Review From Questions Flashcards
1
Q
Equity
A
- RI recognizes value earlier than other models
- RI is related to P/B
- Unlevered Beta: (1 / 1 + D/E) * B
Then you use for firm: B(1 + D/E) - Relevered Beta: [1 + D / E] * B
- Molodovsky effect: countercyclical property of P/Es
- Financial leverage also ROE/ROA
Total Asset Turn also ROA / NPM
2
Q
Quantitative Methods
A
- Stationarity is desirable. Nonstationarity is a result of mispecification
- If ARCH exists, need to use generalized least squares
- FAIL TO REJECT = ACCEPT
3
Q
Financial Reporting and Analysis
A
- Capitalized interest of depreciation is added back to EBIT
- Other capitalized interest is added to the interest expense
- Expensing capitlized interest does not affect CFO
- Option expense = options granted * (option price/vesting period)
- Cap ex + expenditures on intagibles = reinvestment
4
Q
Coporate Finance
A
- Adjusting cost of equity for inflation:
[(1 + nominal cost of equity) / (1 + inflation)] - 1 - RI: divide by r if its an annuity
5
Q
Portfolio Management
A
- Breadth may be overstated if many securities have high correlation
- Increasing Breadth only increases IR to the extent of active management
- real rates are positively correlated with GDP growth and volatility. Increases in GDP volaility would increase s/t TIPS
- Equities are not a good hedge against bad consumption outcomes
- Delta = Change in call / change in stock
- Gamma = Change in Delta / Change in Price
- Discount rate should include a TIP
6
Q
Derivatives
A
- Convenience yield decreases futures price
- Gamma is larger when there is more uncertainty about whether the option will expire in or out of the money.
7
Q
Alternatives
A
- Venture Capital investments has a relationship between venture capitalists and existing shareholders/owners
- A common source of value creation in leveraged buyouts is debt reduction.
- Make sure to calculate out the annualized return and compare to the hurdle rate!!!!!!
