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233 Cards in this Set
- Front
- Back
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Each individual has ____ on ALL joint accounts owned either by the same or any combination of persons at the same bank.
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$500,000
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Treasury bills are short term securities with maturities of ___ or less.
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One year
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MMF are/are not insured
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are not
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Banker's acceptance are used to
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finance imports and exports.
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Eurodollars is a deposit in ___ and denominated in ____
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any foreign bank
dollars |
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Yankee Bond
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Dollar denominated bonds issued in US by foreign banks
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A $1000 par corporate bond quoted at 90 is selling at a discount/premium of ____ points ($100) from par.
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discount
10 points |
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Yield Ladder
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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 |
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Nominal Yield (image of tweedle dee and tweedle dum...one is named nominal rate..one is named coupon rate)
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Same as coupon rate
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A zero coupon bond owner must report interest income although the bond pays no interest before maturity T/F
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T
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OID Original issue discount. The discount on the bond must be accreted over the bond's life T/F
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T
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Notes have ____ maturities
Bonds have ___ maturities |
1 to 10 years
10 to 30 years |
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Notes and Bonds are subject to RIP risk
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Reinvestment
Interest rate Purchasing Power |
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Treasury bonds are sold on a ______ basis and are subj to _______ income tax (image of auction with auctioneer yelling get your best YTM here!)
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Yield to Maturity
Federal (not to state) |
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Treasury STRIPS are a form of
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zero coupon bonds.
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CATS and TIGRS are a block of treasuries, removing all coupons, then offering either ____ or the ______ at maturity
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interest
principal |
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CATs and TIGRS are an obligation of
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the brokerage firm that issued them. (not Fed govt)
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TIPS are sold in ____ denominations.
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$1000
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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
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True
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EE and HH bonds are issued at ____ of face value
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50%
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EE bonds are guaranteed to reach face value in ___ years but can pay interest for ___ years
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20
30 |
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Min size of GMNA certificate is _____. Risks are ____ and ______
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25,000
Interest rate Reinvestment rate |
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General Obligation bonds are generally considered the safest type of municipal credit. T/F
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T
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Debenture is
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a general debt obligation backed only by the integrity of the borrower
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Bonds are subj to a variety of risks DRIP
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DRIP
Default Reinvesment Interest Rate Purchasing Power |
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Bond conversion value
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CV = (PAR/CP)Ps
PAR = Par value of bond CP = conversion price Ps = current mkt price of stock |
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An issuer of a bond is likely to call a bond when prices have ____ in the market
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dropped
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Re:real estate. Net operating Income NOI. Depreciation and amortization expenses are/are not incl in NOI.
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are not
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Focus of operating expenses is the property's
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cash flow
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Property's cap instrinsic value
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NOI/cap rate
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A put is contract that gives the holder right to ___ a specific # of shares.
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Sell
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Intrinsic value IV is the difference between _____ and _____ price of stock
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exercise price
market price |
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1 option is ____ shares
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100
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Call writers seek ____
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income
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the selling of a call w/o owning the stock is called
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naked call writing
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Intrinsic value of a call
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IV = stock price - strike price
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The time value of an option is greatest when
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MP = EP
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Buy the commodity....____ position...want to sell the commodity
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Long
Short |
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Warrant is an option to ___ within a specified period, at # of of shares of common stock at a specified price.
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purchase
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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 _____
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$1,000,000
$200,000 $300,000 |
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types of systemic risk
PRIME |
Purchasing power risk
Reinvestment rate risk Interest rate risk Market risk Exchange rate risk |
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Market risk and systemic risk are _____
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synonymous
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Perfectly positively correlated securites have a value of ___
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1
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Perfectly negatively correlated securities have a value of ____
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-1
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Variance is a statisical measure of the ______ of measured data from the data's average data.
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variability
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Std deviation measures _____ in a _______ portfolio and is a measure of ______
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variability of returns
nondiversified total risk |
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Beta measures ______ in a ______ portfolio and is a measure of ______
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volatility
diversified systemic risk |
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A portfolio with a beta of +1 has
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systemic risk
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If a security has a beta of .6 how much will it move up or down on ave with the market?
