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233 Cards in this Set

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  • Back
Each individual has ____ on ALL joint accounts owned either by the same or any combination of persons at the same bank.
$500,000
Treasury bills are short term securities with maturities of ___ or less.
One year
MMF are/are not insured
are not
Banker's acceptance are used to
finance imports and exports.
Eurodollars is a deposit in ___ and denominated in ____
any foreign bank
dollars
Yankee Bond
Dollar denominated bonds issued in US by foreign banks
A $1000 par corporate bond quoted at 90 is selling at a discount/premium of ____ points ($100) from par.
discount

10 points
Yield Ladder
Y Yield to Call Discount Bonds
M Yield to Maturity
C Current Yield

below the line

A Nominal Yield Premium Bonds
C Current Yield
M Yield to Maturity
Y Yield to Call
Nominal Yield (image of tweedle dee and tweedle dum...one is named nominal rate..one is named coupon rate)
Same as coupon rate
A zero coupon bond owner must report interest income although the bond pays no interest before maturity T/F
T
OID Original issue discount. The discount on the bond must be accreted over the bond's life T/F
T
Notes have ____ maturities
Bonds have ___ maturities
1 to 10 years
10 to 30 years
Notes and Bonds are subject to RIP risk
Reinvestment
Interest rate
Purchasing Power
Treasury bonds are sold on a ______ basis and are subj to _______ income tax (image of auction with auctioneer yelling get your best YTM here!)
Yield to Maturity

Federal (not to state)
Treasury STRIPS are a form of
zero coupon bonds.
CATS and TIGRS are a block of treasuries, removing all coupons, then offering either ____ or the ______ at maturity
interest
principal
CATs and TIGRS are an obligation of
the brokerage firm that issued them. (not Fed govt)
TIPS are sold in ____ denominations.
$1000
In any year when the principal value of a TIPS bond increase due to the inflation adjustment, the gain is considered reportable income. T/F
True
EE and HH bonds are issued at ____ of face value
50%
EE bonds are guaranteed to reach face value in ___ years but can pay interest for ___ years
20

30
Min size of GMNA certificate is _____. Risks are ____ and ______
25,000
Interest rate
Reinvestment rate
General Obligation bonds are generally considered the safest type of municipal credit. T/F
T
Debenture is
a general debt obligation backed only by the integrity of the borrower
Bonds are subj to a variety of risks DRIP
DRIP
Default
Reinvesment
Interest Rate
Purchasing Power
Bond conversion value
CV = (PAR/CP)Ps

PAR = Par value of bond
CP = conversion price
Ps = current mkt price of stock
An issuer of a bond is likely to call a bond when prices have ____ in the market
dropped
Re:real estate. Net operating Income NOI. Depreciation and amortization expenses are/are not incl in NOI.
are not
Focus of operating expenses is the property's
cash flow
Property's cap instrinsic value
NOI/cap rate
A put is contract that gives the holder right to ___ a specific # of shares.
Sell
Intrinsic value IV is the difference between _____ and _____ price of stock
exercise price

market price
1 option is ____ shares
100
Call writers seek ____
income
the selling of a call w/o owning the stock is called
naked call writing
Intrinsic value of a call
IV = stock price - strike price
The time value of an option is greatest when
MP = EP
Buy the commodity....____ position...want to sell the commodity
Long

Short
Warrant is an option to ___ within a specified period, at # of of shares of common stock at a specified price.
purchase
An accredited investor is a individual with a net worth of ____, one individual with an income of ____ or a couple with a joint income of _____
$1,000,000

