Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

ISA > Term 1 > Flashcards

Term 1 Flashcards

(51 cards)

Start Studying
1
Q

What is the formula for the CAPM?

A

Rf+cov/Var(rm-Rf)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Discuss the CAPM?

A

Represents ROR and Beta
If plotting over = Under priced
Investors are rewarded for taking on systematic risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the assumptions of the CAPM?

A

Investors are efficent and homogenous
Unlimited borrowing and lending, no taxes or transaction costs
Infinitley divisible assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the Roll Critique?

A

As we cannot identify the market, we cannot test the CAPM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Discuss the Zero Beta Model?

A

A model that uses the least risky asset as opposed to a risk free asset
Minimum variance
Steeper than the CAPM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the value effect?

What is the size effect

A

The higher P/E the better the performance

The smaller the firm the better the performance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the CCAPM?

A

Links asset growth to growth of aggregate consumption
More growth = higher returns
High covariance with consumption = more risk
We can now measure the market portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Discuss risk in the CCAPM?

A

Consumption valued more in hard time

A risky asset thus pays off more in booms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the CCAPM equation?

A

E(R)=BicRPc
B= Slope of returns above consumption portfolio
RPc = Risk premium associated with consumption uncertainty

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the drawbacks of the CAPM?

A

Does not match data
Consumption is hard to measure
Every individual does not invest but does consume

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define the ICAPM?

A

Inter temporal CAPM
Assume the distribution of returns and investor preferences change over time
There is also multiple sources of risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Define some potential sources of risk in the ICAPM?

A

Consumption, labour income, other investment opps

Each has own beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Evaluate the ICAPM?

A

Need to use factors that have a theoretical justification

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How do you calculate the Beta of a weighted portfolio?

A

Calculate the average of each of the assets Beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What do we assume about the basic securities?

A

They themselves are well diversified therefore no idiosyncratic risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a factor replicating portfolio?

A

An asset that has one Beta = 1 and the rest zero

This allows an identical portfolio to an asset X - should have same price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the notation?

A

X=rf+B1xLamda1+B2xLamda2`

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the APT?

A

We replicate an asset using factor replicating portfolios, they should have teh same price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the limitations of the APT?

A

Doesn’t say what factors to include

Can never disprove the model, only the factors include

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the assumptions of TA?

A

The market considers all info

Prices move in trends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the benefits of TA?

Study These Flashcards
A

Only need to consider previous information

Low information costs

22
Q

What are the drawbacks of TA?

Study These Flashcards
A

Contradicts EMH

Very subjective

23
Q

What is the DOW theory?

Study These Flashcards
A

Three Trends:
Primary
Secondary
Tertiary

24
Q

What proves a primary trend?

Study These Flashcards
A

Each peak and trough should be higher than the last

25
What are the types and time frames of trends?
Upwards, Downards, Horizontal ``` Long = Months Medium = Weeks Short = Days ```
26
Discuss support and resistance?
Support is the bottom - buyers overwhelm sellers Resistance is the top - Sellers overwhelm buyers Moving beyond indicates a trend
27
Discuss role reversal in supports and resistances?
If moves beyond a support, it becomes a resistant
28
What is teh benefits of using moving averages?
A short average allows faster reactions but may misfire
29
Discuss some patterns in stoch charts?
Head and Shoulders - Indicate Reversal Double Tops - Indicate Reversal Cup and Handle - Indicates a buy
30
What are the four types of Gaps?
Common Breakaway - Indicates a new trend Runaway - Trend accelerating Exhaustion - Followed by a reversal
31
Discuss triangles?
Indicates a breakaway in direction of flat side
32
What is point and figure chatrting?
Define a unit, x indicates increase, removes noise
33
Discuss candlestick?
Hollow indicates higher than open
34
Discuss oscilators?
Records momentum If < 15 - Buy If higher than 85 - sell
35
What do we assume for FA?
Markets are semi-strong inefficent
36
What variables do we consider for FA?
Financial reports Macro news Analyst opinions
37
Discuss the top down approach?
Start with macro analysis Then pick strong industries Then pick firms
38
What are demand shocks in TA?
Tax rate changes | Gov spending
39
What are supply shocks in TA?
Natural disasters
40
What must be considered at an industry level?
Sensitivity to business cycle
41
What is sector rotation?
Moving portfolio based on economic situation Contraction = Utilities Expansion = Industry
42
Discuss the industry life cycle?
Start up - Rapid Growth Then slows Does not indicate asset quality - cash cows
43
What are the two main approaches to micro valuation?
Discounted Cash flow | Relative Valuation
44
What is the dividend discount model?
Dt/(1+k)^t .... (Dt+1)/(K-g)(1+k)^T
45
What is the cash flow valuation method?
FCF/(1+WACC)^t ... (FCF/WACC-G)(1+K)^t
46
What are the pros and cons of discounted cash flow?
Determins the firms absolute value | We have to assume a discount rate and growth
47
What is the issue with relative valuation?
If you compare an overvalued industry to a massively overvalued market, you may believe the industry is undervalued
48
What is the P/E ratio?
P/E=(D1/E)(K-g)
49
Discuss the PEG ratio?
PE/G | If PE
50
What is value investing?
Determing a stocks fundemental value and comparing it to the market price
51
Name some types of investors?
Passive Screens: Scan whole market Contrarian Investors: Go against market Activist: Change company

ISA (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions