cfa2 Flashcards
(438 cards)
1
Q
Active Return
A
asset alloc + security selection
2
Q
Active Risk Squared
A
Active Factor risk +active specific risk
3
Q
Active specific risk
A
Sum(wpi - wbi)^2 Stdev^2
4
Q
Cvar
A
Expected loss if given loss exceeds CVaR
5
Q
VaR
A
estimate min loss with given probab over a specific period, 5%VaR = (mean annual ret - 1.65stdev)portval
6
Q
IVaR
A
Incremental Var, change in VaR from a specific changed in size of a portfolio position
7
Q
MVaR
A
Marginal VaR, change in VaR for a small change in a portfolio position, used as estimate of positions contribution to overall VaR
8
Q
Variance two funds
A
Wa^2stdeva^2 + Wb^2StdevB^2 + 2WaWbCovAB
9
Q
chg Val vs change ytm
A
-durationchg yield + .5Convexitychg yield^2 **( if macauly chg yield/(1+Yield) to get mod)
10
Q
Survivorship bias
A
Using data that only includes entities that have persisited until today
11
Q
look-ahead bias
A
using info that wasnt available at time of inv decision
12
Q
Data Snooping
A
mode chosen by backtestin perform, large t stat small p value
13
Q
Cross validation
A
model is first fitted using training data, then assesed using seperate testing data
14
Q
Scenario analysis
A
invsetigates a strategys perfoirmance and riskj under different structural regimes
15
Q
Stress Testing
A
examines performance under the worst combination of events and scenarios
16
Q
Historical Simulation
A
Observations are rondomly chosen from the historical dataset
17
Q
Monte Carlo Simulation
A
statistical distribution is specified and calibrated using hisotrical return data
18
Q
Bootstrapping
A
samples drawn with replacement, useful when more sims than dataset
19
Q
Sensitivity analysis
A
overcomes shortcomings of montecarlo simu by taking into account fat tails and negative skewness
20
Q
Intertemporal Rate Substitution(mt)
A
mt = u1/u0=marginal utility consuming 1 unit future/marginaly utility consuming 1 unit now
21
Q
Real rfr
A
(1-p0)/p0 = (1/(e(m1)) -1
22
Q
bond price
A
p0 = (E(p1)/(1+R)) + Cov(p,m)
23
Q
Nominal ST IR
A
real risk free rate + inflation
24
Q
Nominal LT IR
A
real risk free rate + inflation + risk premium for inflation uncertainty
25
Taylor Rule
real rfr + inflation +.5(inflation - inflation target) + .5*(log sustainable output - log fed sustainble output)
26
BEI Rate
yield non inflation indexed bond - yield inflation indexed bond
27
BEI longer maturity bonds
expected inflation + inflation risk premium
28
Credit risky bond required ret
real rfr + inflation+ inflation risk premium + credit risk premium
29
discount rate equity
real rfr + inflation+ inflation risk premium + credit risk premium + risk premium equity vs risky debt
30
discount Rate commercial real estate
real rfr + inflation+ inflation risk premium + credit risk premium + terminal value risk + illiquidity premium
31
active return
portfolio return- benchmark return
32
Information Ratio
active return/active risk, affected by cash/leverage (sharpe is not)
33
Portfolio Sharpe Ratio
port ret - rfr/ std(port ret)
34
Selection Return
sum(wi*(ri -rbench))
35
Allocation Return
sum(rbench*(wi - wbench))
36
Sharpe Ratio
sqrt(SRb^2 + IRp^2)
37
Total Port Risk
squared bench stdev + squared active stdev
38
IR
TC* IC*Sqrt(BR)
39
Expected Active Return
IR*Active stdev
40
Expect Activ Ret (full fundmental law)
TC*IC*sqrt(BR)*Active stdev
41
Optimal risk level
IR/SRbench * bench stdev
42
then for weight
optimal risk/ investment risk
43
IC
2*% correct -1 ,exante correlation between active returns and actual active returns, is skill of manager
44
TC
Crossectional correlation between forecasted active returns and actual active weights adj for risk, 1 if unconstrained
45
BR
stock*times per year (total decisions for year)
46
BR (bets correl)
N/(1+(N-1)*correlation coeff)
47
active asset alloc
sum chg weights*bench returns
48
Porters five forces
rivalry, threat new entrants, threat new substiutes, bargain power suppliers, bargain power buyers
49
Use ddm when
firm has div history, div policy related to earnings, minority shareholder perspective
50
use fcf when
