General Flashcards
1
Q
What does an adjustment spread running high -> low mean for how the adjustment is applied?
A
Subtract the adjustment
2
Q
Which account represents a countries investment position?
A
Capital account
3
Q
Which account represents a countries imports and exports?
A
Current account
4
Q
Which is generally higher: inflation or interest rates?
A
Interest rates
5
Q
What is the calculation for nil-paid price?
A
Ex-rights price - subscription price
6
Q
What is the numerator for ROCE?
A
PBIT
7
Q
What factors are used to calculate goodwill?
A
Fair value and net asset requirements
8
Q
In perfect competition, what three factors equal eachother?
A
Profit maximisation = marginal cost = marginal revenue
9
Q
What kind of index is DJIA?
A
Unweighted arithmetic index
10
Q
What kind of index is the FTSE 250?
A
Weighted arithmetic
11
Q
How do you calculate the time value of an option?
A
Premium - intrinsic value
12
Q
How do you calculate the intrinsic value of a put?
A
Strike price - underlying
13
Q
What are fixed charge debentures secured against?
A
Named assets of the company
14
Q
Does an OEIC have a singe or double price?
A
Single
15
Q
Who supervises the management of an OEIC?
A
Depositary
16
Q
True/false: the writer of the option receives the premium?
A
True
17
Q
Credit derivatives are based on what?
A
A reference asset
18
Q
What is the minimum number of holdings for a REIT?
A
3
19
Q
What 3 factors will make a bond more sensitive to interest rates?
A
Low coupon
Longer time to maturity
Low yield
20
Q
How do you calculate the flat yield?
A
Coupon / price
21
Q
How do you calculate the premium value of a warrant?
A
Warrant price - formula value
22
Q
What percentage is stamp duty?
A
0.5%
23
Q
What are the 4 services of a stockbroker/private client fund?
A
- Execution only
- Advisory dealing
- Portfolio advisory
- Portfolio discretionary
24
Q
CDS and total return swaps are examples of what kind of credit derivative?
A
Unfunded
25
Credit linked notes and synthetic CDOs are examples of what kind of credit derivative?
Funded
26
How do you calculate the correlation coefficient?
Covariance / SDx * SDy
27
What are the four types of qualification an auditor can make on a company’s accounts?
1. Fundamental uncertainty
2. Material uncertainty
3. Fundamental disagreement
4. Material disagreement
28
What is the indexation lag for index-linked gilts issued after June 2005?
3 months
29
How do you calculate the new period rebase value?
(New period B value / Old period B value) x Old period A value
30
When you have more than one median, what type of mean do you use?
Arithmetic
31
What is the point of profit in a monopoly?
Marginal revenue = marginal costs
32
How do you calculate the price of an undated bond?
(Par value x coupon payment) / required yield
33
How does the demand curve look in perfect competition?
Horizontal
34
At what level of ownership does an entity get reported as a subsidiary?
More than 50%
35
At what level of ownership is an entity an associate company?
20-50%
36
At what level of ownership is an entity treated as an investment?
Less than 20%
37
How do you calculate Macaulay duration?
(Sum of PV cash flows x time to cash flows) / sum of PV cash flows
38
What is the multiplier?
1/MPS
39
What do you call it when the basis of a future is positive?
Backwardation
40
What do you call it when the basis of a future is negative?
Contango
41
How do you calculate the information ratio?
(Fund return - benchmark) / standard deviation
42
What M-number is the total notes in circulation called?
M0/M1
43
What M-number are longer term deposits and money market funds called?
M3
44
What M-number is money held by non-bank private sector?
M4
45
What is another term for M0?
Narrow money
46
What does the Y axis represent in the Phillips curve?
Inflation
47
What does the X axis represent in the Phillips curve?
Unemployment
48
What does the long-run Phillips curve look like?
Vertical
49
What is the shape of the short-term Phillips curve?
Downward sloping
50
What is unemployment due to high real wages known as?
Classical unemployment
51
How many strike prices are there in a straddle?
One
52
How many strike prices are there in a strangle?
Two
53
What aspects of an index linked gilt are linked to RPI?
