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IMC > Formulas and statistics > Flashcards

Formulas and statistics Flashcards

1
Q

Geometric Mean

A

Growth rates

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2
Q

Standard deviation is the root of:

A

Variance

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3
Q

Single Period Discount Factor is used to find:

A

Present value of a one off cash flow

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4
Q

Annuity Discount Factor is used to find:

A

The present value of all the cash flows (when a set number into the future)

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5
Q

Constant Perpetuity Discount Factor is used to:

A

Cash flow continue forever.

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6
Q

Find the present value of an irredeemable bond or pref share by:

A

Calculating the perpetuity discount Factor by the annual coupon payable on the bond.

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7
Q

Capital Asset Pricing Model

A

Calculate the expected return on a share based on level of systematic risk associated with that share

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8
Q

Beta is:

A

Relative systematic risk

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9
Q

Beta can be calculated by dividing total risk of investment times …. with market risk.

A

Correlation Coefficient

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10
Q

Correlation Coefficient is a:

A

Measure of the strength of the relationship between two variables. (-1 to +1)

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11
Q

Total risk can be defined as that investments …

A

Standard deviation

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12
Q

Total risk consists of systematic risk and unsystematic risk. How to find total risk?

A

By squaring systematic and unsystematic risk which gives you total variance. Total risk is then “roten av”.

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13
Q

Modified duration is a measure of:

A

The sensitivity of a price of a bond to changes in yields.

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14
Q

A high duration bond is more/less sensitive to changes?

A

More. Will typically be a bond with longer to maturity.

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15
Q

You find the change in bond value by:

A

Multiplying the change in yield by duration.

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16
Q

Constant Dividend Discount Model:

A

Gives the value on equity based on dividend and required rate of return.

17
Q

Growing Dividend Discount Model (Gordon’s):

A

Value of equity shares which are expected to pay a growing dividend into the future.

18
Q

Price/Earnings Ratio (P/E):

A

Ex Dividend share price / earnings per share

19
Q

Arithmetic mean

A

Standard average calculation

20
Q

Median is

A

Value of the mid-point in an ordered list of data

21
Q

Mode is

A

The most frequent data - Normal Distribution

22
Q

Geometric means is used as a…

A

Measure when considering growth or inflation which compounds each year.

23
Q

Dispersion (how broadly spread a range of values are from the central point) can be a measure of…

A

Risk

24
Q

The dispersion measures that can be used if return has been found by arithmetic mean are…

A

Standard variation and Variance

25
Q

The greater the divergence of the observed values from the arithmetic mean…

A

The reader the standard deviation (risk).

High SD = high risk

26
Q

Variance is

A

Standard deviation^2

27
Q

The interquartile range measures the range of the mid 50% items. How do you calculate it?

A

Divide in 4 quartiles. 3 calculations giving the top of the 1st quartile, median and top of 3rd quartile. Quartile x (n+1) / 4

3rd-1st=interquartile range

28
Q

68.26% of all possible returns spans 1 standard deviation. 95% of all possible returns spans…

A

1.96 standard deviations from the mean (expected return)

29
Q

The arithmetic index is the most appropriate alternative for portfolio perf management because…

A

Returns on a portfolio will be the sum of the returns of the individual stocks within the portfolio.

30
Q

“The market value of a security is the present value of the future expected receipts…

A

…discounted at the investors’ required rate of return.”

31
Q

The IRR is the rate of interest that…

A

Discount the investment flows to a net present value of zero.

32
Q

The IRR assumes that surplus funds can be reinvested at a return…

A

Equal to the IRR.

IMC (2 decks)

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