firm lacks stable div policy, div policy not related to earnings, fcf related to profitability, controlling sharholder perspective
51
us RI when
firm lacks div history, expected fcf negative
52
gordon growth
v0 = D1/(r-g)
53
g (sgr)
roe * (1-payout ratio)
54
b
1-payout ratio
55
PvGO
v0 = (E1/r) + PVGO
56
g (sgr PRAT)
((net income - div)/net income) *(net income / sales)*(sales / total assets)*(total assets/stockholders equity)
57
H model
[(D0*(1+gL)/(r-gL)]+[D0*H*(gS-gL)/(r-gL)]
58
FCFF1
NI + Dep + INT(1-t) - FCInv - WCInv
59
FCFF2
CFO + Int*(1-t) - FCInv
60
FCFF3
EBIT*(1-t) + Dep - FCInv - WCInv
61
FCFF4
EBITDA*(1-t) + Dep*(t) - FCInv - WCInv
62
FCFE1
FCFF - Int(1-t) + Net Borrowing
63
FCFE2
CFO - FCInv + Net Borrowing
64
FCFE3
NI + Dep - FCInv - WCInv + net borrowing
65
FCFE4 forecast
NI - [(1-DR)*(FCInv - Dep)] - [(1-DR)*WCInv] ****DR is debt ratio
66
single stage FCFF
val firm = FCFF1 / (WACC - g)
67
single stage FCFE
val firm = FCFE1 / (r - g)
68
2 stage fcf/ffe
Calc FCF High growth period, use single stage for terminal val at end high growth, discount interim and terminal back to 0
69
Problems P/E
cant have negative, volatile/transitory earnings can make interpretation difficult, magament choices affect reported earnings
70
justified trailing P/E
(1-b)/(r-g)
71
Justified Leading P/E
(1-b)*(1+g)/(r-g)
72
Justified D/P
(r-g)/(1+g)
73
Normalization methods
Historical avg eps, average ROE
74
PEG Ratio
P/E / g
75
P/B Advantages
BV almost always greater than 0, BV more stable than EPS, measures NAV Financial institutions
76
P/B Disadvantages
Size differences cause misleading comparisons, influenced accounting choices, book value doesn't equal market value due to inflation/tech
77
Justified P/B
(Roe - g)/(r-g)
78
P/S Advantages
Meaningful even for distressed firms, sales revenue not easily manipulated, Not as volatile as P/E, useful for all firm stages
79
P/S Disadvantages
High sales doesnt mean high profits or CF, doesn't capture cost structure differences, revenue recognition can still distort sales
80
Justified P/S
((E0/S0)*(1-b)*(1+g))/(r-g)
81
Dupont 3
(NI/Sales)*(sales/total assets)* (Total assets/Equity)
82
Dupont 5
NI/EBT * EBT/EBIT * EBIT/Sales * Sales/Assets * Assets/Equity
83
P/CF Advantages
cf harder to manipulate than eps, more stable than p/e, mitigates earnings quality concerns
84
P/CF Disadvantages
difficult to estimate true CFO, FCFE better but more volatile
85
Justified p/cf
FCFE*(1+g)/(r-g)
86
Residual Income
Et - (r*Bt-1) = (Roe - r)*Bt-1
87
RI single stage
v0 = B0 + [(ROE - r)*B0/(r-g)]
88
EVA
NOPAT - $WACC
89
NOPAT
EBIT*(1-t)
90
NOPAT
(sales-cogs-sga-dep)*(1-t)
91
DLOC
1- [ 1/(1 + control premium)]
92
Total discount (private)
1 - [(1-DLOC)(1-DLOM)]
93
If IR Falls
required return falls, p/e rises
94
MVA
Mkt val firm - invested capital
95
EV
NPV firms earning activities
96
EV
Total taket value (uses market values), is capital structure neutral when used to compare,
97
EV Formulka
MV equity + MV debt + minority intersts - cash & liquidity investments
98
Increase leverage
Increases firm value due to tax shield on interest expense, lower cost of debt
99
Asset based appr
FV assets -FV liabilities
100
Strategic buyer
has syngeries, financial buyer doesnt
101
Core (Underlying) earnings
Excludes non recurring items
102
R^2
SSR/SST
103
MSE
SSE/n-k-1
104
MSR
SSR/k
105
Fstat short
MSR/MSE
106
Fstat nested
((SSEr - SSEu0/q) / (SSEu/(n-k-1))
107
R^2 adj
1-[((n-1)/(n-k-1)) * (1-R^2)]
108
Fstat
(SSR/k)/(SSE/(n-k-1))
109
AIC
better forecast
110
BIC
Better fit
111
Exampel model mispecification
Omit variable that should be included, variable should be transformed for linearity, inappropriate scaling of variable, incorrectly pooling data (mixing regimes)
112
Heteroskedascitiy
nonconstant error variance, detect breusch pagan test, correct with white corrected standard errors
113
Autocorrelation
correlation among error terms, detect bresuch-godfrey or durbin watson, correct improve model speci, userobust standard errors(newey west)
114
Multicollinearity
High correlation among independent var, F test significant t tests insignificant, Detecting using VIF, correct dropping correlated var