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60%
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To find risk adj basis divide _____ by _____
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Annual return/beta
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Which bond faces greatest reinvesment risk?
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GNMA
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Dollar weighted return is the same as
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IRR internal rate of return
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Current yield
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Annual interest in $/Bond's current price
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Taxable eq yield
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Tax exempt yield/1-marginal tax rate
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Duration compares price _____ of bonds with equal ______ but different terms on basis of ____
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volatility
coupons time |
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Risk averse investors should prefer bonds with ____ duration
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low
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If a bond has a long maturity, its duration will be lower than similar debt with a short maturity. T/F
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False
long maturity = high duration |
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Which bond would be most volatile if interest rates move quickly up or down?
Zero/Treasury Notes/Corp Bonds/Munis |
Zero - has largest duration
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Market risk premium
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Erm - rf
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Stock risk premium
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(Erm - rf)B
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Current ratio
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current assets/current liabilites
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would an IRA mutual fund count in "current assets" for a current ratio calc? Y/N
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N
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When selling shares, selling specific shares allow the investor to ____ gain, _____ gain or _______ loss
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maximize
neutralize maxmize |
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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
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30
30 |
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if the investor's spouse buys the same stock, will the investor be affected by the wash sale rule? Y/N
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Y
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The date of record for the corp is the ____ business day after the ex div date
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2nd
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Investor must purchase the stock at least the ______ to get a dividend
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day before
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Sharpe ratio expresses the ____ of _____ return of the portfolio to its _____
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ratio
excess std deviation |
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Treynor ratio expesses the ____ of _____ return of the portfolio to its _____
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ratio
excess beta |
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Jensen ratio is commonly referred to as _____ (___ dog named jensen)
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alpha
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A positive alpha value, such as 1.0, means that the fund or portfolio outperformed the market by _____
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1%
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Sharpe uses ______ therefore the portfolio is ______
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std deviation
nondiversified (contains both systemic and unsystemic risk) |
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Jensen and Treynor use ____, the portfolio must be ______
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beta
diversified |
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If no alpha is given, select answer with highest ____
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Treynor
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With R squared low, calc the Sharpe ratios. Pick stock/fund with ____ Sharpe (sharp movie character with low cut R squared shoes)
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highest
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An investor with a collar has 3 positions...he owns the stock (long)...A ___ position in the ___. A ___ position in the ____
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short/call (sold the call)
long/put (owns it) |
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A barbell strategy is an investment in ____ and _____ bonds
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long term
short term |
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Margin requirement
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(1 - initial margin %)/(1 - Maint margin %)
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The Fed sets the initial margin at ____ (for margin call)
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50%
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Black Scholes model is a valuation model for _____
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options
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Securities Act of 1933 regulates ____ market and requries ____ securties to be registered with SEC
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primary
new |
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Securities Exchange Act of 1934 regulates ____ market
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secondary
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Investment Company Act of 1940 authorizes SEC to regulate ____ and other investment companies
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mutual
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Investment Advisors Act of 1940 established the registration and regulation of ______
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investment advisors
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Short term capital gains are taxed at investors ______
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marginal tax rate
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Long term capital gains are taxed at 0% if taxpayer is in the ____ or lower marginal tax bracket
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15%
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Gain on collectibles is taxed at max ___
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28%
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GDP includes
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consumption
domestic investment govt spending net exports |
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Govt fiscal policy uses 3 tools
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taxation
govt spending debt mgmt |
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Fed monetary policy uses 3 tools
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Reserve requirement
Discount rate Open market operations |
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When the Fed buys Treasury securities the supply of money is _____
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increased
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When the Fed sells Treasury securities the supply of money
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decreases
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When deciding upon which security to add to a portfolio the security with the lowest ____ should generally be chosen.
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correlation coefficient
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Coefficent of Determination or ____, measures the proportion of the varation in one variable explained by the movement of the other variable
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R squared
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Look for R squared value of 70 or higher in order for ___ to be reliable.
