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Flashcards in Derivatives I Deck (17):
1

Treasury bill future

Quoted as annualized discount yield

2

Treasury bond future

(1) Face value = $100k
(2) Deliverable
(3) Traded for treasuries > 15 years
(4) Measured in 32nds
(4) Ability to deliver any bond of choosing to satisfy claim

3

Interest rate options

(1) Same as calls/puts only, strike is an interest rate and underlying asset is a reference rate like LIBOR
(2) Payout is adjusted if period is less than one year, i.e. (LIBOR - 5%) * (days/360) * notional

4

Put call parity

Call option + cash = put option + stock

5

Put call parity formula

call option price + strike/(1+risk free rate)^t = put option price + stock price

6

Swaps

(1) agreement to exchange series of cash flows
(2) at each settlement date, payments are netted
(3) example, fixed to floating
(4) Typically no payment at initiation
(5) custom/OTC

7

Open end fund

Mutual fund
(1) Fund is the redeemer

8

12b-1 Fees

Annual fees that mutual funds charge

9

Real estate index appraisal issues

Some real estate indices use appraisal values rather than market prices, resulting in much lower volatility than is actual.

REITs are based on market value, but also include leverage and will be volatile.

10

Real estate valuation - cost method

Replacement cost of improvements + estimate for value of land

11

Real estate valuation - sales comparison method

Prices of similar properties from recent transactions.

12

Real estate valuation - Hedonic Method

Similar to sales comparison, uses regression model to determine price of certain attribute and add those in based on what the home has.

13

Real estate valuation - income method

Uses discounted cash flows to determine what the property is worth.

14

Venture stages (3)

(1) Seed - R&D
(2) Early
(3) Later

15

Venture - later stage (2)

(1) Second stage - producing and selling product, no income yet.
(2) Third stage - fund a major expansion

16

Mezzanine / Bridge financing

Financing to help company go public

17

Collateralized commodity future

(1) Long futures contract +
(2) T-bills

Gains purchase more t-bills
Losses sell t-bills to cover margin calls

Return = change in future + t-bill interest