The coupons and the principle
54
How do you calculate warrant value?
Formula value + premium value
55
What is another term for formula value when describing a warrant?
Intrinsic value
56
What is another term for premium value when describing a warrant?
Time value
57
How do you calculate the percent premium for a warrant?
(Warrant price - formula value) / (number of shares created x share price)
58
How do you calculate the price of a warrant?
(Value of equivalent Am. call option x no. Shares created) / (no. Shares in issue if warrant exercised / no of current shares)
59
What is another term for the buyer of an option?
The holder
60
What is another term for the seller of an option?
The writer
61
What is another term for Monte Carlo modelling?
Stochastic modelling
62
What does a government do to address a current account deficit?
Reduce the value of the currency
63
How do you define GDP?
All production with the borders of a country
64
How do you define GNP?
All production by a country, anywhere in the world
65
What is the equation for the money supply equilibrium?
G+X+I = t+M+S
66
How do you calculate aggregate demand?
C+I+G+(X-M)
67
How do you calculate consumption?
a+bYD
68
How do you calculate the multiplier for a closed economy with no government?
1/(1-MPC)
69
How do you calculate the multiplier for a closed economy with a government?
1/(1-MPC(1-t)
70
How do you calculate the multiplier for an open economy with a government?
1/((1-MPC(1-t)+MPM))
71
How do you calculate the money multiplier?
1/reserve requirement
72
What is the quantity theory of money?
MV = PT
73
What does the X axis of the Phillips curve signify?
Unemployment
74
What does the Y axis of the Phillips curve signify?
Inflation
75
Are intangible assets amortised or depreciated?
Amortised
76
Are tangible assets amortised or depreciated?
Depreciated
77
How is inventory valued?
Lower of cost or net realisable value
78
Where are contingent liabilities disclosed?
In a note
79
How do you calculate straight line depreciation?
(Cost - residual value) / useful life
80
How do you calculate reducing balance depreciation?
1 - (nth root of (expected residual value / original cost))
81
Which cost flow assumption is not used in IFRS?
LIFO
82
What item does the income statement start with?
Sales revenue
83
Which item does the income statement end with?
Net profit
84
What is the starting point for the indirect method of recording cash flow?
Operating profit
85
What 4 changes do you make to net income to get FCFF?
+ non-cash charges
- investment in fixed capital
- investment in working capital
+ net interest payments
86
What 2 changes need to be made to FCFF to get FCFE?
- net interest
+ net borrowing
87
What adjustment do you make to cash flow if depreciation charges increase?
Add cash flow
88
What adjustment do you make to cash flow if receivables increase?
Subtract from cash flow
89
What adjustment do you make to cash flow if payables increase?
Add to cash flow
90
What adjustment do you make to cash flow if investors increases?
Subtract from cash flow
91
What turnover threshold makes a company a small company?
£10.2m
92
What balance sheet threshold makes a company a small company?
£5.1m
93
How do you calculate the forward rate adjustment?
Add the adjustment to the spot rate
94
What is the Fisher equation?
F/S = (1+iVAR)/(1+iBASE) = (1+rVAR)/(1+rBASE)
95
What is the typical length of a bill?
Less than 1 year
96
What is the length of a typical bond?
More than 1 year
97
How often is a coupon paid for a gilt?
Semi-annually
98
What is the settlement time for UK gilts?
T+1
99
What is the typical length of time for a medium conventional gilt?
5-15 years
100
What is another name for an irredeemable bond?
Undated
101
How do you calculate the number of strips on a gilt?
(Number of years of the bond * 2) + 1
102
Which 3 entities can create a strippable bond?
GEMMS
Bank of England
Treasury
103
How do you calculate the repo rate?
Sale price - purchase price
104
What is the order of seniority of creditors? (6)
Liquidator
Fixed charge holders
Preferential creditors (employees)
Floating charge holders
Unsecured creditors
Subordinated loan stock
105
What is the order or seniority of owners? (4)
Preference shareholders
Ordinary shareholder
Deferred shareholders
Warrants
106
Where does mezzanine capital sit in the seniority?
Between creditors and owners
107
Where do floating rate notes trade compared to par?
