Portfolio/Fixed Income Basics

Question 1

A fundamental analyst will examine what

Answer 1

• Outlook for the industry
• Management of the company
• Product lines of the company
• Anticipated introduction of new products
• Market share of the company

Question 2

Assets - Liabilities = ??

Answer 2

Net worth

Question 3

Assets = ? + ?

Answer 3

Liabilities + Net worth

Question 4

Current Liabilities on a balance sheet consist of

Memory Tool: W A I T

Answer 4

• Wages Payable
• Accounts Payable
• Interest Payable
• Taxes Payable

Question 5

Net Working Capital = ?? - ??

Answer 5

Current Assets - Current Liabilities

Question 6

Current Ratio = ?? / ??

Ratio used to measure liquidity

Answer 6

Current assets / Current Liabilities

Question 7

What is the formula for the Quick ratio?

Ratio used to measure liquidity

Answer 7

(Current assets - Inventory) / Current liabilities

Question 8

Ratios that are used to measure liquidity include?

Answer 8

• Current Ratio

- Quick Ratio (Acid test)

Question 9

PORTFOLIO CONSTRUCTION:

Blue Chip

Answer 9

Highest quality companies with proven earnings and dividend records

Question 10

PORTFOLIO CONSTRUCTION:

Growth/Price/Earnings Ratio

Answer 10

Companies tat are in a period of above average growth due to rapid market expansion or unique products

Question 11

PORTFOLIO CONSTRUCTION:

Emerging Growth

Answer 11

Brand new ventures of high risk but also high potential reward. These companies have no track record and typically do not pay dividends

Question 12

PORTFOLIO CONSTRUCTION:

Income

Answer 12

Mature companies with high dividend payout ratios - such as utilities

Question 13

PORTFOLIO CONSTRUCTION:

Cyclical

Answer 13

Companies whose fortunes track the business cycle closely

Question 14

PORTFOLIO CONSTRUCTION:

Counter-Cyclical

Answer 14

Companies whose fortunes operate in reverse to the business cycle

Question 15

PORTFOLIO CONSTRUCTION:

Defensive

Answer 15

A company which remains unaffected during business cycle downturns

Question 16

PORTFOLIO CONSTRUCTION:

Speculative

Answer 16

Companies that fly high during the business cycle upturns (Feast and famine periods that mirror the business cycle)

Question 17

PORTFOLIO CONSTRUCTION:

Special Situation

Answer 17

A company going through a takeover, restructuring, bankruptcy; or management change that will greatly change the nature of its operations

Question 18

Total Return = ? + ?

Answer 18

Income + Growth

• Dividends for Equities
• Interest for Debt

Question 19

Which method takes compounding into effect

Geometric average rate of return or Arithmetic average rate of return

Answer 19

Geometric average rate of return

Question 20

An investment return of a company’s stock varies directly with economic conditions - is what type of stock

Answer 20

Cyclical

Question 21

Standard deviation of returns depends on the holding period of the investments. Thus:

The shorter the holding period __________________

The longer the holding period __________________

Answer 21

The shorter the holding period, the greater the variability of the return; and

The longer the holding period, the smaller the variability of the return.