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HLR CFP > Investments > Flashcards

Investments Flashcards

(72 cards)

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1
Q

What taxes do you pay on Federal bonds?

A

Pay Federal; no S&L

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2
Q

What taxes do you pay on Muni Bonds?

A

Out of State: Pay S&L (no Federal)
In state: Double tax free

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3
Q

What price causes a margin call? (Formula)

A

(1-init marg %) / (1-maint marg %) * ORIGINAL price

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4
Q

YTM and YTC - how many pay pds/year?

A

2/year and PMT = 1/2 coupon (unless annual coupon stated)

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5
Q

Real Rate of Return Formula?

A

((1+After Tax Return)/(1+Inflation) - 1) * 100

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6
Q

How do you calculate YTM?

A

Solve for “i” on calc
PV = $ paid
FV = face value
N = # years till maturity*
PMT = 50% of coupon*

*USE 2 PAY/YR unless problem says “pays annually”

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7
Q

Taxable Equivalent Yield vs Tax Exempt Yield

A

TEY (Equiv) = Muni Coupon/(1-tax you don’t pay)

TEY is the CORP yield you would need for same result as muni

Tax EXEMPT Yield = TEY * Tax You DO pay

EXEMPT is the muni yield you’d need to equate to a corp bond

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8
Q

How many basis points are in 1%?
How much does 50 bps translate to in terms of %age?

A

100

100 bps = 1% (or .01)
50bps =1/2% (or .005)

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9
Q

Are preferred stock dividends fixed or variable?

What is the tax rate on Pref divs?

A

Fixed, as a %age of par

Cap gain rates if QUAL pref and owned 90/181 days!!

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10
Q

How many times/year are preferred dividends paid?

A

Quarterly - like any other stock dividend!!
(Even though FIXED div like bond, not paid semi)

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11
Q

How many times/year are common dividends paid?

A

Quarterly

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12
Q

How many times a year is bond interest paid?

A

2

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13
Q

What keys do you use to calculate mean (arithmetic/average) and standard deviation?

A

<Gold> 7
<Gold> 8

To input #s, use key to right of CF (Upper case Sigma)
</Gold></Gold>

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14
Q

What is the formula for liquidity or current ratio?

A

CA/CL

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15
Q

Are taxes (income & FICA) part of fixed & variable expenses in emergency fund?

A

NO

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16
Q

Does health status inform retirement needs and estate taxes?

A

Yes

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17
Q

Definition of pro-forma?

A

Future projection of biz income/expenses
Ultimately compared to actuals @ YE

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18
Q

Is a loss on a home LTCL?

A

No

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19
Q

Current Yield formula?

A

Coupon $ payment / Price paid for bond

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20
Q

How are qualified dividends taxed?

A

Capital gains rates

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21
Q

How is interest taxed?

A

Ordinary income

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22
Q

Does the Fed control the Prime or the discount rate?

A

Discount

Prime set by banks w/Fed

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23
Q

On the formula sheet, when you see D1, what is the substitute/equivalent for it?

A

D0*(1+g)

This is the current year’s dividend times the growth rate for next year’s dividend.

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24
Q

Formula: What is the coefficient of variation?

A

C of V = Sigma / mean expected return * 100
or
CV = Standard deviation / mean expected return * 100

STANDARD OVER MEAN KEEPS IT CLEAN!!!

The lower the number the better b/c it tell you how much expected return you’re risking for each unit of std deviation (variability)

