Markets & Economics Flashcards
(36 cards)
What is modified duration?
Modified duration is a formula used to express the change in the value of a bond from a 1% change in interest rates, illustrating that bond prices and interest rates move in opposite directions - higher interest rates lower bond prices, and lower interest rates raise bond prices.
What is Gross redemption yield?
Annualised return taking into account running yield and capital gain/loss, assume bond held to redemption
what is the income yield?
annualised return after paying income tax on the coupon taking into account running yield capital gain/loss if bond held to redemption.
what is Yield to Maturity?
The annual in come on a bond as a percentage of the price
name the three credit rating agencies?
Fitch, Moody’s, S&P
name two characteristics that make bonds more susceptible to movements in interest rates?
Long maturities, low coupons
what is a perpetual bond?
A bond that doesn’t have a maturity date
What is the yield to maturity?
% rate of return of a bond assuming investor holds asset until maturity date, and receives all of its remaining coupon payments and return of the principal (par value) at maturity. A bond’s yield to maturity rises or falls depending on its market value and how many payments remain to be made.
30% of Company A’s revenues are recurring, compared to 70% of Company B’s. Which company would trade at a higher multiple?
Company B - recurring revenues are more attractive to investors, more predictability of revenue streams. You will pay a higher multiple and typically a higher company valuation.
Name the different asset classes?
Asset backed securities & specialist lending - commercial property & infrastructure - Multi asset - Macro Hedge & specialist equity - Commodities - trend following
Low volatility hedge v high volatility hedge?
High outperforms in a bear market where as you would expect a low volatility hedge to outperform in a bull market
what is an asset-backed security?
a type of financial instrument that is collateralised by an underlying pool of assets - usually ones that generate cash flow from debt such as loans, leases, credit card balances, or receivable
PEG ratio?
PE ratio / annual EPS growth (higher than one is overvalued)
dividend yield?
dividend per share / market price per share
dividend cover
Earnings Per Share / Dividends per share
Current ratio?
Current assets / current liabilities
Quick ratio?
Current assets - inventories / current liabilities (more conservative than current ratio)
Earnings per share?
net profit / no. of ordinary shares
PE ratio
Market value per share / earnings per share
sharpe
portfolio return - risk free rate / standard deviation of the portfolio’s excess return
EBIT
Earnings before interest and tax
Capital employed
total assets - current liabilities
Return on capital employed
operating income (EBIT) / capital employed
Price to book ratio (P/B)
Stock price / (total assets - total liabilites)
