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596 Cards in this Set

  • Front
  • Back
fixed
asset t/o
sales/ net
pp and e
Does the Dividend
DIscount model
use COE or WACC
Cost of equity
What is the
operating
margin =
ni/ revenues
Is Durbin watson appropriate for autoreggressive or tren models
trend models
iS PROPORTIONATE CONSOLIDATION ALLOWED FOR GAAP
IN VERY LIMITED CIRCUMSTANcES
what does the variance of an equally weighted portfolio approach as number of assets increases
its convariance
What is the equation for FCFE Coverage Ratio
FCFE Coverage Ratio= FCFE/ (DIvidends +share repurchases)
when is the opetion gamma and when is the gamma of options largest
Options Gamma is the rate of change of options delta with a small rise in the price of the underlying stock and when a call is at the money
what is the easiest way to solve for the delta of a put option
delta of call-1
What does the Sharpe ratio=
(er- risk free rate )/ Sd
What does the SML and the CML use as it slope
SML= beta
CML=Variance

"The SML is based on the CML and both are equilibrium relationships."
What does r squared equal
(total var- unexplained var)/ total Var

also

RSS/ SST
What tests for heteroskedascity
breusch pagan
what is the durban watson statistic
2(1-r)
What tests for serial correlation
durban watson
What is the t stat for serially correlated errors
resuidual autocorrelation for lag/ SE of residual autocorrelation
what is the mean reverting level
bo (1-b1)
Whats the foreign exchange rule
follow the up the bid and multiply and down the ask and divide rule
What is uncover i/r parity
expected future spot rate * exchange rate
What do you have to do with payoffs for forward contracts
discount back
what is the equation for the fischer effect
fischer effect= risk free rate + expected inflation
What is the balance of payments equation
current acct + capital acct+ financial acct=0
expected interest rate differential (currency)=
I/R differential + expected inflation differential +Expected risk premium differential
What is the equation for the production function
total productivity factor *quantity of capital raised to alpha*qualtity of labor raised to 1-alpha
What is the cobb-douglas function=
change in GDP= change in average productivity +change in average capital*alpha +change in average quantity of labor*(1-alpha)
What does potential GDP=
long term growth rate in labor + long term growth rate in productivity
What intitially happens to investing cash flows when costs is capitalized
decreases
what does operating income=
EBIT
IS EBIT higher or lower under finance or operating lease
higher under finance lease
What cant the dubrin watson be used for
times series data
how many dummy variables are used
one less than the states of the world
Are forward contradcts subject to variation margins?.
no
What cost of capital is used target firm or acquirers firm
targets
When is regulatory capture an issue
Regulatory capture has always been a concern when SROs are used (Institute 692)
When reclassification is deemed appropriate how are prior periods restated
When reclassification is deemed appropriate, there is no restatement of prior periods at the reclassification date.
what is multicollinearity
A regression assumption violation that occurs when two or more independent variables (or combinations of independent variables) are highly but not perfectly correlated with each other
describe a dummy variable
takes on a value of 1 if a particular condition is true and 0 if that condition is false.
what is heteroskacity
The property of having a non constant variance; refers to an error term that is not constant across observations."

