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Nipa Danko Cards > Investment > Flashcards

Investment Flashcards

(41 cards)

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1
Q

What is a UIT and what are it’s characteristics?

A

Unit Investment Trust is an investment company that offers fixed unmanaged portfolio of securities fo a specific period of time.

*issue units NOT shares
*Self liquidating
*Continuous Offerings and redemption
*No active management / low fees
*Initial sales load
*CAN NOT trade on secondary markets
*Transparent (know the holdings)
* Fixed Portfolio / Can be concentrated
* Equity UIT / Bond UIT
* Liquidity Risk

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2
Q

What are Exchange Traded Funds?

A
  • mostly Open-end fund but can be closed-end fund
    *Trade on major exchanges
  • Trade at Market price, margin and/or sell short (cannot do this with mutual funds)
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3
Q

Purchased and redeemed directly from the issuer

A

Mutual funds (open and closed)
ETFs

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4
Q

Highest potential for profit

A

Buy a call

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5
Q

Global vs. international fund

A

Global = home country + international ,(aka foreign+domestic)
International = foreign markets ONLY (aka non-us secs)

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6
Q
A
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7
Q
A

Buying a call and selling a put

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8
Q

Profitable options strategies for falling Market

A

Buying a put and selling a call

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9
Q

Coin and stamp collections

A

Return on collectibles/physical assets is normally negatively correlated to returns on financial assets

*Inflation may be beneficial for collectibles

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10
Q

Impact of higher tax bracket on muni bond portfolio

A

Demand for outstanding muni bonds go up (because of higher taxes);
Price goes up ( so portfolio increases in value);
current yield goes down = coupon payment / CMV (The CMV is increasing so denominator is increasing)

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11
Q

Bonds provideding highest after-tax returns

A

Investment grade coprorate bonds

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12
Q

lower tax bracket and investment in muni bonds

A

Generally, muni bonds are not a good investment for a client in a lower tax bracket

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13
Q

Characteristics of bearing bonds

A

Pay semi-annual interest at the end of the period (in arrears)
Issued at part

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14
Q

Treasuries ( bonds, T-Bills, Notes) taxation

A

T-Bills, T-Notes and T-Bonds are subject to Fed tax; not subject to state or local taxes;

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15
Q

current yeild of premium bond

A

is always higher than the coupon rate

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16
Q

IV of a stock and rate of return

A

When IV < MP, investor, the Expected ROR < Required ROR -> Sell the stock

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17
Q

Elements fo IV in DDM

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A

Elements for IV in DDM = Beta; Dividend Paid; Rf

NOT factor - Gross earnings of the company

18
Q

Bond Price Volatility = Duration is positively correlated to ?

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A

Maturity AND

Inversely related to yeid-to-maturity and Coupon Rate/Interest Rate/market rate

19
Q
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A

This means that #% + Rf
Ex: 600 basis point above T-Bill Rate of 4.5% = 4.5% + 6% = 10.5%

20
Q

CML

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A

Can evaluate diversified and margined portfolios
includes a portfolio of 100% treasure bills
Tangency point of CML to Efficient Frontier = portfolio with a proportional % of all possible risky assets

21
Q

EMH Def

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A

Security’s price refelcts all known info

22
Q

Random Walk Hypothesis

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A

next price change of a stock is unlreated to the last price

23
Q

What are the probability distributions

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A

Normal
Long normal
Uniform
Triangular

24
Q

Dow Theory

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A

Active management
Contradicts EMH and MPT
Based on trends (bullish/bearish); Not day-to-day fluctuations

25
Sharpe Ratio
Uses SD = Non-diversified portfolio
26
Can technical analysis help if stock price is moving randomly
No Fundamental analysis could help (related to random walk hypothesis )
27
Jenson Alpha
Well diversified Compares actual returns to expected returns Uses Beta
28
Investment vehicles and risks
*Stocks = RPMFB (Please Mind Fucking Business Rubin) * MF / ETFs = RPMB (Please Mind Business Rubin) REITs = RIP Mo Bile * Corp Bonds = DRIP Mo Fo * Govt Bonds = RIP Me * Cash/CD = RIP
29
What does Beta measure?
Measures systematic risk and expresses volatility (NOT Variability)
30
What are the characteristics of each guest at Markowitz's MPT party?
Each guest is an individual asset (stocks, bonds, real estate etc) and each guest will have following key characteristics: * ER = Expected Return/Fun (how much fun each guest can be) * SD = Volatility/ Risk (wha's their fun-level) * Correlation = how each gust behave together * Covariance (Beta is not preferred/ invited)
31
Explain Markowtiz's MPT as a grand party?
Markowtiz's Modern Portfolio Theory is all about strategically combining different types of guests(assets) - especially those who don't always behave the same way (lo correlation) to create the most enjoyable (highest return) and least choatic (lowest risk) overall party. It assumes that everyone at the part is a perfectly rational robot who always acts predictabily.
32
What's the relationship between interest rate, bond price and duration?
Interest rate is inversely related to duration and bond price !
33
What's the relationship of bond's price and coupon rate
Bonds w/ Low Coupon Rate = More sensitive to interestate change and price change
34
What's a T-Bill?
Maturity = Short-term: less than 1 year Callability = ❌ Not Callable Interest Paid = ❌ No interest (sold at discount) Risk Level = Very Low (Backed by U.S. Govt) Taxation = ✅ Federal tax only
35
What's a T-Note
Maturity = Medium-term: 2 to 10 years Callability = ❌ Not Callable Interest Paid = ✅ Every 6 months (fixed coupon) Risk Level = Very Low (Backed by U.S. Govt) Taxation = ✅ Federal tax only
36
What's a T-Bond?
Maturity = Long-term: 20 to 30 years Callability = ✅ Callable after 10 years Interest Paid = ✅ Every 6 months (fixed coupon) Risk Level = Very Low (Backed by U.S. Govt) Taxation = ✅ Federal tax only
37
What happens to cost basis when dividends are reinvested?
* Reinvested dividend is buying additional underlying security => This increases your cost basis. * Reinvested dividends increase your cost basis of the initial purchase. Keep in mind the $$ amount at which the dividends are reinvested.
38
What's the taxation of "dividends received as cash"?
Dividends received as cash are considered ordinary income in the year they are received and taxed as such.
39
What type of income is reinvested dividends and are they taxed and how?
Yes. they are taxed in the year they are received. Reinvested Dividends = phantom income * NON-qualified dividends = taxed as "ordinary income" * QUALIFIED Dividends = taxed at Long-term cap gains rates * Reinvested Dividends INCREASE cost basis of the underlying security
40
41
How is the phantom income (such as reinvested dividends) considered for cashflow calculations?
Phantom income isn't considered actual cash flow and thus for the years you received the phantom income, you must enter 0 for cashflow calculations. Remember: Phantom income increase the basis, but for cashflow purpose, not received = 0

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