115
VIF (Variance inflation factor)
1/(1-Rj^2)
116
logistic regress
ln(p/1-p) = b0 +b1x +....., odds e^value, Prob = odds/(1+odds)
117
Likelihood ratio
-2* (log likliehood restricted model - log likliehood unrestricted model)
118
Covariance Stationary
mean and variance stable over time, plot, regress AR model and test correl, dicky fuller test
119
Unit root
coeff on lagged depened var = 1, means not stationary, first difference to eliminate
120
AR Model
Autoregressive Model, specifed correctly autocorrel and resudiuals not significant
121
Mean revert level AR(1)
b0/(1-b1)
122
RMSE
Average squared error, use when OOS
123
normalized
(Xi-Xmin)/(Xmax-Xmin), scales between 0 and 1
124
standardized
(Xi - mean)/Stdev , cetnered 0 scaled as std devs
125
Precision
TP/(FP + TP)
126
Recall
TP/(TP + FN)
127
Accuracy
(TP + TN) / (all positives and negatives)
128
F1score
(2*P*R)/(P+R)
129
ROC
REceiving operator characteristics, shows tradeoff between false positives and true positives
130
Test ARCH
regress squared residuals on lagged values
131
Tstat
beta/SE
132
generalization
degree ML retains explaintory OOS
133
pooled data
leads to model misspeci
134
big data
has high volume, velocity, variety
135
Num dum var
n-1
136
More stable
Shorter time series
137
Serial correl
doesnt effect consistency of regress coeff
138
Bid ask spread
ask - bid
139
currency arbitrage
Up the bid down the ask
140
forward premium
forward - spot
141
value fwd currency prior to expire
vt = (FPt-FP)*(Contract Size) / ([1+Ra*(days/360)])
142
Covered Interest rate parity
F = ([1+Ra*(days/360)])/ ([1+Ra*(days/360)])*S0
143
uncovered interest rate parity
Expected % change spot = Ra-Rb, interest rates and exchange rates adjust o risk adj return same between two countries, forward rate unbiased estimator future spot
144
Fisher Relation
Rnom = Rreal +E(inflation)
145
Intl Fisher Relation
(RnomA- RnomB) = E(inflA) - E(inflB)
146
Relative Purchasing power parity
high inflation rates leads to currency deprectiation, % change spot AB is (Inflation A - Inflation B)
147
FX Carry trade
(interest differential - change in spot investment currency), fat tail neg skew, only profitable when UIRP does not hold, interest rates and exchange rates adjust o risk adj return same between two countries
148
Mundel Flemming
impact mon and fisc polices on IR and exhchange rates
149
High cap mobility
exp mon/ res fisc makes low IR makes curr depreciate
150
Low cap mobility
Exp mon/ exp fisc makes curr account deficits makes curr depr
151
dornbusch overshooting model
Restr mon policy leads to short-term appreciation of currency then slow depreciation to PPPvalue
152
cobb-dougles prod fn
Y = T*K^a *L^(1-a), a is share output capital, lower a means lower benefit capital deepening
153
labor productivity
Y/L = T * (K/L)^a
154
growth acc 1
gr rate potential gdp = lt gr tech + a*lt growh cap + (1-a)* lt growth labor
155
growth acc 2
gr rate potential gdp = lt growth labor force + lt growh labor productivity
156
Classical growth
Real GDP/capita reverts to subsitence level in long run
157
Neoclassical Growth
sustainable growth fn of population growth, labor share income, and rate tech advancement. Growth labor productivity driven only by improve tech. Assumes diminish returns to capital
158
Neo g*
theta / (1-a)
159
Neo G*
theta / (1-a) + chg labor
160
Endeogenous gr theory
invest capital can have constant returns, increase savings leads increase growth rate, r&d expend increases tech progress
161
Statutes
las made by legislative bodies
162
Admin regs
issued by govt
163
judicial law
court findings
164
regulators
can be govt agencies or independent, indpendent can be SROs or SRBs,
165
SROs
given govt recognition, more prevalent in common law countries
166
Why reg intervention
info frictions arise in presences asymmetry, externalities deal with provision public goods, weak comp leads to less innovation and higher prices,social objectives such as provision public goods
167
regulated capture theory
regulator controlled or influenced by industry being regulated