$200,000

$300,000
types of systemic risk
PRIME
Purchasing power risk
Reinvestment rate risk
Interest rate risk
Market risk
Exchange rate risk
Market risk and systemic risk are _____
synonymous
Perfectly positively correlated securites have a value of ___
1
Perfectly negatively correlated securities have a value of ____
-1
Variance is a statisical measure of the ______ of measured data from the data's average data.
variability
Std deviation measures _____ in a _______ portfolio and is a measure of ______
variability of returns
nondiversified
total risk
Beta measures ______ in a ______ portfolio and is a measure of ______
volatility
diversified
systemic risk
A portfolio with a beta of +1 has
systemic risk
If a security has a beta of .6 how much will it move up or down on ave with the market?
60%
To find risk adj basis divide _____ by _____
Annual return/beta
Which bond faces greatest reinvesment risk?
GNMA
Dollar weighted return is the same as
IRR internal rate of return
Current yield
Annual interest in $/Bond's current price
Taxable eq yield
Tax exempt yield/1-marginal tax rate
Duration compares price _____ of bonds with equal ______ but different terms on basis of ____
volatility
coupons
time
Risk averse investors should prefer bonds with ____ duration
low
If a bond has a long maturity, its duration will be lower than similar debt with a short maturity. T/F
False
long maturity = high duration
Which bond would be most volatile if interest rates move quickly up or down?
Zero/Treasury Notes/Corp Bonds/Munis
Zero - has largest duration
Market risk premium
Erm - rf
Stock risk premium
(Erm - rf)B
Current ratio
current assets/current liabilites
would an IRA mutual fund count in "current assets" for a current ratio calc? Y/N
N
When selling shares, selling specific shares allow the investor to ____ gain, _____ gain or _______ loss
maximize
neutralize
maxmize
Wash sale rule - No loss deduction is allowed for any loss if within a period of ___ days before and ending ____ after the sale, the taxpayer acquires identical stock
30
30
if the investor's spouse buys the same stock, will the investor be affected by the wash sale rule? Y/N
Y
The date of record for the corp is the ____ business day after the ex div date
2nd
Investor must purchase the stock at least the ______ to get a dividend
day before
Sharpe ratio expresses the ____ of _____ return of the portfolio to its _____
ratio
excess
std deviation
Treynor ratio expesses the ____ of _____ return of the portfolio to its _____
ratio
excess
beta
Jensen ratio is commonly referred to as _____ (___ dog named jensen)
alpha
A positive alpha value, such as 1.0, means that the fund or portfolio outperformed the market by _____
1%
Sharpe uses ______ therefore the portfolio is ______
std deviation
nondiversified (contains both systemic and unsystemic risk)
Jensen and Treynor use ____, the portfolio must be ______
beta
diversified
If no alpha is given, select answer with highest ____
Treynor
With R squared low, calc the Sharpe ratios. Pick stock/fund with ____ Sharpe (sharp movie character with low cut R squared shoes)
highest
An investor with a collar has 3 positions...he owns the stock (long)...A ___ position in the ___. A ___ position in the ____
short/call (sold the call)
long/put (owns it)
A barbell strategy is an investment in ____ and _____ bonds
long term
short term
Margin requirement
(1 - initial margin %)/(1 - Maint margin %)
The Fed sets the initial margin at ____ (for margin call)
50%
Black Scholes model is a valuation model for _____
options
Securities Act of 1933 regulates ____ market and requries ____ securties to be registered with SEC
primary
new
Securities Exchange Act of 1934 regulates ____ market
secondary
