Investments

Question 1

For REIT shareholders, income received is considered

Answer 1

investment (not passive) income.

Question 2

What is used as a measure of risk on the security market line?

Answer 2

Beta

Question 3

What may be beneficial under the weak form of the EMH?

Answer 3

fundamental analysis, such as analyzing financial statements

Question 4

Seed financing

Answer 4

funding for the purpose of research and development of an idea

Question 5

First-stage financing

Answer 5

for initial manufacturing and sales

Question 6

Bridge financing

Answer 6

for companies that expect to go public within approximately 1 year

Question 7

Tactical asset allocation

Answer 7

Tactical asset allocation continuously adjusts the asset allocation and class mix in an attempt to take advantage of changing market conditions and overall investor sentiment.

Question 8

Private activity bonds

Answer 8

Private activity bonds derive their debt service only from their revenues and do not depend upon the issuing municipality. More than 10% of the proceeds are used for private business use. They are issued by municipalities to provide local industries with funds.

Question 9

What does a correlation coefficient of zero mean?

Answer 9

A correlation coefficient of zero means that the two stocks will move independently.

Question 10

After tax yield

Answer 10

multiply

Question 11

Taxable yield

Answer 11

divide

Question 12

standard deviation measures

Answer 12

total risk (systematic & unsystematic

Question 13

A distribution that is more peaked than normal

Answer 13

leptokurtic

Question 14

A distribution that is flatter than normal

Answer 14

platykurtic

Question 15

short selling

Answer 15

borrow, sell, buy, replace

Question 16

The highest level of diversification will occur when the correlation coefficient is closest to

Answer 16

-1

Question 17

Coefficient of variation (CV) =

Answer 17

standard deviation ÷ expected return

Question 18

Selling a call

Answer 18

This is known as the covered call strategy and is used to increase the income of the portfolio when the price of the underlying stock is expected to remain flat for a period of time.

Question 19

Capital Market Line

Answer 19

Focuses on portfolio rather than specific investment

Question 20

Security Market Line

Answer 20

Specifies the relationship between risk & return for an individual asset

Question 21

Liquidity

Answer 21

Described both transaction speed & stability of price

Question 22

Arithmetic mean

Answer 22

Aka simple return

Question 23

Risks of corporate and muni bonds

Answer 23

DRIP

Default risk
Reinvestment risk
Interest rate risk
Purchasing power risk

Question 24

Protective Put

Answer 24

Involves holding a long position in a stock and buying a put for the same stock

This entails a long position in both the stock and put

Question 25

Marketability

Answer 25

Refers only to the speed of a transaction *can be sold quickly

Question 26

Standard deviation

Answer 26

Measures variability of returns used in a non-diversified portfolio and is a measure of total risk

Question 27

Net Operating Income (NOI)

Answer 27

Gross Rental Receipts + Non-rental income = Potential Gross income (PGI) - Vacancy and collection losses = Effective gross income - Operating expenses *excluded interest & depreciation

Question 28

Eurodollars

Answer 28

A deposit in any foreign bank that is denominated in dollars

Question 29

Modern Portfolio Theory (MPT)

Answer 29

It assumes that investors must be compensated for assuming risk

Question 30

Yankee bonds

Answer 30

Yankee bonds are foreign issued and dollar denominated not sold in the us. sold to yankees

Question 31

REITS - redeemable or not redeemable

Answer 31

NOT redeemable. They are negotiable and trade on exchanges

Question 32

Interest on federal bonds

Answer 32

Interest on federal bonds not subject to state and local taxes but IS subject to federal taxes

Question 33

which index is price-weighted?

Answer 33

Dow Jones (DJIA)

Question 34

which performance evaluation measures total risk?

Answer 34

Sharpe

Question 35

Treasury bills

Answer 35

No 9 month increment *Bill can't get pregnant

Question 36

Brokered CD's

Answer 36

interest rate risk

Question 37

Traditional CD's

Answer 37

no interest rate risk

Question 38

Commercial paper

Answer 38

money market 270 days or 9 months

Question 39

OID

Answer 39

most are zero coupon bonds

Question 40

GNMA

Answer 40

Government guarantee, but not issued by government taxable at federal, state, and local levels

Question 41

Debenture

Answer 41

unsecured corporate bond

Question 42

LEAP

Answer 42

long term options ranging up to 2 years and beyond

Question 43

What is not used in Markowitz efficient frontier?

Answer 43

Beta standard deviation is used

Question 44

Who are STRIPS normally purchased by?

Answer 44

tax-deferred entities

Question 45

Geometric return shortcut yr 1 +30 yr 2 +40 yr 3 -40 yr 4 -20

Answer 45

yr 1 +30 = 1.30 yr 2 +40 = 1.40 yr 3 -40 = .60 yr 4 -20 = .80 1.30 x 1.40 x .6 x .8 = .8736 n = 4 I = solve pv = always -1 pmt = n/a fv = .8736

Question 46

Which can defer income, I bonds or Tips?

Answer 46

I bonds

Question 47

Z tranche coupon

Answer 47

there isn't one. it functions like a zero-coupon bond

Question 48

convertible bond calculation

Answer 48

Par / conversion price x current market price of underlying stock

Question 49

_ % of all return outcomes will fall within + or - one standard deviation of the average or mean

Answer 49

68%

Question 50

_ % of all return outcomes will fall within + or - two standard deviation of the average or mean

Answer 50

95%

Question 51

_ % of all return outcomes will fall within + or - three standard deviation of the average or mean

Answer 51

99%

Question 52

RATS example if funds are mixed

Answer 52

choose the fund with the highest Sharpe