168
regulatory arb
exploit reg differences between jurisdictions, or difference between substance and interpretation
169
Financial Market regs
seek to protect investors and ensure stability financial systems
170
Prudential supervisions
monitoring institutions to reduce system-wide risks and protect investors
171
net regulatory burden
costs to regulated entities minus private benefits of regulation
172
Absolute convergence
EM converges to DM Lt growth
173
club convergence
join club by making institutional changes
174
Conditional Convergence
converge if same savings, pop growth, production
175
lt eqty growth
long term gpd growth
176
PPP
uses basket goods, costs same across country, wont hold if transport costs
177
higher leverage
leads to higher risk not growth
178
Portfolio balance model
Larger deficit leads to depr over time
179
bid ask spread grows
as transactions size grows
180
private firms have suboptimal R&D spend
181
dutch disease
resource rich cause inflow foreing currency, dome4stic curr apreciates
182
effective tax rate
corp tax rate * (1-corp tax rate)* individual tax rate
183
Target payout adj model
exp increase div = ((exp earnings *target payout ratio) - previous dividend)) * (1/years adj)
184
div coverage ratio
NI/Dividends
185
FCFE coverage ratio
FCFE/ (div+share repurchase)
186
Share Repurchases
equivalent to cash divdend assumin equal tax treatmentm, unexpected is good news due to tax adv, share price support, increase flexibility, offsetting dilution stock options, and increase leverage
187
single tier board
internal and external directores
188
two tier board
management and supervisory board
189
CEO duality
CEO also chair person board
190
ESG FI
concerned downside risk only, equity is upside and downside
191
grinold-kroner
erp = DY + chgP/E + i + G - chgshares - rfr
192
ddm cost eqty
div yield + cap gains yield
193
fama french 3
rf + BErp + B SMB + BHML
194
fama french 5
rf + BErp + B SMB + BHML + BCMA + BRMW , rmw is high low operating profitability, CMA is conservative minus aggressivce
195
expanded capm
rf + Bpeer*ERP + SP +IP +SCRP
196
build up approach
rf + ERP + SP + SCRP
197
restructuring imporves roic
198
materiality
defined by size and fit, large greater than 10% of EV, fit refers to alignment between action and expectations
199
valuation methods
comparable company, comparable transaction, premium paid
200
Europe
increasing dividends, Us declining, Repurchase increase globally
201
Dutch Auction
type tender offer, lower price at auction than tender but slower
202
tender offer
fixed shares and price, pay premium but quicker
203
Cash div and share repurchase leave shareholder wealth unchanged
204
Div payments increase agency conflict between bond and share holders
205
MM Div theory
div policy irrelecant cause can make own by selling shares
206
risk premium identify
ytm long debt if public traded, matrix pricing thinly traded, financial ratio inferred credit rating if not credit rated
207
types erp estimates
historical, exante, survey, macro
208
agency cost theory
divs reduce fcf so high payout preferred
209
bird in hand theory
invest prefer div over capital appreciation
210
clientele theory
clients gravitate towards own concerns
211
country spread model
dev to em,, by spread bond yields
212
premium model
ytm long bond + risk premium
213
joint venture uses equity method
214
corportae transactions are cyclical
215
stable dividewn tied to lt growth rate
216
imputed taxes use shareholder rate
217
Contango
futures > spot
218
backwardation
futures < spot
219
Insurance theory
contract buyers compensated for providing protection to commoditiy producers
220
Hedging pressure hypothesis
similar, but includes both long hedgers(contango) and short hedgers(backwardation)
221
theory of storage
spot and futures prices related to storage costs and convenience yield
222
total return fully collateralize long futures
collateral return + price return+ roll return
223
Roll return
positive in backwardation (long contracts cheaper than expiring contracts) (expire future - new future)/expire future
224