o Ex. CAPM- different standard deviations for small and large firms
what is serial correlation
• Serial Correlation-regression errors correlated across observations
what is a unit root
"Unit root-A time series that is not covariance stationary is said to have a unit root."
what does the current account equal
difference between savings and investments
what is - increase in capital to labor
capital deepening
what is pareto optimal
pareto optimal= impossible to make one group better without making one worse
what is the dutch disease
currency appreciation driven by strong export demand for resources makes other segments of the economy, in particular manufacturing, globally uncompetitive. (often for resource rich countries)
what is the regulatory capture theory
Regulatory Capture Theory-Regulations often arise to protect those regulated
Describe level 1,2,3 assets
Level 1 Assets- directly observable market prices
Level 2 Assets- not as easily priced because they are not actively traded
Level 3 Assets- illiquid and value is not discernible
common law vs. civil law
Common law- interpreted by judges
Civil Law- interpreted by legislation
what is mutually exclusive
A statistical term used to describe a situation where the occurrence of one event is not influenced or caused by another event. In addition, it is impossible for mutually exclusive events to occur at the same time
Describe an equity carve out
involves the creation of a new legal entity and sales of the equity in it go to outsiders
spinoff vs. splitoff
• Spinoff-shareholders of the parent receive a proportionate # of shares in the new entity, whereas the sale of a division results in an inflow of cash to the parent.
o Splitoff- similar, in which some of the parents shareholders are given shares of the new entity in exchange for their shares in the parent
What is the equation for harmonic mean
n/ sum (1/ Xi)
what is rachet
The contractual term enabling management of the private equity controlled company to be rewarded with increased equity ownership as a result of meeting performance targets is called:
What is a convertible bond arbitrage strategy
purchase a portfolio of convertible bonds and take short positions in the related equity security.
What is the difference between ordinal and cardinal measurement systems
Ordinal ranking because it only orders borrowers’ riskiness from highest to lowest
Cardinal Ranking- rankings based on an amount
What is key rate duration
Key rate duration is the sensitivity of a portfolio’s value to the change in a particular key rate.
What is active risk and what is another name for it
Active Risk-the standard deviation of active return. This risk is also often referred to as the “tracking error.”
What does orthagonal mean
uncorrelated
what method can be used to correct for serial correlation
hansen method and this helps to adjust standard errors
what types of distributions do hedge funds have
nonnormal and negative skewmess and positive excess kurtosis
In the treynor black model what is the weight of a security in the porfolio equal to
(alpha/ unsystematic risk) /(sum of (alpha/systematic risk))
if the OAS is less than zero, is the bond over or under valued
overvalued
what is tthe equation for justified trailing p/e
(1- payout)/ (r-g)
what is tthe equation for Justified LEADING p/e
(1- payout) *(1+G)/ (r-g)
under the neoclassical model what doesnt lead to long term growth
capital
what does the endogenous growth model say
social benefits mean that capital ldeeping leads to long term growth
what is the value of assets under dividend growth theory
e/r The srest of stock price= growth
What does the cash flow accruals ratio=
NI- CFO-CFI= accruals / Net operating Assets
How are pension plan assets and PBO reported under GAAP and under IFRS
Both report the funded status
what does periodic pension cost=
contributions- change in funded status
are pension contributions reporting as operating, investing or financing activy
operating
Are a subsidiaries asset/s liabs restated for inflation underr gaap or ifrs and what is if anything restated
only under IFRS and nonmonetary assets/ liabs
Ina hyperinflationary economy under IFRS what method is used
temporal- so functional currency will now equal parents presentation currency
difference between statutory and subsidiary merger
statutory= subsidiary ceases to exist as standalone
what type of merger defense is a leveraged recapitalization and what is it
post-merger and its when a company borrows money to buy back shares
Total asset t/o
Asset Turnover = Sales or Revenues/Total Assets
What is an option vega
The measurement of an option's sensitivity to changes in the volatility of the underlying asset
what happens to pension service cost if i/r increases
service cost and pbo decrease
how does a higher expected return affect pension expense
reduces it
WHAT HAPPENS to coe for residual dividend policy
increases (investor punnish unstable dividends
When is credit risk for a swap highest?
middle of swap
what does a low r squared indicate in terms of conditional heteroskedacity
low
under the temporal method how are unrealized and realzied gains and losses recognized
unrealized= not recognized
realized- recognized on i/s through depreciation and COGS
what is the equation to determined PVGO
p= (E/r) +PVGO..... NOtice E not dividends)
what does EVA=
NOPAT-(WACC*capital)
What is the intrinsic value equation using a single period residual income model
bo+ (ROE-r)/(r-g)
is there a clearinghouse is forward or future amrkets
future
What types of countries will benefit most from capital deepening
those with a high alpha
How is the rentail price of capital calculated in the steady state
r= Alpha* Marginal Product of Capital (Capital/ GDP)
Under the Temporal Method how are remeasurement gains/ losses reported
I/S
How is the Cumulative translation adjsutment reported in OCI / Balance sheet comupted under the current rate method
Get a= D+e to balance for both periods
If an industry has high variable costs what is the rivalvrly and amount of entrace
high entrace and lower rivalry (the result is a lower need for economies of scale
What does the OAS spread reflect
adjustments for liquidity and credit risk
What does the intercet in a macroeconomi model=
expected return assuming no surprises
What is active factor risk caused by
standard deviations from benchmark standard factor senstitivities
what does standard error equal (equation)
(slope estimate- hypothesized value)/ T Statistic
If the fisher effect holds how do interest rate differentials compare to inflation differentials
they are equal
WHat is the equation for the fischer erffect
nominal rates= (1+real rate)(1+inflation)
Is absolute purchasing power used to predict exchange rates?
no
when is relative purchasing power useful
for predicting long term interest rates (not short term)
What is the discount rate used to evaluate a specifc capital budgeting project
rate adjusted for risk
How are venture capital projects funded
primarily through equity and little use of debt etc (little leverage)
What is the equation for post money valuation
valuation= v/ (1+r)^T
How is the build up method calculated for required return
absolutely no use of betas
What is the equation for prepayment
SSM X (Beginning mortgage balance-scheduled principal prepayment)
what is the equation for SMM
1-(1-CPR)^1/12
do currency swaos reflect the credit of one party
no
describe credit risk of counter parties in I/R swaps and currency swaps
I/R swaps it decreases over time and currency swaps maximum in the middle/ end (must swap the final payment)
What does an AR model predict
data from one period will eventually revert back to the mean reverting level
What is a sunset provision clause
revisit cost-benefit analysis everytime the decision may be renewed
what is the equation for financial leverage
average assets/ average equity
What is the likely effect of a high degree of operating/ financial leverage in an industry
more price competition to defend market share/ cover fixed costs
Which of the following are least likely to relate to rivalry among existing competitors
A) A high degree of operating/ financial leverage
B) a short product life
C) high switching costs
C)
What is the equation for Justified P to S
Net profit Margin (1-b)*(1+G)/ r-g
How can multicollinearity be determined
high r squared and low t-stat
What does the going in capt rate=
Discount rate AKA NOI/ Value (therefore the discount rate= cap rate + growth rate)
What is the F-Statistics
Mean regression sum of squares / mean square error
What does an interest rate collar consist of
long interest rate cap and short interest rate floor
What does a put option on a bond do
give the owner of a bond the right to sell it if it drops below a certain point. IT can be sold for higher than market value (so similar to an interest rate cap)
what is the bootstrap method on earnings
when the acquirer's P/E is hgiher than the target and the the acqusition and eps increases but earnings dont increase (meaning p/e also stays the same)
What does the static trade theory suggest
a company should lever up to the point where the additional costs of financial distress exceed the additional increase in tax shield
What does additional debt do to a capital structure? (agency costs)
it decreases agency costs i/r payments reduce free cash flow also (less waste)
what is the optimal capital structure?
the plan that minimizes the WACC
whatd oes miller and modligiani proposition 2 state
coe is a linear function of debt to equity ratio
in an equity carve out how are shares accounted for
minority amount of shares given to new shareholders and majority retained by parent (not given to existing shareholders)
How are spinoffs viewed by the market
favorably because they result in greater efficiency for the parent
what is the risk of poor financial disclosures known as
accounting risk
What does NOPAT=
EBIT (1-T)
What is the Market Value Added equal to
Market Value of Total Capital (MV of stock + liabilities)- BV of total capital
What is FCFE equal to
NI + depreciation -change in WC - change in fixed assets
what is an assumption of cash flow duration
the same rate of prepayments will occur
What risk exists for futures and forwards
credit risk of forwards because they are not marked to market daily
if interest rates are flat what is the difference in prices between forwards and futures
nothing
What does the futures price converge to
the spot price otherwise abritrage opportunities exist
What is the equation for the adjusted Alpha and what is the weight of a security in an active managers porfolio
Adjusted Alpha= [
(correlation between realized and forecasted alpha of that asset^2)*Alpha]
/
Sum of (correlation between realized and forecasted alpha of that asset^2)*Alpha]
Who does the standard of confidentiality apply to
clients former clients and prospects unless disclosure is required by law
what is the ruling on additional compensation arrangements
no gifts or anything are acceptible that may create a conflict of interest with the employer is allowed unless all parties consent
what is the requirement for record retentions
hold things for 7 years unless other regulatory guidance
what is a random walk
A time series in which the value of the series in one period is the value of the series in the previous period plus an unpredictable random error.
What is a probit model
