Econ and Business Info

Question 1

Examples of Fiscal Policy

Answer 1

Tax
Government spending

Question 2

What are leading indicators?

Answer 2

SP500
Unemployment claims

Question 3

What are coincident indicators?

Answer 3

GDP
Manufacturing
Unemployment rate

Question 4

What are lagging indicators?

Answer 4

Inventory
Duration of unemployment

Question 5

What are systematic risks?

Answer 5

Also known as market risks or undiversifiable risks, are factors that affect the entire market or a large segment of it, rather than just a particular company or industry. Examples are interest rate, market, currency.

Question 6

What are unsystematic risks?

Answer 6

Business, regulatory, political

Question 7

If the Federal Reserve Board (FRB) wants to curb inflation, what do they do?

Answer 7

Inflation means too much money supply, to decrease money supply: issue high interest bonds –> more people will buy bonds –> FRB will keep that money –> less money supply –> value of USD goes up –> increase trade deficit

Question 8

What does an inverted yield curve imply?

Answer 8

Signals an upcoming recession because it reflects investors’ expectations of weaker economic conditions in the future.

Question 9

When there is a triggering event, how soon do you have to file the 8k?

Answer 9

4 business days

Question 10

What are Current Assets?

Answer 10

Can convert into cash within a year:

Cash
Inventory
AR
Marketable Securities

Question 11

What are Current Liabilities?

Answer 11

Within a year:

AP
Wages
This year’s interest on loans

Question 12

(Current Assets + Fixed Assets) - (Current Liabilities + Long term Liabilities) =

Answer 12

Shareholder’s equity:

Long term stocks
Retained earnings

Question 13

What is Current Ratio?

Answer 13

A company’s short term liquidity:

CA/CL
2:1 is good

Question 14

What is Quick Ratio?

Answer 14

(CA-inventory)/CL
AKA acid test
1:1 is good

Question 15

What is future value and how do you calculate it?

Answer 15

The value of an investment at a future date:

FV = PV * (1+IRR)^t

Ex: I invest $100 today. Interest rate is 10% a year. In 5 years, this $100 will be worth $161

Question 16

What is Net Present Value?

Answer 16

You estimate the future cash flow of a project, turn that cash flow into present day value and add it up, and see if the final result is worth the investment. You don’t need to do the hard calculation, but here is what you need to know:

Ex: you are given a bond, and its interest rate, and is given the PV of this bond. Say it’s $1120. Then you are told that you can buy this bond now for $1100. Then NPV is $20, which means it’s worth the investment.

If NPV is positive, it’s a good one. Otherwise stay away.

Question 17

What is IRR

Answer 17

IRR is basically annualized return.

Ex: you have an opportunity, put in $1000, you’ll get $500 in year 1, and $600 in year 2. IRR is the average annual return, in this case 6.39%.

If you have another opportunity, and it offers a guaranteed return higher than 6.39%, then you would want to go with that.

Another example: YTM is IRR for a bond!

Question 18

NPV vs IRR

Answer 18

Both are used to compare two investments.

NPV compares current cost vs estimated value in $.

IRR compares annualized returns in %.

Question 19

NPV vs DCF

Answer 19

NPV = DCF - Initial investment

DCF = PV but discount it to present day value

Question 20

What is Beta and how do you calculate it?

Answer 20

Beta is used to measure volatility:

Beta = Your volatility / SP500 volatility

Question 21

What is Alpha and how do you calculate it?

Answer 21

Alpha is used to measure business risk (e.g., new product release, management change)

Current beta - Historical beta = Alpha

Question 22

Qualified vs Unqualified vs Adverse Annual Audits

Answer 22

Qualified = identified issues or discrepancies

Unqualified = accurate and compliant with accounting standards.

Adverse = worst … it means you are purposely misrepresenting info

Question 23

Keynesian Theory

Answer 23

To get out of recession, government should tax less and spend more.