Near par
108
Callable bonds can be redeemed early by whom?
Issuer
109
Potable bonds can be redeemed early by whom?
Holder
110
How do you calculate the conversion premium?
(Price of bond / potential number of shares) - current share price
111
How do you calculate the conversion value?
Market price * conversion ratio
112
How do you calculate the conversion price?
Par value / conversion ratio
113
What is the duration of a zero coupon bond?
Time to maturity
114
How do you calculate a market weighted index?
(Price today * no. of shares) / (base price * no. of shares)
115
What are the three non-market weighted indices?
DJIA
Nikkei 225
FT30
116
How do you calculate the rebasing of an index?
(New B / Old B) * Old A
117
How do you calculate the EBITDA multiple?
EV / EBITDA
118
How do you calculate the dividend cover?
EPS / dividend per share
119
How do you calculate the dividend yield?
Dividends per share / market price per share
120
How do you calculate the debt to equity ratio?
Total debt / total equity
121
How do you calculate the operational gearing ratio?
(Sales revenue - variable costs) / trading profit
122
How do you calculate the current ratio?
Current assets / current liabilities
123
How do you calculate the quick ratio?
(Current assets - inventory) / current liabilities
124
How do you calculate ROCE?
(Operating profit / capital employed) * 100
125
How do you calculate capital employed?
Total assets - current liabilities
126
What is weak form market efficiency?
Market prices reflect information of historical share price
127
What is semi-strong form market efficiency?
Market prices reflect information of historical share price + publicly available information
128
What is strong-form market efficiency?
Market prices reflect information of historical share price + publicly available information + private information
129
How do you calculate holding period return?
(End value / start value) - 1
130
How do you calculate the time-weighted rate of return?
(Multiply each holding period together) -1
131
How do you calculate the money-weighted rate of return?
PV calculate using timeline
132
How do you calculate CAPM?
ER = RF + beta(RM-RF)
133
How do you calculate Jensen’s Alpha?
Return - CAPM
134
How do you calculate the Sharpe Ratio?
(Mean portfolio return - risk free return) / SD portfolio return
135
How do you calculate the Traynor ratio?
(Portfolio return - risk free rate return) / beta
136
How do you calculate the information ratio?
(Portfolio return - benchmark rate) / SD of excess returns
137
How do you calculate total risk?
Square root(variable M + variable S)
138
How do you calculate variance?
SD^2
139
How do you calculate beta?
Covariance(x,y) / variance of market return
140
What is the replacement for beta in bond calculations?
Duration
141
What is an alternative name for an OEIC?
ICVC
142
What tax do unit trusts pay?
20%
143
How do you calculate the unit value?
NAV / number of units
144
What is the maximum amount a UCITS can have deposited with a single institution?
20%
145
What is the maximum amount a UCITS can have invested in a single issuer?
5% (10% for up to 4 companies)
146
What is the maximum amount a UCITS can have invested in another CIS?
20%
147
What is the maximum amount a UCITS can have invested in a single government issuer?
35%
148
What is the maximum amount a UCITS can have invested in a single issue of government securities?
30%
149
What is the maximum amount a UCITS can own in a single company?
10%
150
What is the maximum amount a UCITS can own in a single CIS?
25%
151
What are the two types of Investment Trust Companies?
Conventional
Split Capital
152
What are the three share classes in a split capital Investment Trust Company?
Zero dividend
Income share
Capital share
153
Is an ETF subject to stamp duty?
No
154
What proportion of profits must be distributed by a REIT?
90%
155
What is the calculate for rental yield?
(Gross rent - expenses) / (property cost + buying costs)
156
Where are futures traded?
On an exchange
157
What level of profit is possible for a long future?
Unlimited
158
What level of profit is possible for a short future?
The price agreed
159
What is the maximum loss possible for a long future?
The price agreed
160
What is the maximum loss possible for a short future?
Unlimited
161
How do you calculate the fair value of a future?
The cash price of the underlying + cost of carry
162
How do you calculate the basis of a future?
Cash price - futures price
163
How do you calculate the number of futures required to hedge a position?
Value of long position / number of points x price per point
164
What is the maximum loss for a long option?
