• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/63

Click to flip

63 Cards in this Set

  • Front
  • Back
T-Bills
Quoted Yield
[(Face Value - Purchase Price)/Purchase Price] x (365/days to maturity) x 100
Calculate Purchase price of T-Bill
**need to have quoted rate
Face Value/(1+[(quoted yield x (Days to Maturity)/365])
US Treasury Bills
**always use a base of 360 instead of 365. Therefore CDN TBills will have slightly higher yield
Why calculate Current Yield/Rate of Return on a Bond?
To assess current annual income from specific investment
Current Yield/Rate of Return on a Bond (formula)
(Annual Interest payments)/(Current Market price)x100
Yield-to-Maturity
Total return on a bond over its lifetime.

Equal to coupon rate if bond held to maturity
Calculate Yield to Maturity on a bond
P/YR
xP/YR
PMT
FV
PV
Mode END

SOLVE FOR I/YR
Yield to Call
Yield to maturity of a callable bond (assumes bond is called at the earliest call date)
Current Yield - Preferred Shares
[Annual Dividend Payment/Current Market Price] x 100
Market Price (Preferred Share)
(Dividend Payment)/(Prevailing Market Rate)
Holding Period Return
Total return on an investment - Income + Capital appreciation during specific holding period
Holding Period Return
[(Closing Value - Opening Value)/Opening Value] x 100
What is Duration?
used to predict expected changes in price of a fixed-income security relative to an interest rate change
Assumptions made when calculating hoding period return
1. Selection of specific time period
2. All income flows are used to buy additional units
Duration
Price of fixed-income security will change x% give a 1% change in interest rate....where x = duration
Duration (Formula)
(PV of all time-weighted cash flows at discounted YTM)/current market price
Immunization
Matching duration of a bond to investors cash-flow requirements.
Shield investor from interest rate risk.
Mutual Fund Invstment Returns
[(Closing value -Opening value)/opening value]x100
Stock Valuations
Method used to compare actual price of stock to its intrinsic value
Dividend Discount Model DDM
Based on the premise that the price investors will pay is driven by future cash flow
Zero-Growth Model (DDM) Assumption
Assumes dividend is received forever and remains the same.
Zero-Growth Model (DDM)
P = D/r

where:
P = intrinsic value
D- constant Dividend amount
r = discount rate for cash flows with similar investment risk.
Constant Growth Model (DDM)Assumption
Assumes dividends grow at a constant rate
Constant Growth Model (DDM)
Formula
P = Do x (1.0+g)/(r-g)

where:
Do = dividend in first year
g = growth
r = discount rate for cash flows with similar risk
Three Stage DDM
Corresponds to the three stages that companies experience.
1.Growth
2.Transition
3.Maturity
Finite Holding Period Model
Investors do not hold stocks forever
Terminal Price
Expected sale price of a stock
Price Earnings based Valuations
Relationship between earnings of a company and price of their stock
Price-Earnings Valuations - A stock is underpriced if...
Expected PE ratio > actual PE ratio
Price-Earnings Valuations - A stock is overpriced if...
Expected PE ratio < actual PE ratio
Zero-Growth Model (PE Valuation)
Assumes 0 growth and payout ratio is always 100%
Zero-Growth Model (PE Valuation)

Formula
Expected PE ratio = 1/r
where r = discount rate

Actual PE ration = CMV/Net Earnings per share
2 forms of Security Analysis
1. Technical

2. Fundamental
Technical Analysis
Deals with Mass psychology of investors
no interest in performance of the company
Resistance
Stock rises in price but has trouble reaching or staying at a specific price
Support
Stocks price is falling but stalls a certain price level
Tools used for Technical Analysis
1. Moving Averages
2. Relative Strength Index
Moving Averages
Average price over a specific time period ie:20 days.

Each day as new price is added the oldest price is dropped.
Relative Strength Index (RSI)
100-(100/1+RSI)
where RSI=(Avg of n-day of up close)/(Avg of n-day down close)
Compares days price closed high and days it closed low
Fundamental Analysis
Studies Economy, Industry and company
Top-up Approach
begin a economic level, then industry level then company
Bottom-up approach
Begin at corporate level, then industry and then the economy
7 Types of Diversification
1.Asset Classes
2. Company Size
3.Industry
4. Geographic
5. Management Style
6. Fixed-Income Maturity dates
7. Credit Risk
Active Investing
Buying and selling stock to capitalize gains
Passive Investing
Construct portfolio to mirrior an index.

Advantages
1.returns seldom deviate from benchmark
2.fully invested at all times
3.lower fees
Asset Allocation
Segmenting funds into investments that are independent/different
Tatical Allocation
Deals with short term forecasts. Uses leading economic indicators.
7 Types of Diversification
1.Asset Classes
2. Company Size
3.Industry
4. Geographic
5. Management Style
6. Fixed-Income Maturity dates
7. Credit Risk
Active Investing
Buying and selling stock to capitalize gains
Passive Investing
Construct portfolio to mirrior an index.

Advantages
1.returns seldom deviate from benchmark
2.fully invested at all times
3.lower fees
Asset Allocation
Segmenting funds into investments that are independent/different
Tatical Allocation
Deals with short term forecasts. Uses leading economic indicators.
Barbell Approach to Maturity Selection
Holding only short & long term bonds so one portion will benefit from higher rates.
2 Types of Style-Based Investing
1.Value

2. Growth
Value Stocks
Priced below avg. levels relative to historical pricing.

3 Types
1.low P/E ratio
2.Contrarian mgr. (bookvalue)
3.Conservative yield - above avg. yields
Growth Stocks
P/E ratio is above average

2 styles
1.Consistant Growth Mgr - high quality corp with consistant growth
2.Earnings momentum growth mgr
Portfolio Insurance
Identifies a portion of assets for riskier investment

Constant multiple x an amt in ecess to floor amount
Investment Objectives
1.Income
2.Security of Principle
3.Liquidity
4.Growth
Investing in Business Cyles
Expansion-own stocks instead of bonds
Peak - hold stock and shift to bonds
Recession - Int. rate decreases making bonds more attractive
Trough - move from bonds to stocks
Hedging Strategies
1.Selling Short
2.Options
3.Arbitage
4.Event Specific
Taxation of a leveraged Loan
Is tax deductable if borrowed for the purpose of earning income
Magnification
Returns can be much greater when using leveraged loans to invest.
Formula Investing
Based on a Set of rules. No investor emotions

1.DRIP
2.Dollar Cost Averaging