NCREIF property index return
NOI - capital exp + chg market value
225
NAV approach reit shares
estimated cas NOI / assumed cap rate = estimated value operating real estate, + cash and AR - debt other liabl = NAV, NAV/ SHares outstanding
226
FFO approach
FFO / shares outstanding * sector average multiple
227
AFFO approach
FFO - non cash rents - recurring maintenace capital exp = AFFO, Same as FFO after
228
DCF reit valuation
PV(divs) + PV(terminal val)
229
L/S equity
stock picking seeks alpha like long only, with lower stdev
230
dedicated short selling
60 - 120% short
231
short-biased
30-60% net short vs long
232
EMN
profits from short term mispricing with leverage, beta risk is low
233
merger arb
bets on corporate takeover suceeding, high sharpe with left tail risk
234
distressed securities
seeks mispriced securities, long biased, high illiquidity, low leverage, high returns
235
FI arbitrage
yield curve/carry trades, seeks out mispriced bonds, uses high leverage
236
Convertible arb
extracts underpriced impled vol, eg 300% long vs 200% short, small issue sizes, if convert price
237
opportunistic HF
tend to be highly liquid with high leverage
238
global macro
exploits trends global markets
239
managed futures
contracts actively managed for diversification, right skew in market turmoi
240
specialist strategies
generate uncorrelated returns in market niches, requires specialize knowledge
241
vol traders
exploit changes in vol term structure
242
life settlements
but policies with low surrender value, low premiums, insured likely to die soon
243
Multi manager hf strats`
uses strategy diversification to produce low vol, steady returns
244
FoF
can lack transparency, have slow tactical execution, and expose investor to netting risk
245
Multistrat HF
diverse strats under one roof, better tactical allocation, better fee structure
246
conditional linear factor models
equity, currency, vol, credit
247
impact alloc hf
lower stdev, higher sharpe/IR, lower MDD
248
appraisal indices
lower vol, time lag, lower correl than trasaction based
249
livestock
traded more recently
250
core properties
office, multifam, industr, warehouses
251
reits trade large premium or disc to nav
252
hedonic pricing
pricing by parts
253
Reits have income tax exemption, REOC do not, reits higher yields than reoc
254
soft catalyst
expected announcement
255
hard catalyst
already announced
256
cap structure arb
equity holders to bullish, short and buy long FI distressed
257
FP
Spot*(1+rf)^T
258
FP with dividends
(spot- PVD)*(1+rf)^T
259
Val foward w div
[St - PVDt] - [FP/((1+rf)^(T-t)]
260
FP eqty indx w cont div
FP = Spot * e^((Rf - d)*T)
261
FP bond future
FP = [(full price)*(1+rf)^T - AIT - FVC]
262
Full price
quoted spot price + AI
263
QFP
FP/conversion factor
264
FRA 2x3
implied 30 day foward rate 60 days from now
265
Swap Fixed Rate (SFR)
(1-final discount factor)/(sum all discount factors)
266
Z(discount factor)
1/(1+Rn), price of zero 1$ coupon bond
267
Val IR swap to fixed payer
(SFRnew - SFRold)*Sum discount factors*(days/360) * notional
268
prob up move
(1+Rf - D)/(U-D)
269
prob down move
1- up move
270
put call parity
S + P = C + B
271
delta hedge short calls
# shares hedged / call delta
272
delta hedge long puts
-1* (# shares hedged / put delta)
273
chg call value
call delta * change spot + .5* gamma * change spot^2
274
put chg value
call delta * change spot + .5* gamma * change spot^2
275
calls hedge ratio
(C+ - C- )/ (S+ - S-)
276
puts hedge ratio
(P+ - P- )/ (S+ - S-)
277
call option valu using arb free pricing
h*Spot + [(-h*S- + C-)/(1+Rf)]
278
put option valu using arb free pricing
h*Spot + [(-h*S+ + C+)/(1+Rf)]
279
bsm call
spot*e^(d*T)*(N(d1)) - e^(-r*T)*X*N(d2)
280
bsm put
-spot*e^(d*T)*(N(-d1)) + e^(-r*T)*X*N(-d2)
281
Payer Swap
series off market FRAs
282
Long FRA
Long IR Call + Short IR Put
283
Long Cap
Series IR Calls, useful hedging floating rate liability
284
Long Floor
Series IR Puts, useful hedign floatin rate assets
285
Payer Swap
Long Cap + Short Floor
286
Interest Rate Call
Pay fixed (strike) receive floating
287
Interst Rate Put
