Unit 2-3

Question 1

Corporate bond yield.

Answer 1

Municipal bond yield/ (100%- tax bracket)= equivalent taxable yield

Municipal yield divided by the compliment of the investors tax bracket

Question 2

Computing alpha

Answer 2

(Total portfolio return- risk free rate) - (portfolio beta x [market return- risk free rate])

Question 3

Internal rate of return

Answer 3

• The discount rate at which the net present value of an investment is equal to zero
• helps compute long term returns that take into consideration the time value of money

Question 4

Net present Value

Answer 4

Difference between an investments present value and it’s cost.

Positive NPV is good investment
Negative NPV bad investment

Considered more important then IRR

Question 5

Present value

Answer 5

• term for value today of the future cash flows of an investment.
  PV= FV / (1+ r)^n

Question 6

Rule of 72

Answer 6

Shortcut for determining the number of years it takes for an investment to double.

72/ interest rate the investment pays.

Question 7

Bond after tax rate of return

Answer 7

Coupon multiplied by 100-tax bracket percentage.

Ex: 28% tax bracket, 8% coupon

(100-28)= 72
.72 * .8 = after tax rate of return

Question 8

Block trade

Answer 8

10,000 shares traded at once or more

Question 9

Annual report

Answer 9

Document that gives current and planned operations of a company

Question 10

Tax equivalent yield

Answer 10

Divide bonds coupon rate by (1-tax bracket)

Tax rate 20%, coupon 4%

(1-20%)/ 4%

Question 11

Internal rate of return

Answer 11

Discount rate that makes the future value of an investment equal to its present value.

Method of computing long term returns that takes into consideration the TIME VALUE of money.

The yield to maturity of a bond reflects its IRR

Question 12

Form 8-k

Answer 12

Reports newsworthy events to be SEC.

Example:

• control of company changes
• significant amount of assets are disposed
• board member resigns