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Treynor
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Exchange traded is open/closed end fund?
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closed
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With puts and calls you can/can not have a negative instrinsic value
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can not
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the risk level quantification of beta is ____ and ______
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volatility
systemic risk |
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Coeff of variation CV
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CV = std dev/Mean
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A negative correlation coefficient will make beta _____
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negative
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Return on equity
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EPS/(Book value)
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Div payout ratio (image of Ernie Share paying out dividends)
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Div paid/EPS
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stock risk premium
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(rm - rf)B
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The efficient frontier provides an investor the ____ return for any given level of ____
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highest
risk |
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For a highly risk averse investor, the shape of his indifference curve would be steep/flat
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Steep. He would demand a large amount of addl retun to bear addl risk.
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Which index is price weighted? DJIA/S&P500/EAFE
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DJIA
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A spreadsheet model can reveal ____ and _____
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single
average scenario |
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Sharpe ratio compares ___ return to ____ return
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actual
expected |
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Count a 401(k), IRA and mortgage balance in the client's current ratio Y/N
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N
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Can you buy options on margin? Y/N
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N
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The best measure of risk for an oil and gas sector fund is beta or std deviation?
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std deviation. (contains securities in same industry)
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An investor using APT starts with ______ then adjusts for inflation, interest rates, production, etc.
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required return
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how do you compute the expected growth rate of dividends to use in the dividend discount formula?
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multiply the company's ROE by the earnings retention rate
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When the Fed buys securities, it injects money into the banking system T/F
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T
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Generally, the most significant factor in raising one company's ROE above another company's is the _______
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greater use of debt
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payout ratio
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div/EPS
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Growth rate
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ROE x retention rate. retention rate is (1 - payout ratio)
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REITS must flow 90% of their income to investors. T/F
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T
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All fixed income securities have purchasing risk T/F
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T
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Loans to foreign companies by U.S. banks are included in which balance of payments accounts
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capital accounts
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Formula for margin call
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(1 - init margin)/(1- maint margin) X price of stock
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Computing fair value of stock
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Calc payout ratio Div/EPS
Calc growth rate G = ROE × Retention rate (Retention rate is 1-payout) Then use div growth model |
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Coeff of variation
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std dev/av return
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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
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T
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Re Bonds: The higher the market interest rate, the greater the relative price fluctuations. T/F
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T
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Mortgage REITs can only invest in long-term mortgages. T/F
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F
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Geometric mean is also called
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time weighted return
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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
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Markowitz uses _____as its performance standard,
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std deviation
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The return on the market is the sum of the _____ and the ________
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risk free rate
market risk premium |
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When ____ rates rise above the ____ rate the callable bonds will not be called.
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interest
coupon |
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Current stock mkt price =
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Earnings x price ratio
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Security market line contrasts ____ and _____
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rate of return
beta |
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stock risk premium
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(rm - rf)B
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Stock performance re: Sharpe
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Look for low R squared (less than 60)
Look for highest Sharpe # |
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Stock performance re: Jensen/Treynor (image of Race car with R squared on the side)
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Look for high R squared (above 60) - Jensen - Highest alpha...If no alpha, highest Treynor
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Coeff of Determination or R squared is a measure of
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how much return is due to the market...also indication of how well diversified a portfolio is
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Systematic risk is the ____ level of risk one could expect in a full diversified portfolio
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lowest
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Unsystematic risk is the risk that exists is an investment that can be _____ thru diversification.
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eliminated.
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Efficient frontier...neither portfolio on the frontier is ___ than any portfolio that lies on the frontier
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better
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Portfolios that lie beneath the frontier are ____...ones that lie above the frontier are _____
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inefficient
unattainable |
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When designing portfolios the most important variables are ___ (3)
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risk
return covariance |
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An indifference curve represents _____
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how much return an investor needs to take on risk.
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If an investor is risk averse, the investor will have a very ____ indifference curve
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steep
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If an investor is risk seeking, they will have a relatively ____ indifference curve
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flat
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Point at which an investor's indifference curve is ____ to the efficient represents the investor's _____ portfolio
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tangent
optimal |
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The Capital Market Line or CML specifies the relationship between ____ and ____ in all possible portfolios.
