Question Bank 2 Flashcards
(164 cards)
1
Q
“Soft dollars” refers to benefits received from client brokerage.
Buyside firm pays $6 to brokerage firm to execute a trade. In reality it only costs $4 to execute said trade. Brokerage firm pockets $2 and says “you can now access our research since you paid $2 additional”. The policy is that since you are paying using your client’s money, the service obtained must directly or indirectly benefit your client
A
2
Q
drag on liquidity =cash inflows lag e.g. inventory build up, AR slow
pull on liquidity=cash outflow accelerate e.g.faster payment demanded by supplier
A
3
Q
Linear regression assumptions include that the residual term is normally distributed, the variance of the residual term for all observations is constant (homoskedasticity), and that the residual for one observation is not correlated with that of another observation.
A
3
Q
time weighted annual return mock 4 q17
A
4
Q
IFRS accepts the direct method, and encourages it for the same reasons GAAP does, clarity and accuracy
A
4
Q
mock 4 28
stated rate vs effective annual rate:
stated: (1+r/12)^48=(FV/PV)-1=> r is stated rate
effective annual rate: (1+r)^48=(FV/PV)-1=>(1+r)^12-1=…
A
stated rate is the advertised annual interest rate, while the effective rate (also known as the annual percentage yield or APR) is the actual annual return, taking into account compounding interest
4
Q
stakeholder theory, the focus of corporate governance is managing conflicts among the interests of different groups that have an interest in a company’s activities. Shareholder theory holds that the focus of corporate governance should be to manage the activities of a company in the best interests of its owners.
A
5
Q
investment recommendations in capsule form as long as clients are informed that more information about the securities is available on REQUEST
A
6
Q
aggressive account increase profit and increase asset that is an intentional change (not estimated life decrease due to increased miles driven, this is too sensisble)
A
7
Q
Degrees of freedom for this Chi-square statistic are (r – 1) × (c – 1); contingency table
A
7
Q
quota rent=the gains to oversea producers if the import license were free; Foreign producers can raise their prices after a country imposes a quota to gain higher profits than they would without the quota.
effect of quotas on the government is uncertain. if government charge quota rent will take the benefit from oversea producer.
if the domestic government collects the full value of the import licenses, the result of quota rent is the same as that of a tariff.
The welfare loss to an importing country after imposing import quotas is greater than that under an equivalent tariff.
A
tariff: Loss of consumer surplus due to price increase.
A gain in producer surplus as local producers can sell their output at higher prices.
Gain of tariff revenue to the government.
VER allows the quota rent resulting from the decrease in trade to be captured by the exporting country, resulting in a welfare loss to the importing country.
8
Q
IRRs for a complex project with multiple IRRs are not useful. calc NPV
A
9
Q
thematic: immigration, low velocity
exogenous high impact like war and high velocity
event rsk like potical party changing, tax rate enacted, know timing but not outcome impact, high velocity
A
10
Q
auditor’s opinion: absence of an explanatory paragraph in the audit report relating to the going concern assumption suggests that there are no serious problems that require a close examination of that assumption by the analyst.
An external auditor is appointed by the audit committee of the company’s board of directors, not by its management.
A
board of directors oversees the company, sets overall strategy, and acts as a fiduciary duty to shareholders. Management, on the other hand, is responsible for the day-to-day operations and implementation of that strategy
11
Q
capitalizing company = costs of the capitalized assets is CFI outflows, while a company that expenses these costs as CFO outflows.
A
12
Q
Central bank sell securities, reduce MS, causing interbank lending rates and other short-term IR to increase long-term interest rates should also increase, the domestic currency should appreciate (attract foreign investment), and economic growth and inflation should DECREASE (contraction policy, AD decrease)
A
12
Q
wacc=(debt/TOTAL)……..(equity/TOTAL)!!!!!
A
13
Q
debt ratio is total debt to total assets
A
14
Q
Natural language processing uses computers and AI (artificial intelligence) to interpret human language. A great application of this fintech is to use it for evaluating management-provided information to see where certain words and contexts used can indicate larger issues than what is initially evident to readers.
