Investment Planning

Question 1

Taxable Equivalent Yield (TEY)

Answer 1

Tax-exempt yield/
1-Marginal Tax Rate

Ex: Muni paying 5% @ 35% TB:
5/.65= 7.69%

Question 2

Tax Exempt Yield

Answer 2

TEYx(1-Marginal Tax Rate)

Ex: Corp Bond Paying 7% @ 15% TB
7x(.85)= 5.95%

Question 3

P/E Ratio

Answer 3

P/E Ratio equation:

Current Market Price=earnings x P/E Ratio

Question 4

CV (Coefficient of Variation)=

Answer 4

Standard Deviation/Mean

• Variability
• Lower number is more predictable

Question 5

Unsystematic Risk

Answer 5

Business Risk
Financial Risk, (leverage)
Diversifiable

Question 6

Systematic Risk

Answer 6

Part of a system, cannot be diversified PRIME
Market,
Interest, (bonds)
Reinvestment Rate, (bonds)
Purchasing Power, (bonds) and
Exchange Rate Risk
Measured by Beta
-With Unsystematic equals total risk-

Question 7

Primary Bond Risks

Answer 7

DRIP-
Default,
Reinvestment,
Interest
Purchasing Power Risk

Question 8

Standard Deviation percentages

Answer 8

1 SD- 68%
2-95%
3-99%

Question 9

Coefficient of Determination

Answer 9

R^2

Question 10

Intrinsic Value of Real Estate (Rental)

Answer 10

Net Operating Income/Cap Rate

Question 11

Zero Growth Model (used for preferreds)

Answer 11

V= Dividend/current yields

Question 12

Geometric Return

Answer 12

Takes Compounding into account

Question 13

HPR-Holding Pertiod Return

Answer 13

= Sale Price+Div-Old/Old Price

Margin Interest and Dividends

Question 14

Record Date

Answer 14

Date in which shareholder is entitled to Dividend

Question 15

ADR

Answer 15

American Depository Receipts
expressed in $$’s, not in local currency, registered with SEC
Still have exchange rate risk

Question 16

Preferred Stock Valuation

Answer 16

Do/r = Annual Div/Current Market Int Rate

Question 17

Futures

Answer 17

The Procedure for removing your downside risk by taking opposite position. Also limits upside.

Question 18

Muni Bonds-GO

Answer 18

General Obligation bonds are backed by taxing authority

Question 19

Revenue-Muni Bonds

Answer 19

Pay higher rate, backed by project, riskier

Question 20

STRIPS

Answer 20

Selling the coupon of a T-note as seperate securities. IE selling the 20th payment at 200k which will mature at 300k in 10 years

Question 21

Bond Yield– Current Yield

Answer 21

Annual Coupon Amount/Current Bond Price

Question 22

Yield Seesaw for Discount Bond

Answer 22

Lowest to highest Yield: Current Yield

YTM, YTC

Question 23

Yield Seesaw for Premium Bond

Answer 23

Highest to Lowest-CY, YTM, YTC

Question 24

Duration

Answer 24

Weighted Average amount of time it takes to get your money back on a bond
Zero Coupon bond has duration = to Maturity

Question 25

Duration Impacts

Answer 25

Maturity-Directly Related Interest Rates-Inversely related -Lower Coupon-higher duration -Higher Couplon-Lower Duration Lower the market rate-higher duration

Question 26

EMH-Strong Form

Answer 26

No one can beat the market (inside informaion does't help)

Question 27

EMH-Semi-Strong

Answer 27

All public information is factored into stock price-insder info helps

Question 28

EMH-weak

Answer 28

Funamental Analysis works, no technical analysis.

Question 29

SML vs CML

Answer 29

SML is Micro and uses Beta, CML uses SD

Question 30

Monetary Policy

Answer 30

Controlled by Federal Reserve: Through, Open Market Operations, Discount Rate Changes, Reserve Requirement

Question 31

Expansionary

Answer 31

Fed Buys securities from public, Lower's Discount Rate, Lower's Reserve Requirements

Question 32

Contractionary Monetary Policy

Answer 32

Sell Gov't Securities-$$ transferred from public to Banks and Fed Raise Discount Rate Raise Reserve Requirement

Question 33

Valuation of Real Estate

Answer 33

NOI/Cap Rate Net Operating income Cap Rate is subjective, cannot really calculate

Question 34

Securities Act of 1933

Answer 34

Registrationn of IPO's | Primary Markert, new issues with prospectus

Question 35

Securities Exchange Act of 1934

Answer 35

Created SEC, Broker Dealers must register with SEC Secondary Market

Question 36

Investment Co Act of 1940

Answer 36

Regulates MF's and other investment Co's

Question 37

Investment Advisers Act of 1940

Answer 37

Adviser must register with SEC (ABC rule)

Question 38

Securities Investors Protection Act of 1970

Answer 38

Protects against brokerage firm failures (SIPC)

Question 39

National Securities Markets Improvements Act of 1996

Answer 39

>25MM: SEC Regulation, <25MM: State Regulation Raised to 100MM in 2012-Dodd-Frank Wall street reform Act, 2010

Question 40

Regulation FD 2000

Answer 40

Requires Companies to share Market moving info with the public at the same time it's released to institutions, designed to level playing field

Question 41

Sarbanes-Oxley Act of 2002

Answer 41

Executive accountabiliity for Exec's