• probit model, which is based on the normal distribution, estimates the probability that Y = 1 (a condition is fulfilled) given the value of the independent variable X.
What is a logit model
• logit model is identical to a probil model, except that it is based on the logistic distribution rather than the normal distribution.
What is a unit root
"Unit root-A time series that is not covariance stationary is said to have a unit root."
How is economic growth calculated
Economic growth is calculated as the annual percentage change in real GDP or in real per capita GDP.
What is a bear hug
Bear Hug- merger proposal is delivered directly to Board of Directors
What is a tender offer
Tender offer- offer to buy shares directly from
shareholders
-(a situation in which financial shocks spread from their place of origin to other locales;
Financial COntagion
is regulation and monitoring of the safety and soundness of financial institutions in order to promote financial stability, reduce system-wide risks, and protect customers of financial institutions.
prudential supervision
What is a requirement of long lived assets
tangible, or intangible, future economic benefits must flow to the entity from the use of the asset.
What is a synthetic lease
A lease that is structured to provide a company with the tax benefits of ownership while not requiring the asset to be reflected on the company’s financial statements is known as
What is A lease that is structured to provide a company with the tax benefits of ownership while not requiring the asset to be reflected on the company’s financial statements is known as
synthetic lease
investor who is defined as an investor who is very likely to be part of the next trade in the share and who is therefore important in setting price
marginal investor
Equity carve out
• Equity Carve Out- involves the creation of a new legal entity and sales of the equity in it go to outsiders
Spinoff
• Spinoff-shareholders of the parent receive a proportionate # of shares in the new entity, whereas the sale of a division results in an inflow of cash to the parent.
Splitoff
o Splitoff- similar, in which some of the parents shareholders are given shares of the new entity in exchange for their shares in the parent
What ius the equation for the harmonic mean
- equation is easier to understand as xy. (weight 1*Y+ weight 2*X)
The contractual term enabling management of the private equity controlled company to be rewarded with increased equity ownership as a result of meeting performance targets is called:
rachet
WHat is a convertible bond strategy
Convertible bond arbitrage strategies purchase a portfolio of convertible bonds and take short positions in the related equity security.
Arbitrage-based funds typically have a lower standard deviation of returns because they are the hedge funds that explicitly hedge.
what has lwoer standard deviations Arbitrage based funds or hedge funds
Arbitrage-based funds typically have a lower standard deviation of returns because they are the hedge funds that explicitly hedge.
When are fixed Income securities beneficial
declining spreads
Equation for daily standard deviation
Daily Standard Deviation- annualized by multiplying times the square root of 365
WHat does ABS Stand for
ABS-absolute prepayment speed
What is active risk equal to
the standard deviation of active return. This risk is also often referred to as the “tracking error.”
What is another name for active risk
tracking error
What does FCFE equal
FCFE= CFO-FCInv- Net borrowing
which cost of equity model is liquidity factor applicabel to
Liquidity factor is only applicable to the Pastor-Stambaugh model and not the Fama and French Model
When is the build up method used
- The buildup valuation method is usually applied to closely held companies when the betas are not readily available.
What is the vlaue of a 2 year IR put
Value of 2 year I/R floor= value of one year put + value of 2 year put
what is required for an upward shift in the production curve
advance in technology
What does GDp growth rate=
growth in TFp +alpha (growth in capital)+ (1-alpha)*growth in labor
What is not include included in aproject cash flow prosoal analysis
interest because it is a financing cost
what smooths the returns of real estatte indexes and what is the impact
appraisal lag which results in a lower correlation with other classes
How can appraisal lage be mitigated
unsmoothing or using a transaction based approach
What is the income requirement of the old prudent man rule
earning income to compensate for inflation
Why is ROA different after translation
numerator translated at average rate and denominator transalted at current rate
How is Net Profit Margin different after translation
its not both numerator and denominator= translated at average rate
what effect does a high persistance factor have on dividends
low dividends
Value of 2 year I/R floor
Value of 2 year I/R floor= value of one year put + value of 2 year putNOP
What does NOPAT=
EBITx(1-T)
What does MVA=
market value- invested capital
what does clearn surplus relationship=
beginning book value+net income- dividends
The belief that there are patterns/ reversals in in returns provides the rationale to use which indicator
relative strength
DOes IFRS and/or GAAP allow for reclassification into and out of held for trading
GAAP yes. IFrs generally not
what changes when SPE's are considated
assets/ liabilities equity but not income
how much of a board should be independent
75
What is the equation for the value using a one period residual income model
Bo+ [(ROE-r)/r-g]*bo
What type of r squared is used for a breusch pagan test
an r square of the regression errors based on the independent variable not an r squared of comparison between independent variables (i.e. not between jewelry and gold prices but between the r squared of the squared residuals from the original regression of the independent variable
Do hedge fund indexes or funds of funds have biases and what are they..
only hedge funds do and they are selection, survivorship. and backfill bias
What is merger arbitrage compared to
selling insurance.. make small profit if successful, large lose if not
what does a PSA of say 100-300 idnicate
range in which preapayments is constant
What are the limitations on growth in the gordon growth
can eb negative (cant be greater than r)
What is the classical growth of GDP theory
an increase in per capita GDP above subsistence level is mean reverting
what is a poisin pill
make stock less attractive
Do all client communications need documentation
yes
What are some compliance procedures
pre clearance of trades and duplicate confirmations
do market conditions affect the bid ask spread between parties
yes
Does an increase in discount trade increase or lower pbo
lower which results in lower service costs
what does the swap spread measure
difference in the credit quality in the global economy
do hedge funds ior mutual funds use multiple of asset investments
hedge funds
What does merger arbitrage do
profit by taking a long position in the target and a short in the acquirer
What does the value of a combined firm equal
Value of acquirer + value of target + synergies- cash paid to target
what do high yield issuers depend heavily on
bank debt
are transactions to minimize tax liabilities allowed
no
what do diversitures signal
bad news
What do negative alphas in a portfolio signal
they should be shorted
What does non recourse loan mean
cash flows come only from property income and value of property not from seizing assets
what does an AR model predict
series will eventually fall back to mean reverting level
In porters fiver forces if a company has high operating leverage what does this mean and what kind of competition does this cause
high fixed costs and high competition
what type of serial correlation have low standard errors
positive
when is a residual income approach most appropriate
if no history of dividends good fianncial reporting and negative cash flow
average spread over treasury spot rate curve
OAS
avergae spread over tresury yield curve
nominal spread
What type of relationship does correlation coefficient interpret
linear relationship
WHat is the equation for covriance
(xi-x bar)*(yi-ybar)/(n-1)
spurious correlation
is a mathematical relationship in which two events or variables have no direct causal connection,
what is is the regression asusmption of the independent variables and residual terms
independently distributed and uncorrelated
is heterskedascity conditional (breusch pagan)
use white-correlated standard errors
What are the correlation for multiple correlation
n-k-1
what types of variation is anova
regression model or residuals
what is the equation for r squared
Regression sum of squares / sst
What is the f stat equal and the degrees of freedom
regression mean square/ mean squared error (k and n-k-1)
How can heteroskadascity be adjusted for
chaning regression coeffients
what is confidence interval equation
regression coefficeient +/-(critical t-value)(standard error of regression coeffient)
what are 3 problems with regression analysis and what are they
1) conditional heteroskadascity- residual variance related to levvvvvel independet variables (hosuehold Income)
2) serial correlation- residuals are correltaed (time series)
3) multicolliearity- two or more independe variables are correlated
what model should be used to measure seasonaility
log-linear
WHat is an ar model
dependent variable is regression against previous values of itself
when testing for serial correlation what model should be used
not durbin watson (use t-test)
what is the 3 step process to see if something is covariance stationary
1) plot data to see if mena and variance is constant
2) run ar model and test for correlation
3) perform dickey filley test (test for unit root
What is the mean reverting level for a covariance stationary ar model and if there is no covariance stationary how can you correct for it
its defined and first differencing can correct
is a unit root covariance stationary
no
does a random walk have a unit root
yes (correct by first deferencing)
Is the mean reverting level definied in a random walk
mean reverting level is undefined
do random walks have serial correlation
no
what is used to assess the predictive abitlity of ar models
root mean squared error.
what is root mean square errors
used to asses the predictive accuracy of autoregressive models. it is the square root of the average square error
what does it mean for variables to be cointegrated
error term from regressing one against the other is covariance stationary
How do you asses if an autregressive model against two variables is good
if both variables=covariance stationary, model= reliable
if one is, then not relaibles
if both are not test for cointegration. if conitegration= covariance stationary
Are exchange rates covariance stationary
no its a random walk ( no serial correlation)
what does it mean to be a random walk
IF random walk prior perido= good predictor of future period (high r squared)
What is the order of the assessment of a time series model
is it covariance stationary if yes use first differencing
is there serial correlation (durbin watson model)- if yes auto regressive model
Check for arch- if arch model = not good the use ar 2 model and start over
When does covered interest rate parity hold
when forward premiums or discount exactly offset differences