A
15
Q
HHI is more sensitive to the effects of mergers compared to the N-firm concentration ratio
A
16
Q
Modigliani-Miller Proposition I (No Taxes), Capital Structure Irrelevance relies on several assumptions: (1) capital markets are perfectly competitive (no taxes or transaction costs), (2) investors have homogeneous expectations, (3) there is riskfree borrowing and lending, (4) there are no agency costs (managers act in the best interests of shareholders and are free from conflicts of interest), and (5) investment decisions are not affected by financing decisions.
A
17
Q
Individuals outside the firm (clients brother) acting on information after it is released to clients are not in violation of nonpublic information. Purchases in a member’s personal account are not subject to the requirements of the Standard concerning diligence and reasonable basis, so there is no violation
A
17
Q
bought in private placement, assume HTM in bonds; listed call options, trading securities
A
18
Q
180 day fwd exchange rate=spot*(1+ER/2)/(1+ER/2)
A
19
19
"Crawling bands" refer to planned increases in the width of the target zone for a managed exchange rate. A monetary authority might use such an arrangement in a transition from managed exchange rates to floating exchange rates.
19
conservative working capital approach:
use long term asset to fund short term asset; higher costs and lower profitability;
aggressive: finance working capital using short-term debt.
20
A test of whether an independent variable explains a significant amount of the variation in the dependent variable uses the null hypothesis that the slope coefficient is equal to zero. Rejecting the null hypothesis indicates the slope coefficient is statistically significant.
21
SEE increase (error term=std error of estimate), R^2 drop (amt of variation in dependent variable explained by independent varaible)
22
impairment cannot be deducted from income for tax reporting purposes until the asset is sold or otherwise disposed of.
22
impairment loss on a depreciable asset:
NI decarese this year, increase future years
tax pabable and CFO no effect
ROE increase next year
23
Paul James, CFA, a retail stock broker, notices that one client in particular, Chet Young, Ph.D., is especially adept at picking stocks. James decides to replicate Young's trades in his own account after he enters them. By doing so, James:
not violated misconduct cuz no dishonesty
24
Companies with a high degree of operating risk tend to have highly variable operating cash flows, making them less able to service debt compared to companies with less operating risk so use equity more, growing firm. Stable cash flows and high proportions of liquid assets typically enable companies to service a higher proportion of debt in their capital structures mature firms.
25
$24, $26. The average cost per share is closest to:
harmonic mean
26
A firm is domiciled in a jurisdiction with a 23% corporate tax rate. The business incurred a profit before tax of $500,000 for the year, had net income of $372,000, and paid $114,000 in tax. Which of the following measures of the firm's tax rate is the highest?
26
difference between tax expense(pretax income-net income) and cash tax is DTA/DTL
A firm is domiciled in a jurisdiction with a 23% corporate tax rate. The business incurred a profit before tax of $500,000 for the year, had net income of $372,000, and paid $114,000 in tax. Which of the following measures of the firm's tax rate is the highest?
Effective tax rate = income tax expense / pretax income. Income tax expense = $500,000 – $372,000 = $128,000. Therefore, the effective tax rate = $128,000 / $500,000 = 25.6%. Statutory tax rate = 23% (given). Cash tax rate = cash taxes paid / pretax income = $114,000 / $500,000 = 22.8%.
27
Bear Company produces gravel-hauling equipment. The company recently began producing the Mauler, a new line of equipment. Prior to beginning production of the Mauler, the company spent $10 million in research and development costs. Bear expects the Mauler line to generate positive cash flows beginning in the fourth year. However, Bear is forecasting a one-time expense in year 5 to comply with new government emission standards. The company will use an empty building it already owns to produce the Mauler. When analyzing the project cash flows for the Mauler, Bear should least appropriately include:
A)
the use of t
The R&D expenditure is a sunk cost that should not be considered in the project's cash flows. The opportunity cost of the empty building in its next-best use should be considered in the project analysis.