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risk
return |
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Inefficient portfolios are ___ the CML
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below
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A portfolio's return should be ___ the CML
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on
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The measure that the CML uses is ____
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std deviation
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Capital Asset Pricing Model or CAPM calcs relationship of ___ and ____ of an ind secuity using _____
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risk
return beta |
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risk premium is
|
(rm - rf)
rm return of the market rf risk free rate of return |
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the relationship between risk and return as defined by CAPM is
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Security Market Line or SML
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SML uses ___ as measure of risk and CML uses ____ as measure of risk
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beta
std deviation |
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If a portfolio provides a return above the SML it would be considered ____
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undervalued
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if a portfolio provides a return below the SML
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overvalued
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the intersection on y axis of CML/SML is ______
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risk free rate of return
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Treynor uses ___. Sharpe uses ____
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beta
std deviation |
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Treynor and Sharpe measures ____ performance. Jensen's Alpha measures ____ performance
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relative
absolute |
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When r squared is > .70, then use ___ and ____
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Treynor and Alpha
(r squared > .70...then portfolio is well diversified) |
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When r squared is < .70 then use
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Sharpe
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Mutual funds report on a _____ basis
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time weighted
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Arbitrage pricing theory uses factors such as ____ does not use ____ or ___
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inflation
risk premium expected returns does not use std deviation or beta |
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Weak form of Efficient Market
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Historical info will not help
Rejects tech analysis |
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Semi Strong form of Efficient Market
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Both historical info and public info will not help
Rejects both tech and fundamental analysis |
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Strong Form of Efficient Market
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Historical, public and private info will not help.
Stock prices reflect all avail info and react immed to any new info. |
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How does the user of the Instrinsic Value formula arrive at the appropriate rate of return (the r) used in the model?
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By using the Cap Asset Pricing Model
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What methodology can be used to price a stock if that stock pays no dividends?
|
P/E Muliplier
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What ratio gives the investor insight into the stock's price earnings muliplier is keeping pace with the earnings growth rate?
|
PEG Ratio
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PEG ratio compares
|
P/E ratio to company's 3-5 year earnings growth rate
|
|
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PEG ratio of 1 suggests that
PEG ratio > 1 suggests |
stock price is fairly valued.
stock price is fully or over valued. |
|
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Dividend Payout ratio (image of Ernie Share paying out dividends)
|
Common stock Div/EPS
|
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Alpha tells you how much better you did than
|
expected rate of return (CAPM)
|
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Duration is the moment in time the investor is immunized from ___ risk and ____ risk
|
interest rate
reinvestment rate |
|
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Duration is the weighted average time until an investor receives all the ___
|
coupon payments
principal |
|
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As the coupon rate increases, the duration _____
|
decreases
|
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As YTM increases, duration ____
|
decreases
|
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UITs are ____ managed and ____ liquidating.
|
passively
self |
|
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ADRs do/do not eliminate exchange rate risk
|
do not
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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
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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)
|
|
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Which option will provide max gains if stock price appreciates?
|
buying a call
|
|
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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
|
|
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When asked about "protecting profits" or "lockin in gains" the option strategy is ____
|
buying a put
|
|
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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.
|
|
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What option strategy can cause the investor to experience the greatest loss?
|
Selling a naked call option
|
|
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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)
|
|
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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
|
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What is the definition of instrinsic value of a stock
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discounted value of future dividends
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The theory of the Yield Curve that attempts to explain the yield curve based upon future rates of inflation is the:
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Expectations Theory
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Bond A has a lower coupon than Bond B. Bond A will be more volatile. T or F
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T
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Negative covariance of two stocks means that
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Std Deviation of portfolio is less than the two stocks. Negative covariance achieves better diversification than positive covariance.
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Ideal correlation of a portfolio is
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-1
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When a portfolio is not well diversified...is beta or std dev a better measure of risk?
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std dev
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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
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Jensen
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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
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Correlation of the new securities to the portfolio
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