Covered i/r gives no arboitrage forward xrates and uncovered gives expected future spot rates
when does uncovered i/r parity hold
expected future spot rates (instead of forward exchange rates ) equal i/r differentials (This isn't a traded value)

Covered i/r gives no arboitrage forward xrates and uncovered gives expected future spot rates
DO covered and/or uncovered i/r parity hold by arbitraged
only covered
over what time period do covered and uncovered i/r parity hold
covered= short and medium term
uncovered= long term
what is the future exchange rate an unbioased
covered and uncovered i/r parity hold
what does fx carry trade seek to profit from and what is it
uncovered i/r parity and it involes longing high yield curreny and shorting low yield
what is the flight to saftey
low yield currencies= safe haven during credit crisis
what is the current account
trade balance
when is sterilized intervention used
when inflation is a concern
What is the difference between sterlized and unsterlized
sterilized money base doesnt changed (gov't just buys or sellls some currency
what is the international fishcer effect
nominal i/.r= real i/r +/- expected inflation
what is the difference in returns by changing various parts of the cobb-doudflag function
constant returns to scale
what does classical growth theory say
growth in real gdp= mean reverting when above substitence level
permanent increase in gdp due to increase in savings rate
endegenous theory
what is absolute covnergence
lkess develop countries will converge in terms of standard of living
reallocation of capital= permanent increase ine conomic growth rate
endegenous growth theory
when are independent SROS (self regulatory agencieis effective
when properly supervised by regulatory authorities
what is an SRO
self regualtory organization
what is regulatory capture
a regulatory body will eventualy be controlled by the industry that it is supposed to regulate
is inventory allowed to be revalued ifrs vs. gaap
ifrs
what is inventory valued at ifrs
lower of cost or nrv
what is inventory valued at gaap
cost or market
what is used to comare whether fixed assets are properly maintained
cap ex to average depreciate rate
how often is goodwill measured for impairment ifrs vs. gaap
ifrs- anually
gaap-lost event
asset impairment Gaap-
if carrying value= less than undsciounted cash flows at reportin unit level- impairment amount= carrying value- discounted cf
asset impairment ifrs-
CGU level whenrecoverable amount is lower than greater of fair value-costs to sell and value in use
how are long lived assets value ifrs- vs gaap
ifrs-= hc or revaluation model (must be consistent within classes)

gaap= hc
WHAT INTEREST RATe method does ifrs use and what about gaap
ifrs= expected life and gaap= contrcat life
Is non redeemable preferred stock debt or equity
equity
where are unrealized foreign exchange gains/ losses recognized
oci for gaap and i/s for ifrs
in an acquisition i
f fv>bV how is it recorded
and if bv>fv
amortize over life
expense
How is partial goodwill method recorded
% share of subsidiaries identifiable assets- bv
is d/e greater under goodwill or partial goodwill
partial
what is the equtiy for equity method vs proportional consolidation
the same
what is the goal of SPE
obtain low cost financing
What are the criteria to see if an entity is a vie
1) issuficient at risk equity
2)shareholders lackd ecision making rights
3)shareholders do not absorb losses
4)shareholders do not receive residual benefits
What does plan assets=
fv at beginning of year +
contributions+
actual return-
benefits paid
how aree actuarial gains/ losses dealt with gaap vs. ifrms
gaap= amortized under coordior method
ifrs= not amortized
how is share based compensation recognized
amortized over vesting period based on fv at date of acquisition
under temporal method and current rate method how are cogs and depreciation accounted for
temporal= historical rate
current rate= average rate
under temporal method and current rate method how are equtiy accounted for
temporal= miced
current rate= current rate
how are non monetary assets/ liaba ccounted for under temporal method
historical rate
what is the exposure for
temporal method
current rate method
1) net monetary asset
2) sE
when a highly inflationary economy what does ifrs say
ifrs says restate for inflation then translate into parents
(ONLY NON MONETARY ASSETS/ liabs= restated
when a highly inflationary economy what does gaap say
gaap says no restatement but remeasure
what is the exposure under temporal method (list accounts)
cash + ar- AP- current debt- lt debt
how are fair value hedges recognized
i/s
how are cash flow hedges recognized
equity
what is the balance sheet based accruals ratio=
(NOA end- NOA beginning)/ Noa end+ noa beg /2
WHAT IS THE CF BASED accruals ratio
(ni-cfo-cfi)/ (NOA end +NOA beg)/2
how does inflationeffect affect cash flow analysis
adjust them down
What does economic invome =
after tac cash flow- economic depreciation (change in MV)
what does eocnomic profit=
nopat- wacc
what is claims valuation
seperate cash flows based on equity vs. debt
what is residual income and what is the equity charge portion
nI- Beginning BV of equity *Cost of equity
what does mm proposition 1 iwth no taxes say
What does mm prostion 2 say with no taxes
what does mm proposition 1 say (with taxes)
1) capital structure= irrelevant

2) capital structure increases linearly as a company increases proportion of debt financing (benefits of using more debt exactly offset rise of cost of equity