28
tender offer =a company to purchase a significant number of shares from shareholders, often to gain control of the company
29
Employing an independent GIPS standards verifier:
B.increases confidence in the firm’s claim of compliance with the GIPS standards. firm remains responsible for its claim of compliance. Firms that claim compliance with the GIPS standards are responsible for their claim of compliance and for maintaining that compliance.
30
cross check PV calc of TVM with NPV on calculator when it comes to annuity (e.g. pay 5000 for 5 years starting 2 years from now) because TVM PV is at Year 1
31
Working capital turnover = Revenue ÷ Average working capital
32
sole proprietorships No legal identity; considered extension of owner.
Operational simplicity and flexibility.
33
usd IRR to calc money weighted rate of return:
initial payment (50)
received additional (125) at beg of year 2=>(125) at Y1 year end
TOTAL value xxx at year 2=>input total value at Y2
MWRR gives more importance to the fund’s performance when the account is at its largest.
care about withdrawals or contributions
34
soft power= influencing another country’s decisions without force or coercion
35
TWRR cakc:
calc HPR for each period (stock price1+div-stock price 0)/stock price 0-1;
calc geomatric mean
TWRR doesnt care about withdrawals or contributions but avg return of periods
36
harmonic mean is measure central tendency in the presence of outliers. used when the data consist of rates and ratios, such as P/Es. current value
geometric mean is most frequently used to average rates of change over time or to compute the growth rate of a variable. growth; estimating the average returns over more than one period, the geometric mean should be used
arithmetic mean should be used for estimating the average return over a one-period horizon.
37
interest coverage ratio=ebit/interest expense
debt coverage ratio is CFO / total debt
one of leverage ratios: debt/EBITDA
debt affordability ratio:
38
defensive interval ratio is a liquidity ratio that measures how long the company can continue to pay its expenses from its existing liquid assets without receiving any additional cash inflow
39
Working capital turnover=how efficiently a company performs day-to-day tasks
financial leverage is a solvency ratio, and solvency ratios measure a company's ability to meet long-term obligations, not short-term obligations.
40
target downside devitaion no need to calc mean; replace mean with threshold and calc sd
41
report intangible assets using either a cost model (historical cost) or a revaluation model (adj for depreciation amortiation).
the increase in the carrying amount of the asset class bypasses the income statement and goes directly to equity under the heading of revaluation surplus. Asset revaluations that increase the carrying amount of an asset initially increase depreciation expense, total assets, and shareholders’ equity.
but write down in inventory goes to income stmt
42
The revenue recognition principle, a cornerstone of accrual accounting, dictates that revenue should be recognized when it's earned, not when cash is received. This means revenue is recorded when a company fulfills its performance obligation, transferring control of goods or services to the customer, regardless of when payment is actually received.
42
Impairment loss = Carry amount – MAXXXX[(Fair value – Costs to sell)
43
Crowdsourcing involves obtaining work, information, or opinions from a large group of people via the Internet
e.g. a company wants a new logo, it can have dozens of graphic designers assemble samples for a small fee.
44
single-sided network, the value increases as more users of the same type join (e.g., an instant messaging app where everyone can send and receive messages). In a multi-sided network, the value increases as more users of one side of the network (e.g., buyers) join, which attracts more users of the other side (e.g., sellers) and vice versa, creating a feedback loop
45
static trade-off theory:
VL = VU + tD – PV(Costs of financial distress)
46
MSE=SSE/(n-2); MSR=SSR
46
Weighted Average Cost of Capital (WACC), market values of both debt and equity are used to determine the weights of each component. Book values are not used because market values more accurately reflect the current economic claim of each type of financing
47
only accept higher NPV when the projects are mutually exclusive
48
non-cooperative economic tool: nationalization
non-cooperative financial tool: Restriction of foreign investment
49
Accumulated impairment losses and amortization=Accumulated impairment losses and amortization as of 31 December Year 1 + Exchange movements + Amortization charge for the year + Impairment losses + Disposals + Transfers to investments in associated undertakings
50
GAAP operating lease: lessee’s ROU asset amortization expense is the lease payment minus the interest expense where a straight-line allocation of the cost of the lease over its term.