Investment Company Act of 1940 authorizes SEC to regulate ____ and other investment companies
mutual
Investment Advisors Act of 1940 established the registration and regulation of ______
investment advisors
Short term capital gains are taxed at investors ______
marginal tax rate
Long term capital gains are taxed at 0% if taxpayer is in the ____ or lower marginal tax bracket
15%
Gain on collectibles is taxed at max ___
28%
GDP includes
consumption
domestic investment
govt spending
net exports
Govt fiscal policy uses 3 tools
taxation
govt spending
debt mgmt
Fed monetary policy uses 3 tools
Reserve requirement
Discount rate
Open market operations
When the Fed buys Treasury securities the supply of money is _____
increased
When the Fed sells Treasury securities the supply of money
decreases
When deciding upon which security to add to a portfolio the security with the lowest ____ should generally be chosen.
correlation coefficient
Coefficent of Determination or ____, measures the proportion of the varation in one variable explained by the movement of the other variable
R squared
Look for R squared value of 70 or higher in order for ___ to be reliable.
Treynor
Exchange traded is open/closed end fund?
closed
With puts and calls you can/can not have a negative instrinsic value
can not
the risk level quantification of beta is ____ and ______
volatility
systemic risk
Coeff of variation CV
CV = std dev/Mean
A negative correlation coefficient will make beta _____
negative
Return on equity
EPS/(Book value)
Div payout ratio (image of Ernie Share paying out dividends)
Div paid/EPS
stock risk premium
(rm - rf)B
The efficient frontier provides an investor the ____ return for any given level of ____
highest
risk
For a highly risk averse investor, the shape of his indifference curve would be steep/flat
Steep. He would demand a large amount of addl retun to bear addl risk.
Which index is price weighted? DJIA/S&P500/EAFE
DJIA
A spreadsheet model can reveal ____ and _____
single
average scenario
Sharpe ratio compares ___ return to ____ return
actual
expected
Count a 401(k), IRA and mortgage balance in the client's current ratio Y/N
N
Can you buy options on margin? Y/N
N
The best measure of risk for an oil and gas sector fund is beta or std deviation?
std deviation. (contains securities in same industry)
An investor using APT starts with ______ then adjusts for inflation, interest rates, production, etc.
required return
how do you compute the expected growth rate of dividends to use in the dividend discount formula?
multiply the company's ROE by the earnings retention rate
When the Fed buys securities, it injects money into the banking system T/F
T
Generally, the most significant factor in raising one company's ROE above another company's is the _______
greater use of debt
payout ratio
div/EPS
Growth rate
ROE x retention rate. retention rate is (1 - payout ratio)
REITS must flow 90% of their income to investors. T/F
T
All fixed income securities have purchasing risk T/F
T
Loans to foreign companies by U.S. banks are included in which balance of payments accounts
capital accounts
Formula for margin call
(1 - init margin)/(1- maint margin) X price of stock
Computing fair value of stock
Calc payout ratio Div/EPS
Calc growth rate G = ROE × Retention rate (Retention rate is 1-payout)
Then use div growth model
Coeff of variation
std dev/av return
The CML measures risk at the portfolio level and uses standard deviation. The SML measures risk at the individual security level and uses beta. T/F
T
Re Bonds: The higher the market interest rate, the greater the relative price fluctuations. T/F
T
Mortgage REITs can only invest in long-term mortgages. T/F
F
Geometric mean is also called
time weighted return
A weighted average approach is used to calculate which of the following?

