dividends)
higher risk then bond

Question 23

whats going long

Answer 23

using your own money for an investment

Question 24

buying on margin

Answer 24

portion of your own money plus money from broker

Question 25

margin requirment

Answer 25

% that represents portion of equity that you need to cover

Question 26

TVM variables: r

Answer 26

interest rate or discount rate

Question 27

TVM variables: n

Answer 27

number of periods
n=yearsxpayments (nxp)

Question 28

TVM variables: PMT

Answer 28

payment amount

Question 29

TVM variables: rnom

Answer 29

nominal rate given in the question (used to calculate r)

Question 30

TVM variables: m

Answer 30

compounding frequency per year

Question 31

TVM variables: p

Answer 31

payment frequency per year

Question 32

whats APR

Answer 32

use when m and p are the same

Question 33

ammortization

Answer 33

full length of mortgage

Question 34

mortgage term

Answer 34

length of agreement of interest rate

Question 35

effective interest rate

Answer 35

when m and p are not the same

Question 36

down payment

Answer 36

money you put down before anything else

Question 37

VENT

Answer 37

variables
equations
numbers
therefore

Question 38

principal repaid

Answer 38

amnt originally owed-amnt still owing

Question 39

interest

Answer 39

total payments made-principal repaid

Question 40

BOND factors affecting price

Answer 40

interest rate changes (inverse relationship)
risk premium and market conditions

Question 41

STOCK factors affecting price

Answer 41

company performance
market conditions
investor sentiment and economic outlook

Question 42

is mortgage equity or debt

Answer 42

debt

Question 43

whats margin buying

Answer 43

borrowing money to invest in stocks using the stock itself as colateral

Question 44

rules of margin buying

Answer 44

must qualify for a margin account and sign hypothecation agreement
maintain min. margin requirment

Question 45

margin call

Answer 45

happens when an investor borrows money from a broker to buy more stock than they could afford with their own cash

Question 46

bull markets

Answer 46

a financial market where prices are rising or are expected to rise, typically over a sustained period.

Question 47

bear markets

Answer 47

a financial market where prices are falling or are expected to fall, typically by 20% or more from recent highs.

Question 48

why is $1 worth less one year from today

Answer 48

risk
real interest
inflation

Question 49

present value

Answer 49

amount of money of current time
(need now, worth today, how much willing to pay)

Question 50

future value

Answer 50

amount of money at some point in the future
(how much will you have, how much should you invest to have ___ in ___ years, you need ___ to retire)

Question 51

single payment

Answer 51

single, lump sum that accumulates interest
(how much will you need today, make a deposit today)

Question 52

annuity

Answer 52

stream of equal payments that accumulate interest
(how much do you have to save per month, you are looking to finance, annual payments be)

Question 53

annuity due

Answer 53

payment occurs at beginning of the period
(starting now)

Question 54

ordinary annuity

Answer 54

payment at the end of the period
(savings questions)

Question 55

annuity vs perpetuity

Answer 55

annuity: ends after certain term. retirement plans, investment plans, mortgages
perpetuity: payment occurs forever