51
FCFF = NI + NCC + Int × ( 1 – tax rate ) – capex - working capex
52
52
Taxes payable are calculated based on EBT = taxable income
53
common capital allocation pitfall is: A.basing investment decisions on earnings per share. EPS will dip in short term but increase in long term
54
company might report lower earnings in the CEO’s first year to create a positive trajectory for future periods. Alternatively, there could be motivation to report higher earnings under the new CEO. Either situation could lead to biased accounting choices.
55
empire building = director and management compensation are high and tied to the size of the business, expansion that might not increase shareholder value
56
Entrenchment: Excessive pay can lead to the avoidance of risk in order for one to hold onto one’s position.
57
Excessive risk-taking: A compensation plan that heavily relies on stock grants and options may encourage management to take excessive risks.
58
MM1, value of company is constant no matter capital structure change so if D/E ratio increase, because higher leverage, increases the financial risk borne by equity holders, necessitating a higher return to compensate for the increased risk. not related to equation WACC
59
Stranded assets are investments that become economically unviable before the end of their expected lifespan, often due to factors like climate change, regulatory shifts, or technological advancements
60
An indicator variable used in a simple linear regression is best described as a variable taking a value: 0 or 1; 1 represent girl, 0 for boy in sample
61
Greenfield development occurs on undeveloped land, while brownfield development utilizes previously developed land
economic infrastructure investments include utility and energy assets that generate power (such as a solar power plant) , Transportation and system that transmit info
Social infrastructures focus on human activities such as education, healthcare, and correctional facilities.
62
capital expenditures can be broken down into maintenance capital expenditures (dep exp) necessary to sustain the current business and growth capital expenditures needed to expand the business
63
SML applies to all securities, efficient and inefficient, with rf asset;
CAML and CAL only for portfolios on efficiency frontier
64
if have higher water market, caculate the net of fee return as the high water market from current year then carry on current calc
65
one-day 5% VaR of 5m=>5% of times will lose at least 5m
66
risk tolerance of an organization should reflect both an “inside” view and an “outside” view. The inside view asks what level of loss will leave the organization unable to meet critical objectives. The outside view asks what sources of uncertainty or risk the organization faces.
67
Level 1 assets have an exchange-traded, publicly traded price available
Level 2 asset values use outside quotes from brokers when publicly traded (Level 1) prices are not available.
Level 3 asset values are computed using only internal models
68
challenge in index construction is that fixed-income markets are predominantly dealer markets (quote-driven, OTC), not order driven market
order-driven market, dealers are not involved; instead, traders buy and sell to each other directly (exchange traded). In a brokered market, brokers help their clients find a counterparty that is willing to execute a trade.
69
real estate investment trusts (REITs) indirect equity real estate exposure.
Real estate limited partnerships=direct real estate equity investment.
CMBS =indirect debt investment opportunities in real estate.
70
If a call option is priced higher than the binomial model predicts, borrowing at the risk-free rate, selling a call, and buying the underlying.
If a call option is underpriced, buy call sell underlying and invest rf ( buying the call option while doing the opposite of replicating a call)
71
multi-boutique= holding company OWNS several asset management FRIMS that typically have specialized investment strategies.
full-service asset management= companies that OFFER a wide variety of asset classes and style.
specialist (not multi-boutique) asset management companies that focus on a specific asset class
72
derivatives pricing can have a risk-free portfolio through heding, no knowledge about the degree of risk aversion of investors is needed.
pricing of assets requires knowledge of the degree of risk aversion to adequately assess risk premia.
73
50 bps=0.005
1bps= 0.0001=0.01%
74
the bond exposed to the greatest level of reinvestment risk are premium bonds, coupon can be reinvestest at higher amount
increase in YTM, reaches a flatter part of the price-yield curve, changes in yield has smaller effects on value hence less interest rate risk
75
adding assets classes with low correlation improves the risk–return trade-off as long as the stand-alone risk of the added asset class does not exceed its diversification effect.
