Investments

Question 1

Intrinsic value of a bond

Answer 1

Use comparable bonds yield for I/YR and use the actual bonds coupon for payment

Question 2

Who buys preferred stock?

Answer 2

Corporations. Why? 50% of the dividends are excluded from income

Question 3

REITS VS RELPS

-taxation
-marketability
-manage (BOD VS General Partner)

Answer 3

REITS
-subject to taxation like a stock
- actively traded
-managed by BOD

RELPS
-Passive loss rules
-not marketable
-managed by general partner

Question 4

Collectibles
- what is the rate
-what periods increase value

Answer 4

Long term capital rates (28%)
Inflationary periods increase collectible’s value

Question 5

Reg D accredited investor requirements

Answer 5

1-2-3 test
Individual net worth of 1 million
Annual income of 200k (individual)
Couple income of 300k

Question 6

Coefficient Variation

Answer 6

Standard deviation/mean
Lower means less risky

Question 7

Steps to solve exchange rate problem

Answer 7

1. Multiply investment amount by exchange rate at purchase
2. Multiply step 1. by stock increase or decrease
3. If sold, divide step 2 by new exchange rate

Question 8

How to calc SD

Answer 8

Return sigma
Return sigma
…
Gold 8

Question 9

SD v BETA

Answer 9

SD= measure of total risk in non diversified
Beta= diversified risk and is a measure of systematic risk

Question 10

Time weighted vs Dollar weighted

Answer 10

TiMe (for manager)
Dollirr (internal rate of return IRR)

Question 11

Geometric return calc

Answer 11

1. Take each return and add 1 and multiple them together
2. Step 1 becomes FV
3. PV is -1
4. N becomes number of returns
5. Solve for interest rate

Question 12

Duration (coupon and maturity)

Answer 12

Higher coupon= lower duration
High maturity= higher duration

Question 13

Change in bond prices with duration formula

Answer 13

Change in price= NEGATIVE duration (change in interest rates/ 1+YTM)

Question 14

Dividend growth rate for changing rates

Answer 14

1. Pick last growth rate and calc using formula
2. If the first return was lower then the second, pick the next lower number then what you found at 1
3. If the first return was higher then the second, pick the next higher number

Question 15

Net revenue pledge vs gross revenue pledge

Answer 15

Net= pays expenses before bond holders are paid
Gross= revenues used for debt services before any expenses

Question 16

Dollar cost averaging

Answer 16

Average cost= Total investment/ number of shares

Question 17

How to calculate a margin call amount of the share prices drop

Answer 17

1. Take new value per share and multiply by amount of shares
2. Take amount borrowed and subtract from 1
3. Take margin call percentage and multiply by 1
4. Subtract 2 from 3

Ex/ bought 1000 shares at $80 on margin (50%). Shares drop to $50. Margin percent 25%
1. 1000 X 50= 50,000
2. 50,000- (1/2 80,000) = 10,000
3. 50,000 X .25= 12,500
4. 12,500-10,000= $2,500 maintenance call

Question 18

1035 exchanges

Answer 18

L to L
A to A
L to A
All ok

A to L no
Cannot be done if the insured changes