Investment Planning

Question 1

Margin Call Formula

Margin Call = Loan / 1- Maintenance Margin

Question 2

Research Reports

Know that Value Line ranks stocks

Morning Star primarily ranks mutual funds. Also know the rankings and whether they are a buy or sell signal

Question 3

Dividend

to receive the dividend, an investor must purchase the stock prior to the ex-dividend date or 2 business days before the date of record.

Question 4

Security Regulations

Question 5

Money Market Securities

Question 6

Investment Policy statement

The IPS establishes “RR TTLLU” = Risk, Return, Taxes, Time-line, Liquidity, Legal, and Unique circumstances

Question 7

Price Weighted Avg vs Value Weighted Index

Simple price-weighted averages do not take into account the percent allocation of the position within the portfolio.

A value-weighted index - incorporates market capitalization of individual stocks into the average.

Question 8

Behavioral Finance Terms

Question 9

Behavioral Finance (cont)

Question 10

Behavioral Finance (cont 2)

Question 11

Standard Deviation

Memorize the 68%, 95%, 99% depending if the return is +/- 1,2,or3 standard deviations away from the average.

Question 12

How to calculate Standard Deviation

Example

Question 13

COEFFICIENT OF VARIATION FORMULA

CV = Standard Deviation / Avg Return

Example

Question 14

Covariance

Question 15

Systematic Risk

Remember the mnemonic PRIME for systematic risks.

See bottom for more

Answer 15

Question 16

Unsystematic Risks

Remember - Unsystematic risks are ABCDEFG

Question 17

Capital Market Line

Question 18

Capital Asset Pricing Model

The CAPM formula is on the formula sheet and you will need to use it. You may be asked to calculate an expected return or requested rate of return using the CAPM. Also, you may be given the market risk premium rather than return of the market. BE SURE TO REMEMBER THAT THE MARKET RISK PREMIUM (Rm -Rf).

Question 19

Capital Asset Pricing Model

The CAPM formula is on the formula sheet and you will need to use it. You may be asked to calculate an expected return or requested rate of return using the CAPM. Also, you may be given the market risk premium rather than return of the market. BE SURE TO REMEMBER THAT THE MARKET RISK PREMIUM (Rm -Rf).

Question 20

Summary of Performance Measures

If the exam doesn’t give you r-squared, then select Sharpe!

Question 21

Sharpe

Uses Beta to measure risk

Question 22

Diversified and Non diversified

Standard deviation is used for nondiversified and Beta is used for well-diversified portfolio.

Question 23

HOLDING PERIOD RETURN

HOLDING PERIOD RETURN = Selling Price - Purchase Price +/- Cashflows / Purchase Price or Equity Invested

Question 24

EAR
EFFECTIVE ANNUAL RATE

Question 25

GEOMETRIC AVERAGE

Answer 25

Question 26

Net Present Value NPV = PV of Cash Flows - Initial Cost If NPV = 0, then YES make the investment

Question 27

ARBITRAGE PRICING THEORY (APT)

Question 28

DOLLAR WEIGHTED VS TIME-WEIGHTED RETURN

Question 29

Dividend Discount Model

Question 30

Expected Rate of Return

Question 31

Stock Price

Question 32

Dividend Payout Ratio

Question 33

Return on Equity (ROE) ROE = EARNINGS PER SHARE / STOCKHOLDER EQUITY PER SHARE

Question 34

Efficient Market Hypothesis

Question 35

Exam Tip Know that EE bonds are not marketable securities

Question 36

Exam Tip

Question 37

Municipal Bonds 3 types General Obligations Revenue Bonds Private Activity Bonds

Question 38

Exam Tip

Question 39

TAX EQUIVALENT YIELD TEY = R/(1-T)

Question 40

T.E.Y. BOTH FEDERAL AND STATE TAXES

Question 41

Exam Tip Yield to Maturity

Question 42

Exam Question BOND HPR

Question 43

YIELD SUMMARY

Question 44

EXAM TIP YIELD LADDER

Question 45

BOND DURATION

Question 46

EXAM TIP

Question 47

CALCULATING BOND DURATION

Question 48

CONVERTIBLE BONDS

Question 49

Net Operating Income

Question 50

Exam Tip UIT

Question 51

Exam Tip - ADR

Question 52

Exam Tip Options

Question 53

Exam Tip. - Call OPTION

Question 54

Options - In the Money, At the Money, Out of the Money

Question 55

Calculating Gain or Loss for Options

Question 56

OPTIONS - Protecting profits or locking in gains.

Question 57

Option Pricing Models

Question 58

Exam Tip - Capital Assets

Question 59

Wash Sale Rules - Index Funds

Question 60

Exam Tip - Govt Losses The government does not like losses.

Question 61

Treatment of Capital Gains on Property

Question 62

Exam Tip - Gifting Related Party

Question 63

Exam Tip - Section 1231 and Section 1245

Question 64

Exam Tip

Question 65

Exam Tip Child Tax Credit

Question 66

Child & Dependent Care

Question 67

Exam Tip - Kiddie Tax

Question 68

EXAM TIP - AMT Preferences

Question 69

EXAM TIP - Default vs RIP

Question 70

EXAM TIP Coefficient Of Variation

Question 71

Coefficient Of Determination

Question 72

Exam Tip Duration SHORT CUT

Question 73

Educational Funding Example