The premium
165
What is the maximum loss for a short option?
Unlimited
166
What defines a European style option?
The right to exercise on the expiry date only
167
What defines an American style option?
The right to exercise up to and including the expiry date
168
How do you calculate the break even point?
The strike price - premium
169
How do you calculate the premium of an option?
Intrinsic value + time value
170
What does delta stand for?
Underlying price
171
What does theta stand for?
Remaining life
172
What does vega stand for?
Volatility
173
What does rho stand for?
Interest rates
174
How do you calculate the delta of an option?
Change in value of option price / change in value of underlying
175
What is the scaling factor of a long gilt future?
1000
176
What are the increments of a long gilt future?
1p
177
What are the increments of a FTSE 100 future?
£10
178
What is the tick size of a FTSE 100 future?
0.5 points
179
What is the delivery cadence of FTSE 100 futures?
Quarterly (March, June, September, December)
180
What is the tick size of STIR?
1 basis point
181
What is the tick value of STIR?
£12.50
182
What is the definition of initial margin?
Good faith deposit based on worst probably daily move
183
What is the definition of variable margin?
Daily receipts and payment for unrealised profits and losses
184
How do you calculate the flat yield of a bond?
(Gross annual coupon / market price)
185
How do you calculate the gross redemption yield?
£coupon x 1/r (1-1/(1+r)^n) + CAP/(1+r)^n
186
How do you calculate the net redemption yield?
(£coupon * (1-t)) x 1/r (1-1/(1+r)^n) + CAP / (1+r)^n
187
How do you calculate the dirty price?
Clean price + accrued interest
188
What is another term for settlement price?
Dirty price
189
How do you calculate the Macaulay duration?
(Sum of (PV cash flows x time to cash flow) / sum of present value of cash flow
190
How do you calculate the ex-scrip price?
Current price / sum of numbers in scrip ratio
191
How do you calculate the ex-split price?
Market price / number of shares
192
How do you calculate the value of a perpetuity?
Cash flow / interest rate
193
How do you calculate the annual percentage rate (APR)?
(1+period rate)^n-1
194
What is the definition of a deferred share?
An ordinary share that has no rights until a pre-determined event has occurred?
195
How do you calculate total return?
((End value - beginning value) + dividends received) / beginning value
196
How do you calculate Gordon’s growth model?
D0 * (1+g) / (r-g)
197
How do you calculate the growth rate?
Retention ratio x return on equity
198
How do you calculate the retention ratio?
(Earnings - dividends) / earnings
199
How do you calculate return on equity?
Earnings / shareholder funds
200
How do you calculate the percent premium of a warrant?
(Warrant price - formula value) / market value of shares
201
What are the two other terms for a scrip issue?
Bonus issue, capitalisation issue
202
What type of index is the Nikkei 225?
Price-weighted
203
What date did the reference rate for RPI change?
June 2005
204
What is the RPI reference date after the change?
3 months
205
What was the RPI reference rate before the change?
Eight months
206
How do you calculate the retention ratio?
(Net income - dividends) / net income
207
How do you calculate the earnings growth rate?
Retention ratio x RoE
208
How do you calculate RoE?
Net income / shareholder funds
209
What is the definition of an open-ended fund?
Units can be issued/redeemed as required
210
How do you calculate conversion value?
Conversion ratio x current share price
211
If a gilt is trading above par, what does this mean for the relationship between the GRY and flat yield?
Flat yield will be higher than GRY
212
How do you calculate the premium of an option?
Intrinsic value + time value
213
Does the ex-rights price occur before or after an event?
After
214
Who is responsible for the upkeep of a commercial property?
Lessee
215
Who is responsible for the upkeep of a residential property?
Lessor
216
What is another term for a fixed capital structure?
Closed-ended
217
What kind of pricing does an Investment Trust Company offer?
Real time
218
Between which numbers would a price be inelastic?
-1 and 1
219
How do you calculate the cross-price elasticity of demand?
% change in quantity of good A / % change in quantity of good B
220
How do you calculate the risk adjusted return for a bond?