3) value= maximized at 100% debt

4) value= maximized at 100% debt
what is the static trade off theory
balance benefits of debt (tax) with costs of financial distress (THERE IS AB OPTIMAL CAPITAL STRUCTURE)
if the legal system= stronger is more or less debt used and what is the maturity of this debt
less and longer
if there is more or less information assymetry is more or less debt used and what is the maturity of this debt
less and longer
what is the equation for a stable dividen policy expected dividend
previous dividen + (expected increase in eps)*(target payout ratio)*adjustment factor)
Explain the 3 types of dividend [policies
1)residual earnings- earnings - capital budget* equity eprcentage in capital budget)
2) constant= % of earnings
3) stable- use adjustment factor to move towards stable rate
How is a residual dividend policy calculated
1)residual earnings- earnings - capital budget* equity eprcentage in capital budget)
Calculate dividends under double tax rate system
(1-corporate rate)*(1- individual rate)
Calculate dividends under split rate
dividend rate= lower and corporate rate= still the same
Calculate the dividend under the imputated rate
actually taxed at corporate rate and then idnvidiual rate..


however, effectively taxed at shareholder rate ( so if shareholder rate= less than corporate rate receive difference)
what must be approved by shareholders and what %
stock purchase by 50% (not the case for asset purchase)
who pays corporate taxes in a stock purchase
non one
who pays corporate taxes in a stock purchase
target company
wo pays shareholder taxes in a stock purchase
stockholders
wo pays shareholder taxes in a assets purchase
no one
what type of defense is a fair price ammendment
pre-offerr
what type of defense is a golden prachute
pre offer and it is when if they are terminated after buyout they get buyout
what is greenmail and what kind of defence
target purchases shares back for acquirer at premium an dpost-offer
is a share repurchase a pre or post offer defense
post
what is a pacman defense
target offers to buy acquirer
what are the thresholds for HHI and what change= maybe antritrust
under 1000 nothing
1000-1800 maybe if 100+ change
>18000= 50+ change
what kind of takeover premium is there for comparable company and comparable transaction
only for comprable company
the more confident the parties are in a merger of the synergies who wants stock and who wants cash
acquirer wants to pay cash and the target wants stock
what is the ibbotson chen model
supply chain [1 +inflation][i + growth in real earnings][1+p/e growth]-1+expected income component- rf
What does the fama french model include
market risk premium
big/s mall
value- high bv low bv
what type of model is the bond yield + risk premium
build up model
If level of debt is always changing should fcff or fcfe be used
fcff
when fcf is negative what valuation method should be used
residual income
when model is good to use for stable mature companies
gordon growth
what is the prat model composed of
net profit margin
financial levergae= total assets/ total equity
asset turnover= sales/ total assets
retention rate
How is fcff calculated from ocf
ocf + interest*(1-T) - FC investment
how does leverage affect fcfe and fcff
only fcfe barely
what does justified leading p/e=
(1-b)/(r-g)
what 2 things does the justified PEG ratio assume
1) only growth= due to inflation

2) linear relationship between p/e and growth
What is the justified PEG
[(1+Inflation)*Eo]/ (r-g)

or
PE/G
is book value good for financial institutions
yes liquid assets
what is justified p/b
(ROE-g)/ (r-g)
what are tha advantages to price to sales
ratio is good for distressed firms

sales are not as easily manipulated

sales are not as volatile as earnings

useful to value start-ups
what is justified p/s
[eo/so]*(1-b)*(1+g)/ (r-g)

Net profit margin * justified trail p/e
what is more stable earnings or cash flows
cashflows
what does enterprise value=
MV debt +MV equity - cash and short term investments
which model of valuation assumes a clean surplus relationship beginning + BV + earnings - dividend
residual income model
what does the cost approach to real estate valuation=
value of land + replacement cost of building- adjsutments for depreciation and obsolescense
How is the income approach calculated and what does NOi=
noi/ CAP RATE

noi= NOI calculated before subtracting financing costs and income taxes
what does the cap rate =
discount rate- growth rate
What two real estate ratios are used
debt service coverage ratio

loan to vlaue
what does debt service coverage ratio=
first year NOI/ debt services
what kind of reits are affected by job creation
residential office and shopping and terail
are industrial reits affected by job creation or population growth
population growth
what is the huge concern for hotel reits
financial leverage as income is super variable
what affects storage retis
population growth and job creation
what does navps=
assets- liabilities using market prices
what does funds fromoperations=
net income + depreciation expenses+ deferred tax charges- gains/ losses from sales of property
What is the goal of adjusted funds from operations
more represetation of current economic income
AFFO=
ffo- non cash (straight line) rent adjustment- recurring maintenance type cap-ex and leassing commision
what is non cash rent
Non-cash rent-An amount equal to the difference between the average contractual rent over a lease term (the straight- line rent) and the cash rent actually paid during a period.

"The amount of this deduction is the difference between the average contractual rent over the leases’ terms and the cash rent actually paid.) "
what is used more often and why AFFO or FFO
FFO because AFFO is more subjective and uses mroe estimates
what is a tag alone drag along clause
any time an acquirer acquires control of the company they must extend the acquisition offer to all shareholders including firm management
what is an earnout
acquisition price paid is tied to future performance (often for joint venture companies)
are venture capital firms able to grow through subsequent funding
no hard to get subsequent funding
What is paid in capital
% of of commited capital used by the GP
what is Distributed Paid in capital
cumulative distributions paid to the LP and it is net of mgmt fees and carried interest
How is a 220 psa calculated
months of seasoning *2.2*.2
generate cash inflows primarily from the sale of developed or improved properties as opposed to recurring lease or rental income
reoc
what are the classic symptoms of multicolliearity with r2 f stat an t stat
significant r squared and f stat but not t stats
what is the null hypothesis for the dickey fulley test
that the g1- o so there us a unit root and the data is not stationary
how is fifo assets adjusted for LIFO reserve
add in the full lifo reserve
Given these two conditions compensation is expensed over how long

