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233 Cards in this Set
 Front
 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/1marginal 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 1payout) 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 longterm 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 35 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 overall 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/(1marginal 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/1Maint 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 nonqualified 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 overall 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
