Stuff To Drill Home Pt. 2

Front 1

Chebyshev's Inequality

Back 1

Used to calculate minimum percentage of observations within k deviations. Can be used in non-normal distributions

Minimum% = 1 - (1/k^2)

Front 2

Bond Equivalent Yield

Back 2

Twice the effective semi-annual yield.

Annual Effective yield = 8%,

Effective Semi-Annual Yield= 1.08^.5 = 3.923%

Bond Equivalent Yield = 2 * 3.923% = 7.846%

Front 3

Bank Discount Yield

Back 3

Everything is wrong.

(Discount/Face) * (360/Days to Maturity)

Front 4

Money Market Yield

Back 4

[(Ending Value - Beginning Value)/Beginning Value] * (360/Days to Maturity)

Front 5

Effective Annual Yield

Back 5

(1 + Holding Period Yield)^(365/Days to Maturity) -1

Front 6

Holding Period Yield

Back 6

(Ending - Beginning + Cash Flows)/Beginning

Front 7

Time Weighted Return

Back 7

Takes out any effect for cash flows in and out of the account. Used if manager has no control over inflows or outflows.

Annual Time Weighted Return:

[(Ending 1/Beginning1)(Ending 2/Beginning 2)(Ending n/Beginning n)]^(1/n)

Periods can be any length

Front 8

Money Weighted Returns

Back 8

Take account for cash flows in and out of accounts. Use if manager has control over cash flows

Use CF to find IRR. IRR is interest rate per period, so period lengths must be equal, at the shortest period between signifcant cash flows.

Front 9

Continuously Compounded Rates

Back 9

Continously Compounded Rate: ln (1 + HPY)

EAY with Continuous compounding: (e^i)-1

Front 10

Lognormal Distribution

Back 10

If X is normal, e^x is lognormal.

Lognormal distributions are good because they start at zero.

e^x = (1 + return)

Front 11

Standard Error of Sample Mean

Back 11

A measure of the standard deviation of the distribution of sample means

When Population Deviation is known:

(Population Standard Deviation)/[sqrt(n)]

When population deviation is unknown:

(Sample Standard Deviation)/sqrt(n)

Front 12

Student's t-Distribution

Back 12

Test the mean of a normal population when population variance is unknown:

(Sample Mean - Hypothesized Sample Mean)/(Sample Standard Deviation/sqrt(n)) =

Number of deviations away. Determine if it is less than, greater than, or equal to critical value.

Properties:

• Symmetrical
• Fatter tails than normal distribution
• Defined by single parameter, degrees of freedom (n-1)
• As degrees of freedom increases, it approaches a normal distribution

Front 13

When To Use T vs. Z statistics

Back 13

Front 14

Type II Error

Back 14

Failing to reject a false null hypothesis test.

Power of test: 1 - Probability of Type II error

Front 15

Crowding Out

Back 15

Government borrowing may divert private sector investment from taking place; if there is a limited amount of savings to be spent on investment, then larger government demands will lead to higher interest rates and lower private sector investing.

Front 16

p-Value

Back 16

Smallest level of significance at which the null can be rejected, or the probability of getting the test statistic by chance if the null is true.

If p-value = 2.13%

Can reject null at 3% significance

Cannot reject null at 1% significance

Front 17

Cost-Push vs. Demand Pull Inflation

Back 17

Cost-Push: increases in wages or other produce inputs decrease short run aggregate supply, increasing price levels

Demand-Pull: Increase in aggregate demand above full employment increases price level.

Front 18

Expansionary vs. Contractionary Fiscal Policy

Back 18

Fiscal Policy: Government Decisions on taxing and spending.

Expansionary: Increase spending and/or decrease taxes, increase budget deficit, increase aggregate demand

Contractionary: Decrease Spending and/or increase taxes, decrease budget deficit, decrease aggregate demand.

Front 19

Expansionary vs. Contractionary Monetary Policy

Back 19

Management of the supply of money and credit.

Expansionary: Increase the money supply, decrease interest rates, increase aggregate demand.

Contractionary: Decrease money supply, increase interest rates, slow economic growth and inflation.

Front 20

Absolute vs. Comparative Advanatge

Labor/Unit Cloth Wine

England 100 110

Portugal 90 80

Back 20

Absolute: Lower cost in terms of resources uses. Portugal has absolute advantage on both

Comparative: Lower opportunity cost to produce. Makes all countries trading better off. England has comparative advantage in cloth, since they are only trading off .91 units of wine, whereas Portugal trades off 1.125 units of wine.

Front 21

Audit Opinions

Back 21

• Unqualified: Best. "Clean" Opinion
  
• Qualified: Exclusions to accounting principles
  
• Adverse: Worst. Statements not prepared not presented fairly
  
• Disclaimer of Opinon: Unable to form opinion.
  

Front 22

Financial Statement Analysis Framework

Back 22

1. Purpose and Context of Analysis
2. Collect Data
3. Process Data
4. Analyze/Interpret Data
5. Conclusion and Recommendations
6. Update Analysis Periodically

Front 23

9 Major Sections of GIPS

Back 23

0. Fundamentals of Compliance

1. Input Data
2. Calculation Methodology
3. Composite Construction
4. Disclosures
5. Presentation and Reporting
6. Real Estate
7. Private Equity
8. Seperately Managed Accounts/Wrap Fee Accounts

Front 24

Personal Disposable Income

Back 24

After Tax Income

Personal Income - Personal Taxes

Personal Income = National Income + transfer payments to households - indirect business taxes - corporate income taxes - undistributed corporate profits

Front 25

Factors That Increase Short-Run Aggregate Supply

Back 25

• Decreases in input prices
• Improved expectations about future
• Decreased business taxes
• Increases in business subsidiaries
• Currency appreciation that reduces cost of imported inputs.
• Anything that decreases production costs

Front 26

Factors That Increase Long-Run Aggregate Supply

Back 26

• Labor Supply
• Capital Quality
• Technologival Inputs (A)

Front 27

IFRS Conceptual Framework

Back 27

Two Qualitative Characteristics

• Relevance: Information can influence users' economic decisions or affect users' evaluations of past events or forecasts of future events
• Faithful Representation: Information is complete, free of bias (neutral), and free from error. CUVT. Comparable, Understandable, Vertifable, Timely.

Front 28

IASB Required Financial Statements

Back 28

• Balance Sheet
• Income Statement
• Statement of Comprehensive Income
• Change in Equity
• Cash Flow Statement
• Account Policies, notes

Front 29

IASB Fundamental Principles

Back 29

• Fair presentation
• Going Concern
• Accrual basis
• Consistency
• Materiality

Front 30

IASB Presentation Requirements

Back 30

• Aggregation where appropriate
• No offsetting
• Classified balance sheet
• Minimum information on face
• Minimum disclosure
• Comparative info

Front 31

Characteristics of a Coherent Reporting Framework

Back 31

1. Transparency - accounts reflect economic substance. Full disclosure and fair presentation

2. Comprehensive - Full spectrum of financial transactions

3. Consistency - Transactions measured and presented in similar way (across companies and time)

Front 32

Seller of Collateral In Pool Of Securitized Assets

Back 32

Depositor