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28 Cards in this Set
- Front
- Back
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What is the multiplier for the S&P 500 index when working with introduction to futures problems? |
250 |
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Call options decline at a what rate as strike prices increase? |
Call option premiums decline at a decreasing ratedor |
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For put options, do premiums increase more quickly or slowly? |
More quickly (increase at an increasing rate as strike prices increase) |
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A mortgage loan can be viewed as what type of option? |
A put option |
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A mortgage loan can be viewed as a put option, one which WHO holds? |
The borrower |
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What kind of contract is a put option with payment contingent on borrower default? |
Mortgage guaranty insurance contract |
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How can you determine which stocks are on the SML? |
Look at the slope between points. Example: slope between points 1 and 2, slope between points 2 and 3, and slope between points 3 and 4 |
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How can you replicate a long position in a box spread? |
Long call bull spread + long put bear spread |
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How can you replicate a short box spread? |
Short call bull spread + short put bear spread |
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For what kind of bond does the investor need the physical bond to receive coupon payments? |
Bearer bond |
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Which have shorter maturities? Debentures or notes? |
Notes have shorter maturities than debentures |
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What kind of debt can be divided into tranches? |
Any kind of debt can be divided into tranches |
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Is the coupon rate for TIPS bonds fixed or varied? |
Fixed |
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What is the formula for standard error? |
SD/ (square root of the number of observations) |
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What factor in the FFC model accounts for differences in company size based on market capitalization? |
SMB |
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How can you create the SMB portfolio? |
Take a long position in stocks with low market capitalization and a short position in stocks with high market capitalization |
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True or false: factor portfolios may not be efficient |
True |
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Each factor in the multi factor model can be interpreted as either a risk factor itself or a portfolio of stocks correlated with a WHAT risk factor? |
Unobservable risk factor |
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The expected percentage change in the excess return of a security for a 1% change in the excess of the factor portfolio, holding the other factors constant |
Factor beta |
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True or False? The higher the firm’s leverage, the more the firm can exploit the tax advantage of debt |
True |
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True or False? The higher the firm’s leverage, the lower the firm’s net income |
True |
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True or False? The higher the firm’s leverage, the higher the firm’s weighted average cost of capital |
False |
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Compared to the cost of other securities such as bonds, convertible bonds, etc, is the cost of an IPO typically higher or lower? |
Typically much higher |
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Does the average IPO seem to be priced too high or too low? |
Too low (it’s one of the 4 IPO puzzles) |
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True or False? The fees for IPO’s seem to be sensitive to the difference in issue size? |
False- for example an issue size of 80 million could have the same underwriting spread as an issue size of 20 million |
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What kind of analysis breaks the NPV calculation down into its component assumptions, showing how the NPV varies as the values of the underlying assumptions change |
Sensitivity analysis |
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What does the standard error, SE, estimate? |
SE estimates the amount of estimation error |
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True or False? A security’s historical average return is only an estimate of its true expected return? |
True |
