Investments Flashcards

Question

Indenture

Answer 1

formal agreement, deed of trust between issuer of bond and ttee

Answer 2

hybrid debt security

Answer 3

greater of bond intrinsic value and conversion value PAR x Cp/Ps

Answer 4

present value of cashflows. use all info from the given bond except for i/yr, which will be the "yield of comparable bonds/yield of bonds w same maturity and grade on the market"

Answer 5

right to redeem at a certain price before maturity when will issuer call a bond: when premiums on other bonds are higher (next best answer - when rates have dropped) call protection:10 years cost to issuer: call premiumPu

Answer 6

holder can sell instrument back to issuer if rates rise and price of bonds drop, put option would be exercised some yield is sacrificed to have the put privilege

Answer 7

Quarterly Report to SEC

Answer 8

Annual report to SECl

Answer 9

corp report to shareholders

Answer 10

anything less than 2b

Answer 11

anything less than 300mm

Answer 12

hybrid security usually issued at $25 or 100 par with stated div rate pays a fixed div rate duration infinite perpetual stock/no maturity date more price fluctuation than bonds (duration higher) cumulative: div payments must be made up CORP PURCH OF PREFERRED STOCK: 50% DIVS ARE EXCLUDED FROM TAXATION typical purchaser: corporation w extra funds

Answer 13

foreign shares in us in form of ADR receipt quoted in usd, divs paid in usd, but declared in country of origin

Answer 14

open or closed ended unit trust or investment company traded on stock exchange more tax efficient than MF basket or index of stocks/bonds

Answer 15

investment company w no day to day pm redeemed at NAV unitholders (not shareholders) unmanaged security portfolio created by sponsor and handled by independent TTEE not traded/frozen collects income & repayment of principal self liquidating

Answer 16

open ended investment company nonnegotiable, redeemable securities each day, fund computes NAV all shares held by fund are marked to market: total market value/# shares outstanding no load: no sales charge

Answer 17

issue stock once trade on any exchange may hold illiquid

Answer 18

issued by insurance companies 2-5 yr term guaranteed rate of interest POPULAR W DB PLANS

Answer 19

low. good for diversification

Answer 20

passive investment, return is potential price appreciation (no income generation)

Answer 21

generally funds from rentals. intrinsic value can be calculated from NOI

Answer 22

GNPVON gross rental income -nonrental income =potential gross income - vacancies & collections -operating expenses (includes debt servicing) =NOI

Answer 23

annual income (FROM NOI, make sure its in years) / capitalization rate (given my exam)

Answer 24

must have 75% invested in RE (other 25% can be securities like gnma). 90% must be distributed, remaining amount is taxable. if 90% not distributed, all NII taxable to REIT

Answer 25

passthrough income. may deduct 20% of passthrough income from REITS

Answer 26

office buildings, hotels, shopping centers etc, mosdest leverage too much leverage + too much vacancy can be negative for cashflow

Answer 27

loans to develop property vulnerable to purchasing power risk and higher default risk

Answer 28

subject to passive loss rules, not marketable, managed by GP, nonpublically traded (see nonpublicly traded partnership in taxation)

Answer 29

limited life self liquidating entity more flexibility than CMOs range of risk levels pass thru rules

Answer 30

total return / price of investment total return: income (which is sell price - purchase price) + price appreciation + dividends - margin interest price of investment: out of MY pocket cost over 1 year: overstated return under 1 year: understated return

Answer 31

minimum price the option will command difference between market price and exercise (strike) price

Answer 32

price at which the stock can be purchased or sold upon exercise of the option

Answer 33

cost of the option as option approaches expiration date, premium approaches intrinsic value

Answer 34

amount by which premium exceeds intrinsic value smaller time premium - closer to expiration

Answer 35

Option Valuation Models CALL UP (except exercise price) time remaining to expiration int rate volatility price of underlying stock ex. price

Answer 36

lapse: premium received is stcg exercised w/ covered call: premium received and to sale price (lt if underlying held 12+ months, st if less)

Answer 37

lapse: expired = exercised. stcl or stcg most are sold before before expiration (not exercised). stg or l

Answer 38

9 months - 3 years expiration once exercised, you must hold the stock for 12 addtl months to pay ltcg

Answer 39

company, not individuals several years maturity

Answer 40

short seller borrows stock short seller sells short seller instructs repurchase, cancels postion and returns security profit: difference between borrowed price and repurchase price need margin, dividends declared must be covered (paid back to holder) by short seller

Answer 41

short: hedging against loss/fall long: hedge against increase/rise

Answer 42

reinvestment risk (zeros have no reinvestment risk because there is no coupon to be reinvested)

Answer 43

normal distribution, historical returns, leveraged $

Answer 44

no margin, ending portfolio values, positively skewed, values cannot go below 0

Answer 45

infinite outcomes, the relationship between movements of securities in the same portfolio

Answer 46

standardized measure of movement of 2 stocks in portfolio (like covariance but easier to compare) P guy on sheet in cov formula between -1 and 1, one is perfect positive corr, -1 perfect neg correlation. 0 = no relationship -1 = no risk (St dev 0) 1 = max risk , weighted average = max risk

Answer 47

coefficient of variation = measure of relative variability with securities that have different ror and st dev standard deviation / average or mean return risk per unit of expected return higher cv = higher relative risk