Pay floating received fixed
288
Receiver swap
Long receiver swaption + short payer swaption
289
Long Callable bond
Long option free bond + short receiver swaption
290
currency swap
swaped at initiation
291
higher gamma delta hedge perform more poorly over time
292
Early excerise option sometimes worthwhile on futures, not forwards
293
delta
dollar change option/ dollar change underlying
294
delta neutral hedge
protects against small changes
295
deep OTM
delta 0
296
N(d1)
delta
297
N(d2)
probability excerise
298
replicate same sign hedge opposite sign
299
Rolling down yield curve, buy bonds maturity longer investment horizon
positive when YC upward slopin
300
swap spread
swap rate - treasury
301
z spread
when added to yield curve makes pv of bonds cash flows = bond price, measurescredit, liquidty, and option risk on risky bond
302
ted spread
MRR3m - 3m tbill, banks more likely default
303
MRR - OIS
MRR - Overnight indexed swap rate, general credit risk and bank wellbeing
304
Pure (unbiased) expectations theory
forward rates unbiased predictor of spot rates
305
local expectations theory
preserves risk neutrality short term horizons, while risk premiums exist longer term( short term every maturity earns rfr)
306
liquidity preference theory
similar to pure exectations except lt maturity premium
307
segmented markets theory
shape yield curve is result of supply and demand for funds in different market segments
308
preferred habitat theory
similar to segemented, except market participants will deviated from perferred habitat if compensated accordingly
309
Port val vs changes in YC
-DL*chg lvl - DS*Chg steepness - DC *Chg curvature
310
LT yield vol
uncertainty regarding real economy and inflation
311
ST yield vol
uncertainty regarding monetary policy
312
Lt yield vol is generally lower than vol in short term yields
313
cox ingersoll rand
a*(b-r)*dt + stdev*(sqrt(r))dz, a is short term rate converging to, b is natural long term interst rate
314
vasciek model
a*(b-r)*dt + stdev*dz
315
Ho-Lee model
theta*dt + stdev*dz
316
KWF model
dln(r) = theta*dt + stdev*dz
317
V calllable bond
straight bond - call
318
v putable bond
straight bond + put
319
Upward sloping yield curve results in lower call value and higher put value
320
If binomial tree vol increases
Computed oas callable bond decrease, computed oas putable bond increases
321
eff duration
(BV- -Bv+) / (2*BVo* chg yield)
322
eff convexity
(BV- + Bv+ - 2*BVo) / (BVo* chg yield^2)
323
Eff duration comparisons
ED zero coupon same as maturity, ED fixed rate less than maturity, ED floater time till next reset, ED Callable less straight, ED put less staight
324
1 sided duraiton
callable has lower down duration, put has lower up duration
325
value capped floater
stratight floater value - embedded cap
326
value floored floater
stratight floater value + embedded floor
327
min value convertible bond
greater of conversion value or straight value
328
conversion Value convert bond
market price stock * conversion ratio
329
market conversion price
price convert bond / conversion ratio
330
market conversion premium per share
market conversion price - stock markets price
331
market conversion premium ratio
market converion premium per share / market price current stock
332
callable and putable convert value
straight value + value call option stock - value call option bond + value put option bond
333
expected exposure
amount a risky bond investor stands to lose before recovery
334
loss given default
exposure*loss severity
335
Probability of default
likliehood in a given year
336
credit valuation adjustment
sum of present values of expected losses each period
337
credit score ranking
ordinal, higher better
338
return from bond credit rating migration
-1*(modified duration)*chg spread
339
value risky debt
vlaue risk free debt - value put on company assets
340
equity
european call on company assets
341
reduced form models
doesnt explain why default occurs, but statistically when it does
342
credit spread
ytm risky bond - ytm benchmark
343
CDS
upon credit event, portection buyer compensated by protection seller