(1) portfolio beta
(2) portfolio yield
(3) portfolio total return
(4) portfolio standard deviation
1, 2 and 3
Markowitz uses _____as its performance standard,
std deviation
The return on the market is the sum of the _____ and the ________
risk free rate
market risk premium
When ____ rates rise above the ____ rate the callable bonds will not be called.
interest
coupon
Current stock mkt price =
Earnings x price ratio
Security market line contrasts ____ and _____
rate of return
beta
stock risk premium
(rm - rf)B
Stock performance re: Sharpe
Look for low R squared (less than 60)
Look for highest Sharpe #
Stock performance re: Jensen/Treynor (image of Race car with R squared on the side)
Look for high R squared (above 60) - Jensen - Highest alpha...If no alpha, highest Treynor
Coeff of Determination or R squared is a measure of
how much return is due to the market...also indication of how well diversified a portfolio is
Systematic risk is the ____ level of risk one could expect in a full diversified portfolio
lowest
Unsystematic risk is the risk that exists is an investment that can be _____ thru diversification.
eliminated.
Efficient frontier...neither portfolio on the frontier is ___ than any portfolio that lies on the frontier
better
Portfolios that lie beneath the frontier are ____...ones that lie above the frontier are _____
inefficient
unattainable
When designing portfolios the most important variables are ___ (3)
risk
return
covariance
An indifference curve represents _____
how much return an investor needs to take on risk.
If an investor is risk averse, the investor will have a very ____ indifference curve
steep
If an investor is risk seeking, they will have a relatively ____ indifference curve
flat
Point at which an investor's indifference curve is ____ to the efficient represents the investor's _____ portfolio
tangent
optimal
The Capital Market Line or CML specifies the relationship between ____ and ____ in all possible portfolios.
risk
return
Inefficient portfolios are ___ the CML
below
A portfolio's return should be ___ the CML
on
The measure that the CML uses is ____
std deviation
Capital Asset Pricing Model or CAPM calcs relationship of ___ and ____ of an ind secuity using _____
risk
return
beta
risk premium is
(rm - rf)
rm return of the market
rf risk free rate of return
the relationship between risk and return as defined by CAPM is
Security Market Line or SML
SML uses ___ as measure of risk and CML uses ____ as measure of risk
beta
std deviation
If a portfolio provides a return above the SML it would be considered ____
undervalued
if a portfolio provides a return below the SML
overvalued
the intersection on y axis of CML/SML is ______
risk free rate of return
Treynor uses ___. Sharpe uses ____
beta
std deviation
Treynor and Sharpe measures ____ performance. Jensen's Alpha measures ____ performance
relative
absolute
When r squared is > .70, then use ___ and ____
Treynor and Alpha
(r squared > .70...then portfolio is well diversified)
When r squared is < .70 then use
Sharpe
Mutual funds report on a _____ basis
time weighted
Arbitrage pricing theory uses factors such as ____ does not use ____ or ___
inflation
risk premium
expected returns
does not use std deviation or beta
Weak form of Efficient Market
Historical info will not help
Rejects tech analysis
Semi Strong form of Efficient Market
Both historical info and public info will not help
Rejects both tech and fundamental analysis
Strong Form of Efficient Market
Historical, public and private info will not help.
Stock prices reflect all avail info and react immed to any new info.
How does the user of the Instrinsic Value formula arrive at the appropriate rate of return (the r) used in the model?
By using the Cap Asset Pricing Model
What methodology can be used to price a stock if that stock pays no dividends?
P/E Muliplier
What ratio gives the investor insight into the stock's price earnings muliplier is keeping pace with the earnings growth rate?
PEG Ratio
PEG ratio compares
P/E ratio to company's 3-5 year earnings growth rate
PEG ratio of 1 suggests that
PEG ratio > 1 suggests
stock price is fairly valued.
stock price is fully or over valued.
Dividend Payout ratio (image of Ernie Share paying out dividends)
Common stock Div/EPS
Alpha tells you how much better you did than
expected rate of return (CAPM)
Duration is the moment in time the investor is immunized from ___ risk and ____ risk
interest rate
reinvestment rate
Duration is the weighted average time until an investor receives all the ___
coupon payments
principal
As the coupon rate increases, the duration _____
decreases
As YTM increases, duration ____
decreases
UITs are ____ managed and ____ liquidating.
passively
self
ADRs do/do not eliminate exchange rate risk
do not
Which method of portfolio evaluation allows the comparison of a portfolio manager's performance to that of the over-all market using just one calculation?
Jensen
Which of the following option strategies would be considered the most risk?