(Rp - Rf) / (Dp/Dm)
221
In the short run, which costs need to be covered for a firm to continue operating?
Average variable costs
222
In the long run, which costs need to be covered for a firm to continue operating?
Average total costs
223
What percentage of observations lie within 2 standard deviations of the mean?
95%
224
How do you calculate the position of the quantiles in a range of numbers?
(n + 1) / 4
225
Profit is a component of the which financial statement?
The income statement
226
Loan stock is what kind of liability?
Non-current
227
Trade creditor is what kind of liability?
Current
228
Overdraft is what kind of liability?
Current
229
Trade receivables is what kind of asset?
Current
230
What is another term for operating profit?
PBIT (or EBIT)
231
What does ILG stand for?
Index Linked Gilts
232
How do you calculate MPC?
Spending / disposable income
233
How do you apply a forward adjustment premium to the spot price?
Subtract
234
How do you apply a forward adjustment discount to a spot price?
Add
235
At what point is a put option in the money?
When the share price falls below the exercise price
236
Which of the three credit rating agencies uses “aa” in their ratings?
Moodys
237
How do you calculate modified duration?
Macaulay duration / (1+ yield)
238
How do you calculate the grossed up net redemption yield?
Net redemption yield / (1-t)
239
What is another term for an undated bond?
A perpetuity
240
How do you calculate the price of an undated bond?
Coupon£ / yield
241
Is the bid or ask price used if you want to sell the base currency?
Bid
242
Is the bid or ask price used if you want to buy the base currency?
Ask
243
Is the bid or ask used if you want to buy the variable currency?
Bid
244
What kind of contract is a FTSE 100 future?
Contract for difference (CFD)
245
How are CFDs settled?
Cash
246
What is basis risk?
The risk that a derivative contract is closed early
247
Which is cheaper, buying futures contracts or the underlying equities?
Futures contracts
248
How is a STIR contract settled?
Cash
249
How are transactions conducted on ICE Futures Europe?
Electronic order-driven
250
In an equity swap, who receives the floating interest payment?
The payer
251
In an equity swap, who pays for losses on the index?
The receiver
252
In an equity swap, who makes a floating rate interest payment?
The receiver
253
How are ICE Futures Europe settled?
Notional bond
254
A rights issue is an example of what kind of issuance?
Secondary issuance on the primary market
255
For a “1:5” rights issue, how many new shares are being issued?
1
256
How do you calculate the future value under continuous compounding?
PV x (exponent ^ (r x n))
257
What four factors are relevant to the arbitrage pricing model?
Inflation
Yield curve
GNP
Investor confidence
258
How do you calculate the credit creation multiplier?
1 / reserve requirement
259
Which entity must a company submit its annual accounts to?
The Registrar of Companies
260
Assets - liabilities =
Share capital + reserves
261
What are the three main headings under the IFRS cash flow statement?
Operating
Financing
Investing
262
How are provisions treated when getting from profit to cash flow?
Added back in
263
Revaluation surplus is included in which heading of the cash flow statement?
Investing activities
264
Reserves are subdivided into which parts of the balance sheet?
Share premium account
Revaluation reserve
Other reserves
265
How are goods sold under warranty or guarantee classified?
Contingent liabilities
266
Provisions appear in which financial statement?
The balance sheet
267
Extraordinary items are found in which financial statement?
The income statement
268
Proposed dividends would appear in which financial statement?
Balance sheet
269
What is price elasticity of -1 also known as?
Unit elastic
270
Complementary goods have what kind of price elasticity?
Negative
271
Substitute goods have what kind of cross-price elasticity?
Positive
272
An increase in demand for a good causes what change in the demand curve?
Shift to the right
273
What are accounting profits?
Profits in excess of explicit costs
274
What are supernormal profits?
Profits in excess of all opportunity costs and explicit costs
275
What is another term for supernormal profits?
Economic profits
276
How does the industry supply curve look if all firms have the same cost curve?
Upward sloping
277
Which portion of the demand curve will the monopolist produce in?
Elastic
278
How do you calculate economic profit?
Accounting profit - the cost of the entrepreneur’s time and capital
279
What is the elasticity of demand under perfect competition?
