Review session + exam Flashcards
Rf = -x
borrow x for every 1$ you have
Technical analysis
MKT participants in mass decide that its time to sell thats what going to happen
Techincal vs fundamental analysis
Techincal is in an instant
TAnalysis - Weak form
Academics say this isn’t going to work
Accuracy of DCF in finding intrinsic value
Low
CAPM: What can throw B off
Big change in debt
Big change in volatility of CF (divestitures)
How to choose a MF
- Assess client risk profile
- Fees
- Redemption/Back loads
- Manager Tenure
- Diversify
- Turnover ratio
How not to choose a MF
Past performance or performance stats
Choosing MF: Assess client risk profile
Will point to market cap. and style
small cap, growth -> riskiest
Choosing MF: Fees
The lower the better (no loads, 12b1, management fees)
Choosing MF: Redemption/Back loads
Good for fund (stay invested), bad for new investors -> keep away from them
Choosing MF: Manager Tenure
You want a manager with some experience 3 and 10 years. The longer they manage the worse they do.
Choosing MF: Turnover rate
Low best, high is more expensive as it means more trading which is expensive
Expense Ratio components
12b-1
Management fees
(without these 2 you get overhead)
Load?
Best managers (according to Peter Lynch)
Initial performance random
Do best their first 3 years
Don’t improve afterwards (unless they randomly do)
Bonds: eliminate reinvestment risk
Invest in 0 coupon
Altman tells us
Which companies have higher bankruptcy risk or bond default risk on their debt
Lower expected market returns in the MRP result in lower intrinsic values, all else equal
False. All else equal, a drop in the market rate lowers the risk premium, raising prices.
B measures (I) and reflects (II)
(I) Systematic risk
(II) Business and financial risk
A product/product line added to a firm’s core business
Does not affect its business risk
2 implications that are important to investors resulting from The Best Mutual Fund Managers study
- There is a negative relationship between tenure and performance. That is, managers are unlikely to improve performance with greater experience.
- This suggests that, consistent with the EMH performance is random
Overperforming markets for long periods of time
Impossible, maybe overperformed in SR and benefits so big that in aggregate it overperformed in LR (although in reality only in SR)
Reducing stock risk in portfolio
By having stocks in the portfolio whose returns negatively correlate with each other
What is the primary value of the CML
The CML enables one to choose a portfolio at any level of risk and return that dominates all others.
