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2012 CFP > Investments > Flashcards

Investments Flashcards

(62 cards)

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1
Q

What risks are undiversifiable?

A

PRIME

Purchasing power
Reinvestment risk
Interest rate risk
Market risk
Exchange rate risk
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2
Q

What is endogenous risk?

A

Risk generated with in the system due to participants being human

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3
Q

How many stocks does it take to remove unsystematic risk?

A

10 to 15

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4
Q

What are the risks with bonds?

A

DRIP

Default
Reinvestment
Interest rate
Purchasing power

Gov’t bonds don’t have default risk

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5
Q

R-squared gives…

A

Amount of systematic risk…the balance (to 1) is unsystematic

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6
Q

Growth rate equation

A

g = roe * rr

roe is return on equity
rr is retention rate

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7
Q

Semi - variance

A

Alternative risk measure that includes only returns below expectation

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8
Q

Coefficient of variation

A

Communicates the variability of an investment per unit of return (stdev/xbar)

Lower the CV, greater reliability

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9
Q

R or rho

A

Correlation coefficient (ranges:-1 to 1)

Think “Credence Clearwater Revival” - CC=R

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10
Q

R-squared

A

Coefficient of determination

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11
Q

Contrarian opinion rules (6)

A

BIOMOP

Barron's confidence index
Investment advisory opinion
Odd lot sales
Mfd cash
OTC vs NYSE volume
Put/call ratio
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12
Q

Follow-the-smart money rules (2)

A

Confidence index

Short sales by specialists

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13
Q

Basic assumption of tech analysis

A

Irrational investors are an important element in stock prices

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14
Q

Return on equity

A

ROE = net_income/common_equity

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15
Q

Difference between quick ratio and current ratio

A

Current ratio is current_assets/current_liabilities

Quick ratio subtracts inventory from assets before dividing

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16
Q

Intrinsic value of a stock according to fundamental analysis

A

The discounted value of future dividends

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17
Q

Quick market price calc

A

Outstanding shares

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18
Q

Hierarchy of comparison testing

A

BATS

Beta
Alpha
Treynor
Sharpe

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19
Q

Black Scholes model of CALL option pricing relies on 5 variables

A

1) mkt price (incr)
2) time (incr)
3) stdev (incr)
4) risk-free rate (incr)
5) ex price (decr)

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20
Q

Venture capital stages (8)

A

1) seed
2) start-up
3) 1st stage
4) 2nd stage
5) mezzanine
6) bridge
7) acquisition
8) leveraged buy out LBO

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21
Q

Seed capital

A

Vc for product development & mkt research

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22
Q

Start up capital

A

VC for initial marketing but NO SALES

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23
Q

First stage financing

A

VC for manufacturing & sales

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24
Q

Second stage financing

A

VC for working capital

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25
Mezzanine financing
VC for expansion or new products
26
Bridge financing
VC for expected IPO
27
Acquisition financing
VC for acquisition of other companies
28
LBO financing
VC for management to buy pastorally of a business
29
Margin call price
(Purchase price)(1-initial margin)/(1-maint. Margin)
30
Valuation of preferred stocks
V= Do/r Constant dividend divided by current interest rate
31
Difference between T-bills, notes, & bonds
Maturity Bill: 4, 13, 26, 52 weeks Note: >1y to 10y Bond: >10y
32
Eurodollars
Bonds issued by US companies oversees
33
Yankee bonds
Bonds issued in US by foreign companies
34
Key feature of a debenture
It is unsecured
35
Expectation theory of rates
Lt rates are the current st rate plus the expected future st rate
36
Liquidity preference of rates
Investors like liquidity so must be compensated with higher rates for lt bonds
37
Segmentation rate theory
Supply and demand with in ST and LT segments because investors like to stay within their segments
38
Efficient market assumptions
- Investors always act rationally and in their own best interests - Investors cannot outperform the market as they don't have better data - info is rapid and available to all - investors react quickly to news - prices adjust immediately - prices are not predictable (random walk)
39
Difference between CAPM & APT
CAPM is single factor model (beta), APT is multi-factor
40
4 factors that affectation stock in APT
Inflation Industrial production and the GDP Risk premium changes Interest rate changes
41
Overconfidence bias
Believing you are smarter or have better information than others
42
Representativeness bias
Applying past experiences to current
43
Anchoring & Judgement bias
Using the initial value of all decisions and never adjusting it
44
Cognitive dissonance bias
Investors will only believe data that supports their desire
45
Self-attribution bias
Good decisions are the investor's, bad ideas are the fault of others
46
Illusion of control bias
Belief that you can influence an outcome
47
Conservatism bias
Investor clings to prior views at the expense of new data
48
Ambiguity aversion bias
Investors dislike uncertainty more than risk
49
Endowment bias
Valuing an owned stock more than others
50
Self-control bias
Consume today rather than save for tomorrow
51
Mental accounting bias
Treating portfolio as different parts such as inheritance vs earned
52
Confirmation bias
Whatever an investor wants is believed to be correct...sometimes seems as "it has always been this way in the past."
53
Hindsight bias
After something happens to believe that you saw it coming
54
Lass aversion bias
Cause investor to hang onto bad investments thereby avoiding loss
55
Recency bias
Current events/information is emphasized which creates ST thinking
56
Regret aversion bias
The fear that a decision will be the wrong one
57
Framing bias
To focus so much on one factor as to ignore other crucial factors
58
Status quo bias
Choosing the course that will keep things as they are
59
GDP
C + I + G + NE Consumption, investment, govt spending, & net exports
60
NOI
Net Operating Income Gross receipts + non-rental income (laundry) =potential gross income - vacancy & collection loses = effective gross income - operating expenses
61
Value of RE based on cap rate
NOI / cap_rate
62
Gross Income multiplier calc
Sales_price/gross_income

2012 CFP (7 decks)

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