Investments Flashcards
What type of risks are typically associated with Bonds?
D.R.I.P
Default Risk
Reinvestment Risk
Inflation Risk
Purchasing Power Risk
Are ETFs liquid investments?
No, liquid investments will usually be CDs or MMs
when R2 is lower than 60, what do you look at?
Sharpe Ratio/Standard Deviation
When R2 is higher than 60, what do you look at?
Alpha (Jensen) or Treynor/ Beta
What Variables do Markowits Model Use
It uses SD as a measurement of risk (covariance, correlation coefficient, and return). It does NOT use Beta
When should corporations issue new Bonds
When previously issued bonds are selling at a premium and when interest rates have fallen so they can issue at lower rates.
When interest rates are expected to rise to lock in the lower rates
What is the value of a Put Feature?
it allows you to redeem bonds back to the issuer at par even when markets have declined, the downside is for this protection the yield is lower, this makes sense for a conservative investor
Do No Load Funds have Management Expenses
No, because this is already included within their administrative expenses
Current Yield Formula
Annual Interest / Bond’s Market Price
Property’s Intrinsic Value Formula
Net Operating Income (NOI) / Capitalization Rate
Intrinsic Value of a Call Formula
Market Price - Exercise Price
Intrinsic Value of a Put Formula
Exercise Price - Market Price
Tax- Exempt Yield Formula
Taxable yield x (1 - Marginal Tax Rate)
Return on Equity (ROE) Formula
EPS / Common Equity ( net worth or book value
Dividend Payout Ratio Formula
Common Dividends Paid / EPS