76
rate or return on margin transactions:
[(final value-money borrowed)-money borrowed *call rate]/initial margin
interest paid at the end of period so money rate is only at numerator
77
hurdle rate calc using beg value
78
asset based valuation model works better for CA and CL, not PPE (hard to determine market value) and not intangibles
79
according to the capital market theory investors should not be compensated for taking on nonsystematic risk. In contrast, investors must be compensated for accepting systematic risk because that risk cannot be diversified away.
no abnormal (unexpected) return
80
βp = Cov(Rp,Rm)/σm2
81
Yield to maturity (semiannual basis) 5.27%
annual yield to maturity based on quarterly compounding is:
convert an annual percentage rate for m periods per year:
(1 + .0527/2)2 = (1 + APR4/4)4
82
Determination of business model an element of company analysis.
Judgment on substitute products and Analysis of environmental influences are elements of industry and competitive analysis
83
lead underwriter in an IPO is the book builder for the offering (the investment bank then lines up subscribers who will buy the security) and provide opinion about the issuer to public
84
duration gap is MACAULY DURATION!!! NOT MODIFIED!!!
85
tokenization = process of representing ownership rights to physical assets on a blockchain or distributed ledger.
blockchain is a type of digital ledger in which information, such as changes in ownership, is recorded sequentially within blocks that are then linked or “chained” together and secured using cryptographic methods
purpose of a consensus mechanism in a distributed ledger is to
establish a common state of the ledger, not price, not terms and conditions
86
repo is stable funding source but have rollover and liquidity risk due to uncommitted repo market and short maturity
market liquidity risk=execute a trade or to liquidate a position immediately while not hitting the best price
HTM bond will not be concerned with liquidity risk as it is not intend to sell
87
real assets can be tangible and intangle e.g. patent, digital assets like crypto currency
88
analytical duration would be preferred to an empirical duration for cases that are NOT related to change in credit spread because it is complicated, could be driven by benchmark curve or other reasons
89
support tranche abosorv the unexpected delay or prepayment of tranches;
when support tranche is used up, PAC tranche kicks in so PAC tranche absorb only if prepayment rate is outside the specified range that support tranche can absorb
90
bond equivalent rate=add on rate [365]
discount rate tells the price [360]
yield tells the return;
add on rate= [(FV-PV)/ PV] * (365/t)
91
An approach to investing that considers environmental, social, and governance factors throughout the asset allocation and security selection process is: ESG integration considers ESG factors throughout the asset allocation and security selection process.
Thematic investing selects sectors or companies that promote 1 goal e.g. solar power
92
Conditional VaR is the expected value of a loss, given that the loss exceeds a minimum amount
expected value of a one-month loss that exceeds ¥100 million to be ¥300 million.
93
bond ytm=3.5%, rate of return on investment=4%=>interest rate increase, depending on price or interest rate risk dominates, HPR will be higher or lower
94
long exposure to the risk of underlying asset=>if price increase, long value increase=>short put
95
Data snooping= bias results from the likelihood that some anomalies will show up if done large enough number of tests.
96
pari passu=>different seniority of bond SHOULD have different ranking
97
multinational asset is hard to value but private firm with lots of tangible asset is better
98
Recapitalization is when the company issues debt to fund a dividend distribution to equity holders (the fund). It is not an exit, in that the fund still controls the company, but often is an intermediate step toward an exit.
99
Limit orders can have market price as the limit, used when lack of liquidity is a concern.
100
next point on an annual forward rate curve of 2y2y is 3y2y
101
Notching" refers to the credit rating agency practice of assigning ratings to debt issues that differ from the issuer's credit rating
102
Matrix pricing for untraded or infrequently traded bonds should be based on yields of more frequently traded bonds with similar credit ratings. ignore coupon and maturity matters but rating should be the same
103
futures contracts are MTM daily, price changes each day to the settlement price, at which their value to a new buyer or seller resets to zero. value chnages with price
forward, price fixed, value change
The value of a forward contract at initiation is typically zero.
103
convertible bond is more likely when the share price increases, while the conversion of a CoCo happens when the share price decreases, indicating a greater need for the issuer to receive an equity injection.
