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Uni Final > Security Analysis Maths Questions > Flashcards

Security Analysis Maths Questions Flashcards

1
Q

Calculate the share price today using DDM (EQUITIES)

A
  1. Cost of Equity (using CAPM)
  2. Share price at maturity
  3. Share price at t=0
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2
Q

Calculate Modified Duration and Convexity of each Bond (BONDS)

A
  1. Duration - use formula
  2. Modified Duration = duration/1+r
  3. Convexity - use formula
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3
Q

What is the investment needed in bond A and bond B to immunise a liability after x years using duration (BONDS)? How many bond A and bond B units need to be purchased?

A
  1. Target Duration = (w1 x DurationA) + (w2 x DurationB)
  2. PV of liabilities = value of liability / 1+r^n
  3. Notional Value for Bond A and B = PV of liabilities x w1 or w2
  4. Number of bonds = notional value/market price
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4
Q

Calculate excess returns relative to duration for each portfolio and rank their performance (PORTFOLIO MANAGEMENT)

A
  1. use formula for excess return to duration
  2. rank from highest to lowest
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5
Q

Calculate the alpha for each portfolio and use to rank performance (PORTFOLIO MANAGEMENT)

A
  1. Calculate required returns - using Ri formula (CAPM with duration) = rf + (rm - rf)Dp/Dm
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6
Q

Calculate the cost of hedge if uses put options to hedge against decrease in prices (PORTFOLIO MANAGEMENT)

A
  1. Number of contracts required to hedge the portfolio (use formula, but multiply index by 10)
  2. Cost of hedge = no. of contracts x 10 x premium put option
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7
Q

What would happen to the value of the portfolio (if used the put options to hedge) if at expiry the index is at x or y? (PORTFOLIO MANAGEMENT)

A
  1. Value of Portfolio (use formula)
  2. Value of puts = (original index level - new index level) x 10 x number of contracts
  3. Combined Value = add together
  4. less put premium
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8
Q

What would be the cost of hedge if uses both puts and calls at the same time? (PORTFOLIO MANAGEMENT)

A

Difference in put premium - call premium x 10 x number of contracts

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9
Q

Upper and Lower Bounds for Index value in hedging (PORTFOLIO MANAGEMENT)

A
  1. Upper Bound Index = exercise price + (call premium + put premium)
  2. Lower Bound index = exercise price - (call premium + put premium)
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10
Q

Sharpe Ratio (PERFORMANCE MEASUREMENT)

A

How much excess return over risk-free rate over one unit of risk

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11
Q

M Squared (PERFORMANCE MEASUREMENT)

A

The return the investor would have earned if the portfolio has the same risk as the market portfolio.

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12
Q

Treynor Measure (PERFORMANCE MEASUREMENT)

A

How much extra return per unit of Systematic Risk

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13
Q

Jensen Differential Performance Index (PERFORMANCE MEASUREMENT)

A

Alphas = actual return - expected return

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14
Q

Information Ratio (PERFORMANCE MEASUREMENT)

A

Abnormal return (portfolio alpha) per unit of non-systematic risk

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15
Q

Bond Alphas (PERFORMANCE MEASUREMENT)

A
  1. Use Ri formula with Dp/Dm at the beginning, to get expected return (no Beta)
  2. Calculate alpha
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16
Q

Excess Return to Relative Duration (PERFORMANCE MEASUREMENT)

A

Formula is given.
Bond version of the Treynor Measure.

17
Q

Holding Period Return (BONDS)

A
  1. Price of bond when being sold (discount future payments back to date when sold).
  2. Price of bond when sold as calculated - price at t=0 + coupon payment at time when sold
  3. All over original price at t=0
18
Q

Forward Rates implied by the Spot Rates (BONDS)

A

(1 + spot rate)^n = (1 + spot rate for yr 1)(1 + forward rate)

19
Q

Real Holding Period Return (with inflation (BONDS)

A

(1+r) / (1 + inflation) - 1

20
Q

Current Fair Market Price of Shares (EQUITY)

A
  1. Required rate of return (CAPM)
  2. Po = Do(1 + g) / (r - g)
21
Q

Forward PE Ratio (EQUITY)

A

P / (EPS x g)

22
Q

Current Dividend Yield (EQUITY)

A

D / P

23
Q

Forward Dividend Yield (EQUITY)

A

D(1 + g) / P

24
Q

Market-to-Book Ratio (EQUITY)

A

P / net assets

25
Q

Forward Price (EQUITY)

A

P1 = D(1 - g) / (r - g)

26
Q

Total Return (EQUITY)

A

(D(1 + g) + P1) / P1

27
Q

Cash Flow Matching (PORTFOLIO MANAGEMENT)

A
  1. Start with the required maturity.
  2. Use the bond with that maturity
  3. Liability value / 1+c
  4. Coupon payments - put in table for when looking at bonds for the earlier liabilities
28
Q

Estimate holding period return on a bond assuming the rollover rate is x% (BONDS)

A

Holding Period Return = YTM = (B/P)^1/2 - 1

29
Q

Using two bonds, construct a portfolio to immunise the year x liability (using duration) (PORTFOLIO MANAGEMENT)

A
  1. Amount to be invested = value of liability / 1+r^n
  2. Target Duration calculation (weightings)
  3. Buy Nominal Terms = (amount to be invested x weighting) / price/100
  4. Buy Cost Terms = amount to be invested x weighting

Uni Final (12 decks)

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