Options cannot be exercised for 4 years and expire in 10 years from the grant date.
 Based on prior experience, it is estimated that options are exercised, on average, in five years.
4 years
what affect do stock award plans have on debt to equity
The new stock awards plan will have no effect on the debt/equity ratio because there will be no change in equity: Retained earnings will be decreased by the amount of the expense and paid-in capital increased by an equivalent amount.
what does after tax operating cf=
sales- cogs- operating expenses + Deprecitaiton *(1-T)
what is the non operating tax cash flow in the final year of project
sale of division less the taxes paid on the capital gains plus the net working capital that is recovered.
What does the sustainable growth rate assume will finance growth
A is correct. The sustainable growth rate model assumes that the growth will be financed with the issuance of debt and only internally generated equity to maintain a target capital structure. No additional common equity will be issued. The ROE is assumed to be a constant during this period.
What is a receiver swaption
gives the owner of the swaption the right to enter into a swap in which they will receive the fixed leg, and pay the floating leg.
what is a payer swaption
gives the owner of the swaption the right to enter into a swap where they pay the fixed leg and receive the floating leg.
what is the best way to compare bonds with or without options
look at the Z-spread of one bond and the option adjusted spread of the other whichever is greater is undervalued
what does the information ratio measure
The information ratio is a measure of the contribution of any new security to the performance of the active portfolio.
is this a limitation on growth?
Has a relatively low level of capital per worker.
When calculating interest expense for interest coverage ratios what is included in interest expense
interest expense + capitalized interest
what does the cash flow accruals ratio=
(ni- cfo-cfi)/ average noa
what is the equation for expected dividend
previous dividend + (change in earnings)*(target Payout Ratio)(adjustment years)
GGM equity risk premium estimate = based off of equity index
Dividend yield on the index based on year-ahead aggregate forecasted dividends and aggregate market value Consensus long-term earnings growth rate Current long-term government bond yield.
What type of model is the ibbotson chen model
macroeconomic model
When using a series that has such survivorship bias, however, the historical risk premium estimate is adjusted how
should be adjusted downward.
What is the molodovsky effect
High P/Es on depressed EPS at the bottom of the cycle and low P/Es on unusually high EPS at the top of the cycle reflect the countercyclical property of P/Es
how much does share price drop after the dividend is paid
(1-Td)/(1-CG)
Which method allows for valuing working capital, fixed assets, and intangible assets using different discount rates.
The excess earnings method (EEM)
what does the Old prudent man rule say about
1) risk taking
2) What kind of returns to base decisions off
3) what about diversification
only take mild risks novequitvsecurities.
And judge based on actual returns not total returns. Ignores diversification
what does the new ivnestor rule say about income
balance current income against growth

can look at Current income + capital gains
what kind of t values do you want
high
what are the five goals of the new investor rule
Careful

Skilled

CAution
Loyalty
Impartial
How often is disclosure of referreal fees required
quarterly
what is a protective put strategy
long stock and long put
what is a covered call
by a stock and sell a call
what types of returns are there for commodities
colalteral yield
price return
roll yield
what is the calculation of the absolute spread
higher yield- lower yield
what is the calculation of the relative spread
(yield on subject bond/ yield on benchmark bond)-1
yield ratio
(yield on subject bond/ yield on benchmark bond)
does a call option increase or ddecrease yeild spreads

does a put option increase or decrease yield spread
call= increases spread
put= decreases
the value of an S& P index futures contract is how many times the level of the index
250
what is a call provision on a bond
issuer can repay principal prior to maturity
How do TIPS work
coupon is fixed percentage of par. Par is adjusted for inflation
what are three types of hedge fund biases
survivorship
backfill bias
selection (better firms are more likely to report)
Do hedge fund managers of mutual fund managers get more performance fees
hedge funds because mutual funds must share in losses too
What is notching
process pf assigning differnt ratings to bonds of the same issuer
what is structural subordination
when a subsidiary restricts the flow of assets to the parent util the subsidiaries debt is satisfied
What are the 4 c's of credit analysis
capacity
collateral
covenants
character
what is the equation for convexity and duration
return= -modified duration * chnge in spread + 1/2(convexity * (change in spread))^2
what is a change of control put
debt holders can require the issuer to buy back debt in the event of an acquisition
what kind of credit ratings do governments get assigned
local currency debt rating and foreign currency debt rating
Which ratings are generally lower and why

local currency debt rating and foreign currency debt rating
foreign currency debt rating because higher default rate as government must purchse foreign currency in open market to make payments
what has higher credit risk general obligation or revenue bonds
revenue (debt payments strictly come from revenue)
what is the debt service ratio
ratio ofprojects net revenue to interest and principal payments
which i/r benchmarkt is preferred

gov't bond yield curve or swap rate (libor curve)
swap rate
does the liquditiy preference theory say premium is directly related to maturity
yes
does the preferred habitat theory say premium is directly related to maturity
no
what is particularly useful in measuring the effect of a non-parralel shift in the yield curve on a bond porfolio
key rate duration
" a measure of spread that the investor would realize over the entire Treasury spot rate curve if the mortgage-backed or asset-backed secu- rity is held to maturity. "
zero volatility spread
" is the spread that will make the present value of the cash flows from the mortgage-backed or asset-backed security when discounted at the Treasury spot rate plus the spread equal to the price of the security"
zero volatility spread
How are interest rates adjusted for a capped floater
when I/R exceeds cap, coupon is substituted equal to cap
What is the value of a puttable bond
valuable of a putable bond- value of non-puttable bond
what types of risks do nominal spreads account for
liquidity
credit risk
option risk
what is the minimum value of a convertible bond
greater of conversion value or straight value
what does the value of a callable convertible bond value=
straight value of bond + value of the call option on the stock - value of the call option on the bond
what happens to the value of the call o n the stock and the value of a callable convertible bond when stock volatility increases
both increase
what happens to the value of the call o n the stock and the value of a callable convertible bond when i/r volatility increases
value of call option on stock increases and the value of the bond convertible bond decreases
on a callable convertible bond what is the payback eqwual to
conversion preimum / favorable incomde differential