104
Cryptocurrency ETFs do not directly invest in cryptocurrencies. Instead, they seek to gain exposure to the value of cryptocurrencies through cash and cryptocurrency derivatives. Cryptocurrency stocks are related to companies that have business activities related to digital assets.
105
PE management fees are typically a percentage of committed capital rather than invested (drawn-down) capital.
105
advantages of derivatives markets are providing price information, reducing transactions costs, and shifting risks among market participants. arbitrage opportunities rarely exist or are quickly eliminated. Increased systemic risk
106
situation where the client's expressed willingness to bear investment risk is significantly greater than the client's ability to bear investment risk, the advisor's assessment of the client's risk tolerance in the IPS should reflect the client's ability to bear investment risk, lower one. not willingness
107
Derivatives pricing is based on law of one price (i.e., two assets or portfolios with the same future payoffs must have the same price). priced knowing no arb do exist, but prices will change and move to eliminate arb; no-arbitrage is a result of derivatives pricing; derivative prices using risk-neutral pricing.
108
current yield=coupon/current bond price
Yield to call (YTC) uses the period until the first call date of a callable bond (FV) to calculate the expected return if the bond is called before its maturity;
109
TIPS adjusted par value and keep coupon rate fixed=capital indexed bonds
interest indexded bond adjust coupon rate
110
True yield is adjusted for payments delayed by weekends and holidays and is equal to or slightly less than the yield on a street convention basis.
111
Bond dealers' bid-ask spreads depend primarily on the liquidity of an issue. Spreads are narrower for highly liquid issues and wider for less liquid issues. Credit quality and liquidity are both reflected in yield spreads.
112
usually coupon is reinvested at ytm, if reinvest at coupon rate, the realized yield could be lower or higher than ytm
113
Comparing a company's ratios with those of its competitors is known as cross-sectional analysis.
114
direct method cfo calc, tax paid and int paid are deducted by full amount instead of the change
115
coefficient of variation=sd/mean
coefficient of determination=how differences in dependent variable can be explained by a independent variable
R2 = SSR/SST
116
term structure = yield curve: IR to maturity
116
Bonds with a bullet structure are non-amortizing and return their entire principal to the bondholder at the maturity date
117
Prior to maturity, a zero-coupon bond's price may be different than its constant-yield price trajectory and the bondholder may realize a capital gain or loss by selling the bond. For a zero-coupon bond that is held to maturity, the increase from the purchase price to face value at maturity is interest income.
if ytm is same, amortization is the interest income
118
value of a bond calculated using appropriate spot rates is its no-arbitrage value=if no arb opportunuity exist, it is the market price of a bond
119
For large changes in yield, duration underestimates the increase in price when yield decreases and overestimates the decrease in price when yield increases.
120
if interest rate and negatively correlated with price of underlying (gets cash when IR is low, pay cash when IR high), futures price is less than forawrds
121
Global depository receipts=outside firms home country and outside US
amercian DR=DR issued in US on foreign equity shares
122
Multi-market indexes refer to those that include stocks from more than one country.
123
Cash flows to service CDOs are generated by the CDO collateral manager's buying and selling of debt obligations in the CDO asset portfolio.
124
limit sell is an order to sell a stock as soon as possible at the limit price or higher.
125
par swap rate, or fixed rate specified in the contract, is the price of an interest rate swap.
126
par yield curve is constructed from the yields of hypothetical bonds at different maturities that would be trading at par given current spot rates.
127
investor would like to limit his exposure to adverse events associated with environmental, social, and governance risks=>short term debt, not equity
128
Principal-agent conflicts are those between shareholders (as principals) and management and the board of directors (as agents). An example of an action that may represent a principal-agent conflict is "empire building" that results from management compensation structures that are tied to the size of the firm, rather than being better aligned with shareholders' interests. Issuing new debt while increasing dividends to common shareholders represents a conflict between shareholders' interests and creditors' interests. Dual-class structures may create conflicts among different groups of shareholders.