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25
What does COV stand for on the formula sheet? What does it tell you?
COVARIANCE (NOT Coefficient of Variation) It tells you how things move in relation to each other; do they move in the same or opposite directions? If it's (+) they move in the same direction. If it's (-) they move opposite. Helps to understand how combining diff assets in a portfolio will reduce volatility (if negative) or increase volatility (if positive). It's made up of correlation coefficient (rho) and std dev. Rho tells you how tightly coupled two variables are and it ranges b/w -1 and +1. Zero or low + are best. If something is -1 you've eliminated risk but you've also eliminated gain b/c they cancel each other out.
26
What is the market premium?
(Rm - Rf)*Beta
27
What is (Rm - Rf)*Beta?
Market premium
28
How do you calculate the HPR (Holding Period Return)?
(What I sold for +-(What happened)-Out of pocket)/OOP What happened: + Dividend - Margin Interest - Margin Amount Borrowed
29
How do you calculate a Real Property's Intrinsic Value (Formula)?
NOI/Cap Rate
30
How do you calculate NOI?
NOI = Operating Revenues - Operating Expenses Do NOT include in Operating Expenses: Interest/principal Capital Improvements/expenses DO include: Maintenance Prop Taxes & Insurance
31
What is the IV (intrinsic value) of a call? What happens if it's (-)?
IV of call= MP - Exercise$ COME: Call Option Mkt - Ex IV can NEVER BE NEGATIVE (if negative then IV = 0) If negative/0 then out of money; if positive it's in the money
32
What is the IV (intrinsic value) of a put? What happens if it's (-)?
IV of put = Ex $ - MP $ (exercise $ - mkt $) POEM (Put Option = Ex Price - Mkt Price) IV can NEVER BE NEGATIVE (if negative then IV = 0) If negative/0 then out of money; if positive it's in the money
33
Formula for Return on Equity?
EPS/Common Equity book value
34
Formula for Dividend Payout Ratio?
Common Dividends Paid/EPS
35
Formula for PE Ratio?
Current mkt price/earnings
36
Formula for stock yield?
Annual Div per share / price per share
37
What does Beta tell you?
The degree to which a stock/portfolio moves with the market/benchmark you're comparing to. Beta of the ENTIRE MKT = 1 (a constant) >1 -> More volatile (1.5 is 50% more volatile) =1 -> Exactly the same; risk is systematic -1 -> Less volatile (.75 is 75% of the avg volatility)
38
What does IRR measure?
IRR = Dollar weighted return; it's the return based on amount and timing of cash flows during a given period. The rate (I) at which all future cash flows = cost of inv (if NPV = 0 the the IRR of inv = req’d return) It’s used to compare investments
39
What does R2 tell you?
The ratio of a portfolio's market variance to its total variance (in other words, how closely does it track to the market or index). It measures %age of return attributable to the market variance (vs portfolio manager's) to validate alpha/beta; how much the benchmark influences performance.
40
What does Treynor measure?
Return per unit of risk using beta as the risk measure.
41
What does Sharpe measure?
Return per unit of risk using std. dev as the risk measure.
42
What is the kiddie tax std deduction?
$1300
43
What is the value of a stock GIFT?
The FMV on the day gifted
44
When calculating IRR on an investment that involves a mortgage, how is the down payment and mortgage loan handled?
Only the cash put down goes into CF0 and for the last CFx, the mortgage is deducted from the amount received.
45
Maintenance Margin calc vs Margin maintenance call price calc?
The MM call price calc is the price at which a margin call is issued ((1-init marg/1-MM marg) * purchase price). The Maintenance Margin calc (how much do you have to pay) is based on "forks". Initial Marg and Equity drawn. Orig marg stays, but equity falls based on price. The amt is the maint marg% * equity.
46
What are the small cap, mid cap and large cap cut offs?
Small = $300M - $2B Mid = $2B - $10B Large = >$10B
47
What's a GIC?
It's like a bond or CD issued by an insurance company Usually purchased by pension plans. Low liquidity and low returns, but safe. No interest rate risk b/c the rate is guaranteed and there's no price fluctuation based on interest rate changes.
48
What are the %age requirements for REITS?
>= 95% from operations >= 75% from real estate <= 15% from securities (e.g.: GNMA) >90% income dist (they pay tax on <= rem 10%) OR ALL INV INCOME TAXABLE TO REIT CAN'T invest in LPs!!
49
What is the daily limit for commodity futures?
Max % up or down from previous day allowed.
50
What's a Eurodollar?
US $ in foreign bank
51
What's a Yankee Bond?