344
index cds
multipler borrowers, equally weighted
345
default
occurence credit even
346
common credit events
bankruptcy, failure to pay, restrutcturing
347
cds spread
higher for high prob of default and for high loss given default
348
hazard rate
conditional probability of default
349
expected loss
prob default *loss given default
350
upfront cds payment (by protection buyer)
PV(protection leg)-PV(premium leg)
351
upfront cds payment (by protection buyer)
(cds spread - cds coupon)*duration*NP
352
chg cds value
protection buyers profit
353
chg cds value (protection buyer profit
chg spread* duration*notional principal
354
embedded call increase z spread
355
embedded put decrease z spread
356
converts have less risk and return
357
risky debt
long risk free bond + short put assets
358
credit curve
relationship between interest rate spreads and bond maturities for the same reference entity, longer mature higher spread
359
dominance
when one asset trades at a lower price than an asset with characteristics
360
default intensity
probability of default of next timer periiod
361
struct model stock
value stock is max assets at maturity debt - face value debt, or zero
362
struct model bond
value bond is min between face value assets at maturity, or fface value debt
363
current ratio
curr assets/ curr liabilities
364
cash ratio
(cash + marketable securities)/ current liabilities
365
defensive interval
(cash + marketable securities+ receiveables)/ daily cash expenditures
366
receivables turnover
annual sales / average receivables
367
inventory turnovers
cogs/avg inventory
368
DSO
365/ receivables turnover
369
Days inventoy on hand
365/ inventory turnover
370
# days payable
365 / payables turnover ratio
371
total asset turnover
revenue / average total assets
372
fixed asset turnover
revenue / average fixed assets
373
gross profit margin
gross profit/ revenue
374
operating profit margin
operating profit/revenue = ebit/net sales
375
net profit margin
net income/ revenue
376
debt to equity
total debt/ total equity
377
interst coverage
ebit / interest
378
cannabilizaiton factor
percentage new product sales stolen from existing sales
379
economies scale
as prod volume increases, costs fall and oper margin rise
380
CGO ( cash generated from operations)
operating cashflow + cash interest + cash taxes
381
CGO ( cash generated from operations)
ebit + noncash charges - increase working capital
382
accruals bs
(NOA end - NOA beg) / (Avg NOA)
383
accruals cf
(NI -CFO -CFI) / Avg NOA
384
ROE Dupont 5
Tax burden * interest burden * ebit margin * total asset turnover * financial leverage, (NI/EBT) * (EBT/EBIT) * (EBIT/Revenue)*(Revenue / avg assets) * (average assets / average equity)
385
beneish m score
greater than -1.78 indicates potential earnings manipulation
386
altman z score
higher better, means lower chance bankruptcy next two years
387
Earnings mean reversion
faster for acccruals based earnings, especially if accruals discretionary
388
high quality earnings
sustainable and adequate
389
high balance sheet quality
unbiased measuremnt, complete, clarity in presentation
390
CAMELS
Capital adequacy, asset quality, management, earnings, liquidity, sensitivity
391
LCR (liquidity coverage ratio)
highly liquid assets / expected cash outflows
392
NSR (net stable funding ratio)
available stable funding / required stable funding
393
underwriting loss ratio
(claims paid + chg loss reserves) / net premium earned
394
Expense Ratio
(underwriting expenses incl. commisions) / net premium written
395
Loss and loss adjustment expense ratio
(loss expense + loss adjustment expense) / net premiums earned
396
div to policy holders ratio
divs to policyholders / net premium earned
397
combined ratio after dividends
combined ratio + divs to policyholders
398
total investment return ratio
total investment income / invested assets
399
life and health insurers ratios
((total benefits paid / (net premiums written and deposits), (commissions + expenses)/ (net premiums written + deposits)
400
tier 1
