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Series 66 > Portfolio Management and Investment Risk > Flashcards

Portfolio Management and Investment Risk Flashcards

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Series 66 flashcards
1
Q

Working Capital

A

Total Current Assets - Total Current Liabilities = Working Capital

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2
Q

Current Ratio

A

Measure of liquidity

Total Current Assets/Total Current Liabilities

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3
Q

Quick Asset (Acid Test) Ratio

A

Total Current Assets - Inventory
_________________________

Total Current Liabilities

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4
Q

Debt to Equity Ratio

A

Bonds + Preferred Stock
__________________________________________

Common Stock at Par + Capital Surplus + Retained Earnings

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5
Q

Large Cap Stocks

A

Mature companies with market cap above $10 mil and history of consistent dividend payments

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6
Q

Mid Cap Stocks

A

Growth companies with market cap from $2 bil to $10 bil

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7
Q

Small Cap Stocks

A

Newer growth companies with market cap from $300 mil to $2 bil

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8
Q

Micro Cap Stocks

A

Speculative companies with market cap from $50 mil to $300 mil

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9
Q

Order of payment to creditors and owners when forced to liquidate

A

Secured debt
Unsecured Debt
Preferred Stock
Common Stock

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10
Q

Earnings Per Share

A

Net Income - Preferred Dividends
___________________________

Number of Outstanding common shares

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11
Q

Price/Earnings Ratio

A

Market Price/Earnings Per share

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12
Q

Growth Analysis

A

High P/E Ratio
High retained earnings
Low dividend payout ratios

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13
Q

Value Analysis

A

Low P/E
History of Profits
High dividend yield
Low price to book ratio

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14
Q

Top Down Approach

A

Analyze economy first, then specific industries

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15
Q

Bottom Up Approach

A

Evaluate company, then determine if company is undervalued relative to its peers

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16
Q

Modern Portfolio Theory

A

Theory that analyzes relationship between risk, correlation, diversification, and returns.

Assumes investors are risk averse

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17
Q

Expected Return

A

Possible return on investment weighted by likelihood that return will occur

Sum of all possible returns multiplied by probability of return

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18
Q

Standard Deviation

A

Measure of risk as evidenced by the variability between returns

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19
Q

Correlation

A

Degree to which different investments move in the same direction

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20
Q

Monte Carlo Simulation

A

Risk analysis simulation that identifies list of economic factors that may affect an investment and assigns each factor a range of values.

21
Q

Optimal Portfolio according to MPT

A

Diversified assets with no correlation

22
Q

Capital Asset Pricing Model (CAPM)

A

Describes relationship between risk and expected returns with focus on two types of risk: Diversifiable and Non-Diversifiable

23
Q

Diversifiable Risk

A

Business or non-systematic risk specific to a particular security or sector

24
Q

Non-Diversifiable Risk

A

Systematic or market risk

25
Q

Beta

A

Measure of volatility

26
Q

Risk Free Return

A

Rate of return attributed to an investment with zero risk, usually a T Bill

27
Q

Risk Premium

A

Additional return above risk free return

28
Q

Alpha

A

Risk adjusted return

29
Q

Sharpe Ratio

A

Risk adjusted return measurement

(Ri - Rrf)/Oi

30
Q

Efficient Market Hypothesis

A

If markets are efficient, then prices will reflect all known information

31
Q

Weak Form Efficiency

A

All past market prices and data are fully reflected in securities prices

32
Q

Semistrong Form Efficiency

A

Security prices reflect all publicly available information and investors would receive no benefit from using either technical or fundamental analysis

33
Q

Strong Form Efficiency

A

Price of stock incorporates all current information including both public and private information

34
Q

Passive Strategies

A

Strategic asset allocation

35
Q

Future Value

A

Pn = P0(1+r)^n

36
Q

Present Value

A

P0 = Pn/(1+r)^n

37
Q

Capital Needs

A

A capital goal that needs to be achieved within a specific period

38
Q

Internal Rate of Return

A

Compounded interest rate or yield used to calculate present value, future value, and discounted cash flows

39
Q

Dollar Weighted Return

A

Solves for rate of return that makes present value equal to present value of future cash flows

40
Q

Time Weighted Return

A

Compounded growth over period being measured, used to rate performance of money managers

41
Q

Annualized Return

A

Total return/Periods = Annualized Returns

42
Q

Inflation Adjusted Return

A

Yield - Inflation = Inflation adjusted return

43
Q

After Tax Yield

A

Taxable Interest Rate x (100% - Tax %)

44
Q

Taxable Equivalent Yield

A

Tax Free Interest Rate/(100% - Tax bracket %)

45
Q

Total Return

A

(Ending Value - Beginning Value + Investment Income)/Beginning Value

46
Q

Market Order

A

Buy or sell stock at current market price

47
Q

Limit Order

A

Buy or sell stock at specified price or better

48
Q

Stop Order

A

Buy or sell stock once market price reaches specific price

Series 66 (5 decks)

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