Foreign Co bond ISSUED in $USD in USA (SEC reg)
52
Do importers & processors go long or short? Do exporters & growers go long or short?
**Farmers SHORT to SECURE Producers LONG to PROCURE** Processors/Importers long the right to lock in a price Farmers/Exporters short to guaranted a sell price If you fear incr prices -> go long If you fear decr prices -> go short
53
What does Reg D concern?
New issues of private placements: Requires disclosures/offering memorandum Limits # of non-accredited investors to 35 Accredited ($1m/200/300) Note: Qual Investor >$5M
54
Systematic risk vs systemic risk? Business risk vs. financial risk?
Systematic: non-diversifiable risk of market/beta Systemic: specific for a company or sector Biz Risk: specific firm's ops Financial: specific to a firm's bonds = CREDIT or DEFAULT risk
55
What are the types of risks (mnemonic)?
PRIME
56
What does sigma represent and how is it measured?
TOTAL Return or PORTFOLIO **VARIABILITY** of returns Measured by std deviation = Systematic (Beta) + Unsystematic (Non diversifiable) (Diversifiable)
57
What is risk adjusted return (formula and meaning)?
= Return/Beta This is how you standardize the return of MF so you're comparing apples to apples.
58
Time Weighted Return (IRR/NPV) vs Dollar Weighted Return (Geometric Mean)? Geometric Mean Calc?
IRR & NPV measures how I do as an investor, factoring in the returns and cash flows in & out. Dollar Weighted (Geometric Mean) measures how the PORTFOLIO mgr does - it's only looking at income/price changes not cash flows (which can distort returns). Geometric Mean: 1. Add 1 to returns (be careful on (-) you're ADDING) and MULTIPLY these #s = FV 2. Using FV from above, PV = -1, N = # years and solve for i.
59
What is total return?
Annual return including both +/- in asset price AND dividends/interest.
60
What are the weaknesses of HPR (Holding Pd Returns)?
It ignores timing and cash flows; the holding period could be 10 months or 10 years and you'd get the same result! Also, if you buy on margin you get a "higher" return but that's because you used less of your own money.
61
What is the duration of a bond used for? Which bonds have highest duration?
To compare bonds; it tells how long to make your money back factoring price and coupon payments. To figure impact: int rate - price - ytm - duration **UPS** I've **FALLEN** Int rates up -> SHORTEN Int rates falling -> LENGTHEN If a bond's duration = 8, PRICE will go down 8% if int rates rise 1% and vica versa. IT MEASURES SENSITIVITY TO INT RATE CHANGES and therefore volatility & risk Highest duration = ZEROS
62
What is portfolio immunization?
Passive strategy Immunized when avg DURATION (NOT maturity) = time horizon
63
To value a stock, what formula should you use if there are dividends? What formula do you use if there are NO dividends?
Dividends: DDM V=D1/r-g No Div use P/E ratio: Price = earnings * P/E ratio
64
Capital Mkt Line vs Efficient Frontier vs Security Mkt Line
Cap mkt line: Macro (A=lowest, B=optimal and C=most risk); uses sigma/std dev Eff Frontier: Macro; blends indifference curve w/CML; uses sigma/std dev Security Mkt Line = Micro (formula uses Beta and Rf); uses Beta AKA CAPM
65
Who likes Efficient Mkt Hypothesis?
Passive strategy investors (mkt is efficient; active is useless) Strong form = passive Semi = Insider info Weak = active; use fund analysis (maybe) ALL forms **Hate Technical** analysis
66
Fundamental Analysis
By company Top down or bottom up Compare firms w/in sectors
67
Technical Analysis
Charts Active Strategies Reisistance/support levels
68
What are the (3) key performance measures, and what are they looking at?
Sharpe, Jensen's Alpha and Treynor They measure expected return to actual for a PORTFOLIO
69
How do you use R-squared and what does it tell you?
It is = "roe" (correlation coefficient) squared RATS B/W 0 and 100 Low - not very diversified High - very diversified
70
How do TIPS work?
The face value adjusts per CPI (int rate is flat) Increases to face value are added to basis for tax purposes
71
How do I-Bonds work?
Int rate adjusts EE, H and I bonds can all be used for education
72
What do you pay phantom income on?
ZOTTS Zeros OID STRIP TIPS (on the increase in face value only!! the interest is paid out) Treasury Receipts Reinvested dividends produce PHANTOM INCOME but also INCREASES BASIS!! ISOs produce phantom income for AMT calculation purposes only… you don’t actually pay the tax on the phantom income unless it pushes you into AMT (in which case you’re paying AMT)

HLR CFP (8 decks)

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