6% rwa, common stock, additional paid in capital, retained earnings, and occi less intangibles and deferred tax assets
401
common tier 1 equity
4.5% rwa
402
tier 1 + 2
8% rwa
403
Tier 2
surbornated instruments with original maturity of more than five years
404
investments financial assets
<20% no significant influence
405
amortized cost on balance sheet, interest and realized gain loss on income statemetn
406
FVOCI at FMV with gains/ losses in equity on b/s dividends, interest on I/S
407
FVPL at FMV, divs interest realized and unrealized gains/loses on income statement
408
investment associates
20-50% owned, significant influence, use equity method, pro rata share of the investees earnings increases b/s investment account, also in I/S. divs received decrease investment account( divs not in I/S)
409
business combinations
more than 50 % owned, acquistion method under ifrs/gaap, goodwil not amortize, subjected to annual impairment test, all assets, liabilities, revenue, and expenses of subsidiary are combine with parent, excluding intercomp trans. if < 100% miniority interest account for share not owned
410
joint venture
50% shared control equity account, seperate vehicile (joint operation is not seperate)
411
Effect choice method
all three same NI, assets liabil equity revenues and expenses higher under acqui method
412
fair value accounting, investment in associatess
ifrs only for VC, mutual fund etc, gaap fair value for all
413
Goodwill
ifrs permits partial or full goodwill to value goowill and non controllin interest, gaap requires full good will
414
goodwill impairment
ifrs 1 step (recoverable amount vs carrying value), gaap 2 step(identify then measure amount)
415
Acquisition method conting asset recognition
ifrs contingent assets not allowed, gaap recognized and recorded at fair value
416
prior service cost
ifrse recognized as expense P&L, gaap reported in OCI amortized to P&L
417
actuarial gains/losses
ifrs remeasurment in oci and not amortized, gaap OCI amortized with corridor approach
418
dividend/interest income and interest expense
ifrs either operating or financing cashflow, gaap must cateogrize as operating cashflow
419
# treasury shares
assumed proceeds/ avg share price during reporting period
420
assume proceeds
cash proceeds + average unrecognized share based compensation expense
421
ending PBO
beginning PBO + interst cost + current service cost + past service cost +/- actuarial losses/gains - beneifts paid
422
funded status
fair value plan assets - PBO , is a balance sheet asset under gaap and ifrs
423
periodic pension cost in I/S
Ifrs and gaap differ,
424
penion cost gaap
period pension cost in P&L = service cost + interest cost +/- amtorization of actuarial (gains) and losses + amortization of past service cost - expected return plan assets
425
pension cost ifrs
reported pension expense = service cost + past service cost + net interest expense
426
discount rate
ifrs is expected rate of return plan assets,
427
us gaap interest cost
discount rate * [beginning PBO + past service cost]
428
ifrs net interest income (expense)
disount rate * (beginning funded status - past service cost)
429
if functional doesnt presentation currencyl use current rate method
430
asset/liabilities at current rate,common stock historical rate, I/S at average rate, exposure = shareholders' equity, divs at rate when paid,
431
if integrated sub, functional equal presentational, use temporal method
432
monetary assets/liabilities at current rate, nonmonetary assets/liabilities at historical rate, sales sga at average rate, cogs and depreciation at historical rate
433
exposure = monetary assets - monetary liabilities
434
net asset position, depr foreign currency = loss
435
net liabil position, depr foreign currency = gain
436
pure balance and income statment ratios unchanged
437
if local currency depreciating (appreciating), translated mixed ratios will be larger (smaller)
438
hyperinflaiton
cumu inflation over 100% over 3 yrs gaap use temporal method. IFrs 1st restate foreign currency s.t. for infl. 2nd, translate with current rates. Net purch. power gain/loss reported in income