Buying a call
Buying a put
Selling a covered
Selling a put
Selling a put (stock could go to zero)
Which option will provide max gains if stock price appreciates?
buying a call
Which option will provide max gains if stock price falls?
buying a put
Calc gain or loss on option

St
O
P
S
St Stock gain or loss
O Options gain or loss
P Premium paid or rec
S Shares Controlled or Owned
Covered call strategy. Investor wants to _____
generate income
When asked about "protecting profits" or "lockin in gains" the option strategy is ____
buying a put
Black/Scholes Model is used to determine the value of a ____ option
Call
Black/Scholes uses the following variables
Current price of underlying asset
Time til expiration
Risk free rate of return
Volatility of underlying asset
Put/Call Parity attempts to
Value a Put option based on value of corresponding call option
Binomial Pricing Model attempts to
Value an option based on the assumption that a stock can only move in one of two directions.
What option strategy can cause the investor to experience the greatest loss?
Selling a naked call option
Futures contracts _____ the holder to make or take delivery of the underlying asset
obligates
intersection of CML and SML ?
risk free return
Div payout ratio
Div paid/(Book value/share)
Return on Equity (ROE)
EPS/(Book Value/share)
Taxable Eq Yield
tax exempt yield/(1-marginal tax rate)
If interest rates fall then prices on bond ____ and YTM ____
rise
falls
Effective rate is
rate of interest determined by

bond price
coupon rate
time between int payments
time til maturity
If the market risk premium were to increase, the value of common stock (everything else being equal) would
Decrease in order to compensate the investor for increased risk
In order to determine whether a stock is overvalued or undervalued, a planner would use which of the following formulas?
Instrinsic Value formula
Company A has 60% debt and 40% equity; Company B has 20% debt and 80% equity. Assume both companies have the same dollar amount of assets and net income before interest and taxes
The return on equity for Company A can be expected to exceed the return on equity for Company B
If the market risk premium were to increase, the value of common stock (everything else being equal) would
Decrease in order to compensate the investor for increased risk
On the Markowitz Model, at the point of tangency, we have attained:
the optimum portfolio
At what price does an investor receive a margin call price?
Loan/1-Maint Margin
Calc margin profit %
Profit/margin price(Initial margin)
Qual div receive cap gain treatment. T/F
T
Std dev measures total risk of div/undiv portfolio
undiversified
Coeff of variation
Std Dev/Ave return
R squared is the measure of
how much return is due to the market
IRR is the same as
compounded rate of return
mutual funds report on a ____ weighted basis
time
PE ratio = P/EPS also can be expressed
div/(req return - g)
Series H and HH bonds pay interest
seminannually
If yield ratio is Rf/Rt how does a higher ratio affect the attractiveness of munis?
Higher ratio, more appealing
ADRs do not eliminate ___ risk
currency
3 reasons why people invest in options
hedging
speculation
income
Black Scholes variables
IVEST
Interest rates
Volatility
exercise price (inversely related)
stock price
time to expiration
Black Scholes works for calls and/or puts
calls
to determine # of shares convertible bond can be converted too..use
conversation ratio
PAR/Conversion Price
at the peak of an economic cycle..it is better to buy or sell debt instruments?
Sell
Value Line uses ___
geometric average
Feb will sell large quantities of Treasuries in near future...Stock prices will ___ because ____
decrease
req rate of return will increase
A supplemental deferred compensation plan providing retirement benefits above the company's qualified plan AND without regard to Section 415 limits is known as:
a SERP
A supplemental deferred compensation plan which pays retirement benefits on salary, above the Section 415 limits, at the same level as the underlying retirement plan is known as
excess benefit plan
A non-qualified deferred compensation plan that provides the targeted key employees with only a promise to pay benefits at a future time is known as
unfunded deferred comp plan
What is the definition of instrinsic value of a stock
discounted value of future dividends
The theory of the Yield Curve that attempts to explain the yield curve based upon future rates of inflation is the:
Expectations Theory
Bond A has a lower coupon than Bond B. Bond A will be more volatile. T or F
T
Negative covariance of two stocks means that
Std Deviation of portfolio is less than the two stocks. Negative covariance achieves better diversification than positive covariance.
Ideal correlation of a portfolio is
-1
When a portfolio is not well diversified...is beta or std dev a better measure of risk?
std dev
Which method of portfolio evaluation allows the comparison of a portfolio manager's performance to that of the over-all market using just one calculation
Jensen
Your client holds a diversified equity portfolio, and has asked for your opinion on what is the most important factor to consider as he prepares to add additional equity securities. You tell him
Correlation of the new securities to the portfolio