favorable income differential per share= coupon interest - (conversion ratio * CS diluted per share)/ conversion ratio
what does condtional prepayment rate=
annual rate at which mortgage is prepaid (single monthly mortality= monthly prepayment rate
are prepayments higher for new or older mortgages
older mortgages
when does bond extension risk occur
when interest rates rise
What does regression analaysis assume about the correlation about the dependend or independepend variable and residuals
assumes independent variable is uncorrelated with residuals
what does standard error of estimate (SEE) is equal
the square root of the
mean squared error:
what does the presence of conditional heteroske- dasticity results in in terms of parameter estimates, standard errors, t statistics, and f statistics
consistent parameter estimates, but biased (up or down) standard errors, t-statistics, and F-statistics.
How is root mean square calcualted
i. Take the difference between the actual and the forecast value. This is the error.
ii. Square the error. iii. Sum the squared errors. iv. Divide by the number of forecasts.
v. Take the square root of the average. We show the calculations for RMSE in the table below.
IF covered and uncovered i/r parity hold then
Thus, the forward exchange rate is an unbiased
does expansionary fiscal policy= appreciation or depreciation of currency in the long run
depreciation
If capital mobility is low, and monetary and fiscal policy are high what happens to currency..
appreciates
Foreign exchange reserves tend to increase or decrease before a currency crisis.
decline
Broad money growth in nominal and real terms tends to rise or fall sharply in the two years leading up to a currency crisis,
rise
peaking around 18 months before a crisis hits. In the period leading up to a currency crisis, the real exchange rate is lower or higher than its mean level during tranquil period
higher
What does increase in capital deepening equal=
growth in TFP- growth in labor productivity
Who should referal fees be disclosed to
clients, prospective clients, and employers
When is additional compensation allowed
properly disclosed to all parties and written consent from all parties involved
a transaction that involves the payment of a commission
Agency Trade-
a transaction that involves discount or a spread, as the broker owns the security
Principal Trade-
research generated by the broker
Proprietary research-
What is the rule regarding research performed by a broker paid by the clients
must directly ssist manager in investment making process and not in management company itself (if it benefits both it is mixed used research
what is the rule on mixed use research
Client brokerage can be used to pay for mixed-use research with the caveat that the research must be reasonable, justifiable, and documentable, and that the client brokerage is only used to pay for the portion of the research that will be used in the investment decision-making process.
Is it permissable to use client brokerage from agency trades to obtain research if it may not directly benefit the client
yes as long as over time it does
Is it permissable to use client brokerage from principal trades to obtain research if it is used to benfit other clients
yes if client consents
Are research objectivity standards or soft dollars mandatory
no both are optional
are absolute (buy, sell, hold) or relative market outperform etc. recommendations allowed
both
Can a person express their opinion/ beliefs on the CFA designation
Yes
What is the ruling on using client brokerage (soft dolalrs)
only can use if meets definition of research
what is the required communication with clients regarding soft dollars
send clients annual statements confirming maintainenace of soft dollar standards
What does period pension cost =
net change in Pension funded status + contributions
What does net operating assets=
" Net operating assets = (Assets – Cash and short-term investments) – (Liabilities – Total debt), "
"A warning sign that a company may be deferring expenses is sales revenue growing at a slower rate than:"
\
P,P, and E
What does "PP&E growing at a faster rate than sales indicate
that expenses may be inappropriately capitalized."
"Total accruals measured using the balance sheet is most likely to differ from total accruals measured using the statement of cash flows when the company has made acquisitions:"
"Stock-based acquisitions do not flow through the cash flow statement."
do early trances or later protect against extension risk
early
what are accrual bonds
often have z tranche- interest accrues with principle until all paid off at end
in an accrual bond what tranch absorbs most of extention riski
z tranche (end one)
what is a planned amortization tranch
tranches are amortized based on sinking fund within range of prepayment speeds (initial PAC collar)
do planned amortization bonds have high and / orlow extension and contraction risk relative to support tranches
lower for both
if i/r falls what happenes to inerest only strips
value falls becuase prepayments increase
do interest only strips want high or low prepayments
low
do principal only strips want high or low prepayments
high
what are non-recourse loan
lender can only look to collateral to repay loan. cant sue further etc.
what kinds of mortgages are structured as non recourse loans
mortgage
what level call protection is provided by segregating pools into credit tranches
CMBS
what level call protection is provided by prepayment penalty points. yield maintenance charges, prepayment lockout etc.
loan level call protection
what is the problem with third-party gaurantees
if their credit quality isn't higher than the issuer, they serve no value
what kind of credit enhancement is an excess servicing spread
internal
what is curtailment
a partial pament
what is the lockout period or revolving period"
"The period of time for which principal repayments are reinvested rather than paid out to the security holders is called the
is refinancing important for autoloans
no because rates are already below market price
how volatile are manufactured housing MBS's and why
not very because loan balance= small and borrowers have low credit ratings so hard to finance
whata re the 3 periods in student loan
deferrment period
grace period
loan repayment period
what are sesoned prepayment speeds
speeds have stablized
what types of assets back abs's
amortizing and non-amortizing
Describe the collateral of non-amortizing abs's and give an example
ever changing and credit card loan
what is a synthetic cdo
bondholders take on the risk of the underlying assets but not the legal ownerhsip
what is the ramp up period
period in which mgmt invests funds of a cdo
What is the cash flow yield
discount rate that equates the price of the MBS or the ABS to the PV of cash flows
what are the 3 definiciencies of the cash flow yield
1) assumption of reinvestment at same rate
2) assume ABS or MBS= Held to maturity
3) assume cash flows will be realized
what doe soption cost=
zero-volatility spread- option adjusted spread
what have a higher oas pac or support tranches
support
if the amount of cash lows are i/r dependent what spread is used and what are examples
home equity mbs and oas from monte carlo model
if the amount of cash lows are not i/r dependent what spread is used and what are examples
callable corporate

OAS from binomial model
what is the value of a forward during the life of a contract
St- FP/1+r^t
what is the value of a forward during life of contract
St- PV dividends- FP/1+r^t
what investments tend to have long-term equity returns with less risk
commodities
desribe default risk between futures and forwards
futures have none because marked to market daily.
if the corelated between underlying asset value and interest rates are positive than is a future or forward preferred
future because gains from marked to market cna be reinvested immediately
The Fama–French model incorporate what risk factors
s market, size, and value risk factors. One possible interpretation of the value risk factor is that it relates to financial distress.
what is PEG ratio based off p/Eo or P/E1
p?E1
what is P/bo
(ROE-G)/ R-g)
what is P/S=
Net Profit Margin *(1-b)(1+g)/(r-G0
what is another name for prepayment option
call option
who pays expenses in gross lease
owner
who pays expenses in a net lease
tenant
what is a put option on a bond and what is the effect on i/r
Put Provision creates the right to give bond back to the firm if yield increases. As a result of this option. The ytm is lower than a normal bond
what type of relative valuation measure is good for banks
price to book
what type of DCF method is approriate to use for income method for realestate if there are mutiple growth periods
"A direct capi- talization method would not be appropriate due to the multiple growth rates. A discounted cash flow method that assigns a terminal value, or a layer method, should be used."
what are the most significant valuation components for FFO and AFFO valuation
growth and leverage
How is NOA calculated for a reit
PV of NOI +cash/ receivables- debt/ liabilities
what does FFO=
"FFO = accounting net earnings, excluding: (a) depreciation charges on real estate, (b) deferred tax charges, and (c) gains or losses from sales of property and debt restructuring."
"The exit route for a venture capital investment is least likely to be in the form of a(n):
A initial public offering (IPO).
B sale to other venture funds targeting the same sector.
C buyout by the management of the venture investment."
Buyout by the management of the venture capital firm because "Leverage needed to finance a management buyout is not readily available to firms with limited history."
what does the reduced form model assume
some of the company's debt is traded and the assets dont trade
what does a structural model compared to a reduced form model assume
assumes the assets trade
"The reduced form model produces credit risk measures that reflect what
the changing business cycle. "
What is the average life for a bond
projected principal repayment/ 12* tranche repayment
what does a lockout period for a bond=
"not repaid to bondholders)"
"Normal backwardation is what and what is backwardation
normal backwardation=defined as “futures prices are lower than expected spot prices.”"

backwardation= future pricfes are less than spot prices
when is the roll yield
backwardation
WHat is the risk netural probability of an upward move in price of stock {{{{ This is used for option hedging}}}
[(1+rf-Size of doward movement {%of previosu state}]/ Up stte- Down state
What does thehedge ratio do and whats the equation
number of stocks that needs to be purchased to neutralize options written
(C+(-)C-)/ (S+(-)S-)
what kind of distribution does the black scholes mertins model assume is followed
lognormal
what does the black scholes model assume about assets and cash flows
generates no cash flows
what kinds of investments cant be prices by black scholes mertins
interest rate options and options on bond prices because the assumption of constant rrf is violated
what is vega for BSM
volatility
what is an option delta
change in call price/ change in stock price
what is the range of delta for calls

and for puts
0 to 1
-1 to 0
what does the gamma of a stock price measure
curvature rate of change of the delta
What does AAR
Accounting average return