129
Principal-agent conflicts are those between shareholders (as principals) and management and the board of directors (as agents). An example of an action that may represent a principal-agent conflict is "empire building" that results from management compensation structures that are tied to the size of the firm, rather than being better aligned with shareholders' interests. Issuing new debt while increasing dividends to common shareholders represents a conflict between shareholders' interests and creditors' interests. Dual-class structures may create conflicts among different groups of shareholders.
130
Timing options allow for investment delays in the hope of obtaining better information in the future. Fundamental options refer to projects for which the payoff depends on the price of an underlying asset.
131
government purchases multiplier is greater than the tax multiplier, an increase in government spending will increase aggregate demand more than an equal-sized tax increase will reduce aggregate demand.
132
Which of the following principles should an analyst most appropriately apply when evaluating a project?
Depreciation is an accounting expense that does not represent a cash outflow but is a tax deductible expense that reduces tax outflows. The impact of the depreciation tax shield is critical to include in any capital allocation process. Cash flows received earlier have a greater present value than those received later. Because return on equity (ROE) may be negative early in a project's life, a manager whose performance is evaluated based on ROE may be hesitant to take on a project even with a positive NPV.
133
returns on the stocks of two major oil companies are very unlikely to be independent, as both will respond in a similar way to changes common risk factors, such as oil prices and expectations of economic growth. When the two samples are not independent, a paired comparisons test is the most appropriate. The test statistic is the mean difference divided by the standard error of the mean difference.
for difference in mean test, if variance between 2 are equal, use pooled variance , if different use individual variances
134
time-weighted rate of return calc, calc by HPR per share per year:
The holding period return in year one is ($89.00 – $100.00 + $1.00) / $100.00 = -10.00%.
The holding period return in year two is ($98.00 – $89.00 + $1.00) / $89 = 11.24%.
The time-weighted return is [{1 + (-0.1000)}{1 + 0.1124}]1/2 – 1 = 0.06%.
money-weighted rate, plug in each period in IRR
Geometric mean return (time-weighted return) is the most appropriate method for performance measurement as it does not consider additions to or withdrawals from the account.
135
Stratified sampling is most often used for bond portfolios.
136
probability of a Type I error is the significance level of the test and one minus the significance level is the confidence level. The power of a test is one minus the probability of a Type II error, which cannot be calculated from the information given.
137
sample variance [(4 – 5)2 + (10 – 5)2 + (1 – 5)2] / (3 – 1) = 21(%2)
138
test statistic = (sample mean – hypothesized mean) / (sample standard deviation / (sample size)1/2
139
variance: 0.3 × (2 – 3)^2 + 0.4 × (3 – 3)^2 + 0.3 × (4 – 3)^2 = 0.6.
covariance: 0.3 × (2 – 3) (3 – 3)+0.7(4 – 3)(4 – 3)
140
company's average compound annual growth rate of earnings is closest to:
Geometric mean = [(1.10)(1.14)(1.12)(1.10)(0.90)(1.12)]1/6 − 1
141
SFRatio： (expected return-mean)/sd
higher the better
142
probability of rejecting the null when it is false is the power of a test
143
Fintech refers to technological developments with potential applications in financial services, as well as to the industry that develops these technologies. While firms must process an increasing volume of data, a large portion of that data exists in unstructured forms. Automated investment advice is a potential application of fintech.
144
sample sd=sx on calculator
145
enterprise value multiple is calculated as market value of common stock plus market value of preferred stock plus market value of debt minus cash and short-term investments, divided by EBITDA
146
index weighted on firm fundamentals is likely to have a value tilt, whereas a market value-weighted index has a momentum tilt and the performance of a price-weighted index is driven by the performance of stocks with relatively high share prices.
147
ABS typically pass through principal repayments on the loans in the pool as they are paid, whereas covered bonds typically pay all principal at maturity, like most other bonds. When a bank issues an ABS, the loans in the underlying pool are sold to a special purpose entity and removed from the bank's balance sheet, reducing the bank's required reserves compared to retaining the loans on its balance sheet as with a covered bond.
148