Answer 48

both used to express risk st dev: for a non diversified portfolio and measures total risk. VARIABILITY of returns beta: for diversified portfolio and measures systematic/market risk. VOLATILITY of returns

Answer 49

return #, sigma for all years orange 7 = mean orange 8 = st dev

Answer 50

1: 68% (on both sides of curve) 2: 95% 3: 99%

Answer 51

1 higher beta: more volatile, greater systematic risk lower beta: less volatile

Answer 52

return/beta coefficient

Answer 53

geometric mean better for investment returns evaluate portfolio manager not affected by cash flows

Answer 54

multiply returns (1+ or - return), this is fv pv = -1 always n = years investment i = geo mean

Answer 55

not accounting for reinvestment rate we are assuming its reinvested at the same rate which may not be true

Answer 56

discount rate at which present value of cash flows = cost of investment irr greater than required return = good investment when npv is 0 discount rate used is irr

Answer 57

annual int in dollars / current bond price

Answer 58

tax equivalent yield = tax exempt yield / 1-tax rate

Answer 59

passive strategy match duration to time horizon

Answer 60

relationship between bond price and required rate of return

Answer 61

uncertainty about the future rate that income (coupon payments) can be reinvested

Answer 62

duration = maturity price fluctuates more

Answer 63

measures sensitivity in price to change in rates duration of 8 years = 8% of value lost with change in +100 bps of price (.01%)

Answer 64

rates up, shorten duration buy higher coupon bonds w shorter duration

Answer 65

rates fall length duration buy lower coupon bonds with higher duration

Answer 66

degree to which duration changes as wtm changes large for low coupon, long maturity, low ytm imrpove duration approximation for bond price changes

Answer 67

can be used to valuate stocks since dividends are sometimes the only cash payment a stockholder receives gives estimated price (v=est. price)

Answer 68

1. use last growth rate to solve using ddm formula 2. if first growth rate lower: choose next lowest answer 3. if first growth rate higher: choose next highest answer

Answer 69

current market price = earnings x pe ratio if company doesnt pay divs, use to valuate

Answer 70

same formula as ddm but use fcf1 instead of d1 if company doesnt pay divs, use to valuate

Answer 71

eps/net worth or book value profitability determines earning growth therefore div growth

Answer 72

common divs paid / eps

Answer 73

roe per share x book value

Answer 74

macro MPT relationship between risk and return of portfolio straight line tangent to efficient frontier @ point b point a = combo of risk free & risky point b = proportional mix point c = 100% leveraged portfolio y axis intersection = risk free rate, t bills slope = market price of risk

Answer 75

risk and return on axis anything on the line is the most efficient portfolio (highest return for given level of risk)

Answer 76

steep more additional return needed to assume a level of risk

Answer 77

less additional return needed in order to assume a certain level of risk

Answer 78

security market line risk and return for a specific security

Answer 79

above sml = more return for same amount of risk as sml or lower

Answer 80

everything is baked in

Answer 81

insider info could produce superior returns

Answer 82

fundamental analysis MAY produce superior results dont try to use technical analysis to predict future returns

Answer 83

not a form of EMH, it is an outlier effect (if emh was completely true, these wouldnt happen)

Answer 84

stocks with low PE perform better

Answer 85

small firms outperform larger firms

Answer 86

stocks decline at year end and rebound in feb

Answer 87

firms that are not commonly studied out perform

Answer 88

stocks rated 1 out perform stocks rated 5

Answer 89

trends in economy first then picking companies i.e. looking at inflation then buying in the retail industry

Answer 90

search for a specific stock with good performance before looking at impact of economic trends

Answer 91

current assets/current liabilities *retirement accts are not considered current

Answer 92

charts & programs to identify and project not concerned with financial position of the company

Answer 93

resistance = price ceiling support = price floor

Answer 94

aggregate measure of securities prices, looks at position of overall market DJI and DJT

Answer 95

differential between returns on quality bonds and bonds of lesser quality will predict future price movements

Answer 96

statements that show where the revenue is allocated where in the list bondholders are paid

Answer 97

you get more shares price of each share is smaller

Answer 98

you get less shares price of each share is more expensive

Answer 99

basis of whatever created the wash is increased by the amount of the disallowed loss no deduction for any loss think wash SALE disallowed loss added to the sale basis

Answer 100

dont forget weekends or holidays to get current dividends, must purchase day before x div purch > ex div > date of record

Answer 101

must be compared to other funds to mean something

Answer 102

excess return to the assets beta

Answer 103

aka alpha measures contribution of pm (+ is better)

Answer 104

alpha & treynor: needs to be diversified since it uses beta. r squared = coefficient of determination greater than 60, diversified highest alpha, if no alpha given, highest treynor less than 60, look for highest sharpe

Answer 105

returns above benchmark higher = manager is more consistant rp = asset return rb = benchmark return rp - rb = active return st dev a = st dev of asset tracking error = st dev of active return (goes in denom)

Answer 106

owns a stock sell call, buy put hedging against it going down

Answer 107

max and min rate paid on floating note tied to tbills (example)

Answer 108

CREATES PHANTOM INCOME

Answer 109

different maturity dates when one matures, another is purchased

Answer 110

only purch short term bonds

Answer 111

half short term half long term if interest rates change, only one group needs to be sold

Answer 112

1-initial margin ________________ x purch price 1-maintenance margin

Investments Flashcards

(142 cards)