Average NI/ Average BV (notice if an asset is 200K and depreciated to 0, average BV= o
What does profitability index=
1+NV? initial investment
What is residual risk
the leftover risk that canot be attributed to the beta systemativ risk of the portfolio
Does relative PPP hold over short or long term
long term
What is the macroeconomic balance approach
how much current exchange rates need toadjsut to get current account to balance
What does uncover i/r parity state for high i/r and low i/r currencies
high i/r currency should depreciate relative to a currency with a lower i/r
Is covered or uncovered i/r parity covered by arbitrage
covered
Does the carry trade work well during high or low volatility periods
low
is the carry trade profitable if uncovered i/r parity holds or doesnt hold
doesnt hold
what types of filters re there for the carry trade
volatility filter

valuation filter
Describe expansionary fiscal policy under high and low capital mobility
high mobility (capital flows dominate so expansionary policy increases i/r increases demand for currency which is appreciation but (economy grows so current account deficit depreciates currency so result is ambiguous

low monbility (trade flows domiante so depreciation)
Describe expansionary monetary policy
expansionary= decrese i/r and currency depreciation
what is a fixed exchange rate regime
government fixes the rate of exchange of its currency relative to one of the major currencies
what does the monetary model assume for currency valuation
output is fixed
what does the mundell fleming model assume
inflation is not a factor
what are two types of monetary models
pure monetary and dornbusch overshooting model
wha tis the dirnbusch overshooting model
prices are not flexible in short term
what is the portfolio balance model for currency
mundell fleming take short term few and this is long term impact of sustained fiscal polciies
are developed markets central banks effective at itnervening in the foreign exchange markets
no due to lack of adequate resources
for a currency swap how can credit risk be reduced
netting or marking to market
in a cds who is exposed to counterparty credit risk and when does this happen
protection seller if premium payments arent mad eand this is a concern when market CDS soreads are lower than the contracted spread rate
what is the variance of a 2 investment portfolio
[w1^2*sigma1^2]+[w1^2*sigma1^2]+2W1W2*correlation*sigma1*sigma2
where si the global minimum variance portfolio
all the way to the left
is the line from the rff to the pint of tangency on the efficient frontier
capital allocation line
point of tangency between the CAL and the efficient forntier represents what
the best risky portfolio
When is an investment beneficial to add to a portfolio
if sharpe ratio of a security is greater than the prtfolio sharpe ratio* correlation between new security anf portfolio
what is the slope of the sml
market risk premium
wha tis the slope of the CML
market portfolio sharpe ratio
what does the ebta of a security=
covariance between security and market/ SdMarket^2
Which model uses unexpected changes (surprises) in macroeconomic variables to explain asset returns
macroeconomic model
is an edqulibrium asset pricing model similar to CAPM that makes less restrictive assumptions
APT
what does active risk squared =
active factor risk + active specific risk
what does the information ratio=
active return/ active risk
What does the optimal level of residual risk=
IR/ 2X riska version level
what is the assumption of the treynor black model relating to efficieny
indexes are nearly efficient and that the number of misprice securities is limited
what types of securities does the treynor black model penalize
high unsystematic risk securities
What happens to the ability to tolerat risk as size of portfolio increases
increase
what is the rulling on gifts disclosure
disclose to employer ideally prior to acceptance
Cans someone promote a bank CD as gauranteed
yes as long as FDIC limits are disclosed
is an analyst conference call public disclosure
no
what two measure relating to ipos and porivate placements are there for traders
limited participation in equity IPOs and restrictions on private placements
what is the t stat fir sugnificance of correlation
r*(square root of (n-2))/(square root of (1-r squared))
If you have CDS protection and the spread shrinks do you win or lose money
lose
WHta kind of trades

are transactions that involve payment

are transactions that involve a discount or spread
agency

principal
What trades can research be used to benefit other clients with disclosure to client
principal trades
How often must compliance to research objectivity standards be affirmed
annually
what is the degrees of freedom for a t-stat for test of correlation
n-2
What does rejecting the hypothesis for an F-test mean
at least one y variable is significantly different than 0.
What is R in 2(1-r)
correlation of residuals from one period to the next
When is durbin watson inconcolusive
when between Di and Du
What model calculates a model based on normal distribution
probit
what model produces a score to classify things intop categories
discriminant
what model cant be used witha utoregreswsive models
DW
If there is serial correlation in an autoregressive model whats the impact
model is incomplete
What is the SE for an autoregressive model
1/ square root of N
How is the RMSE compared to the SEE
The RMSE is the SEE version for multiple regression
If there is a unit root what is the mean reverting level
undefined
When determining cross spreads with Bid and ask prices, how are they determined
(multiplying the Bids and Multiplying the asks)
What does covered i/r parity say about high i/r and low i/r rates.
High i/r will deprecitate
What is the relationship between PPP and pure monetary model-
PPP Will always hold
What kind of cash flow is capitalized interest
CFI (contrary to most interest which is CFO)
How is R and D recorded under GAAP and IFRS
IFrs- D is capitalized
GAAP- All is expensed
how is change in deprecition methods reported
prospectively
How does greater expected return on plan assets affect PBo and Pension expense
no affect on PBO and decreases pension expense
How is hyperinflation dealt with under GAAP and IFRS
GAAP used temporal method
ifrs restated for inflation and then current rate method
What doess MM Proposition 1 with out taxes say
value of firm unaffected by capital structure vl=vu
What doess MM Proposition 2 with out taxes say
wacc unchanged by leverage
What is bootstrapping
positive impact on EPS from stock sale
What is the conglomerate discount
sum of the parts- market price
What is justified Price to dividends
(r-g)/(1+G)
What is residual Income equivalent to
financial profit
How are management fees calculated for private equity firms
as a percentage of commited capital
Does a positive butterfly have more or less curvature
less
When prepayments increase, do support or PAC tranches have more contraction risk

when prepayments fall, do support or PAC trances have more extension risk
support for both
What does relative PPP state
The relative version of PPP states that the percentage change in the spot exchange rate
will be completely determined by the difference between the foreign and domestic
inflation rates
convergence is associated with which growth model
neoclassical
What is another name for the residual income model
excess earnings model
How are income statement items and dividends recorded using the current rate method
income statement items= average rate
dividends= historical rate
SHould FCFE or FCFF be used when
dividends differ significantly from the company’s capacity to pay dividends or when a
change of control is anticipated.
FCFE