Infinity
280
What does a high EV/EBITDA show about a company?
High future growth prospect
281
What is the calculation for prospective P/E?
Current share price / future estimated earnings
282
What is the calculation for prospective P/E if you are given the earnings growth?
Historic P/E / earnings growth
283
Will a company with low P/E have low or high dividends?
Low
284
Are VCTs closed or open ended?
Closed
285
Are VCTs allowed to borrow?
Yes
286
What does a question want you to do when it asks fort the “time-weighted average rate of return”?
Geometric mean of returns
287
Which profit is used to calculate dividend cover?
Profit after tax
288
What is the calculation to get the hedge ratio?
Value of the portfolio / (number of points x tick size)
289
What factor do immunisation strategies take into account when choosing bonds?
Duration
290
How do you calculate the duration based return for a portfolio?
(Rp - Rf) / (Dp/Dm)
291
What is done with the premium in regards to finding the forward rate?
Subtracted
292
What does OEIC stand for?
Open ended investment company
293
Is commercial paper secured or unsecured?
Unsecured
294
What price is commercial paper paid at compared to par?
At par
295
How do you calculate the total risk of a well diversified portfolio?
Variance of the market x beta^2
296
On which financial statement do extraordinary items appear?
Income statement
297
Which body develops international financial reporting standards?
IASB
298
On which financial statement do provisions appear?
Balance sheet
299
Which financial statement do provisions not impact?
Cash flow statement
300
What deposit amount is STIR based on?
£500,000
301
What holding period is STIR based on?
3-months
302
What is the tick size of STIR?
1 basis point (0.01%)
303
What kind of risk is the risk that the position is closed before delivery?
Basis risk
304
What is the tick size for a FTSE 100 Future?
0.5
305
Which two markets cover energy derivatives?
NYMEX
ICE
306
What market covers financial derivatives?
MEFF
307
What tax rate do basic rate taxpayers pay on a REIT?
20%
308
What is another term for a floating rate note?
Variable rate bond
309
What type of debt are debentures?
Secured debt
310
Which of the rating agencies use + and - in their ratings?
S&P
311
What do falling interest rates do to the slope of the yield curve?
Downward sloping
312
Which type of bond does liquidity preference theory suggest investors demand a higher premium for?
Longer dated
313
When do gilts go ex-coupon?
7 days before payment date
314
For a long straddle/strangle, are you buying or selling the options?
Buying
315
At what level of ownership does a company need to start preparing consolidated accounts?
50%
316
Which items on the balance sheet will a rights issue increase?
Share capital account
Share premium account
317
How do you calculate the value of a right?
Ex-rights price - right price
318
How do you calculate the theoretical value of a nil paid price?
Ex-rights price - subscription price
319
What is the maximum amount that a single shareholder can hold of a REIT?
10%
320
How do you calculate net operating income (property)?
Gross potential income - expenses
321
How do you calculate a property value?
NOI / market capitalisation rate
322
How do you calculate TWRR?
(End 1 / Start 1) x (End 2 / Start 2) - 1
323
Are hedge funds regulated by the FCA?
No
324
Are hedge fund managers regulate by the FCA?
Yes
325
Does selling a unit of a unit trust affect the NAV?
Yes
326
What happens to the time value of an option as the life of the option increases?
Greater time value
327
What is the formula for Beta?
Cov / var
328
Do high beta stocks have high or low volatility?
High
329
Do high covariance stocks have high or low volatility?
High
330
At what point does a good become elastic?
When price elasticity is greater than 1
331
At what point does a good become inelastic?
When price elasticity is less than 1
332
At what point does stamp duty apply?
When purchasing a security
333
How is goodwill recorded on the balance sheet?
At cost less accumulated impairment charge.
334
Who are the legal owners of a unit trust?
Trustees
335
How do you calculate the weighted average cost flow?
Total cost of purchase / total number of units purchased
336
What proportion of observations lie within 1 standard deviation of a normal distribution?
68.3%
337
What proportion of observations lie within 2 standard deviations of a normal distribution?
95.5%
338
What proportion of observations lie within 3 standard deviations of a normal distribution?
99.75%
