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26 Cards in this Set
- Front
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In a period of increasing prices, Switching from FIFO to LIFO in the short run has no effect on net cash position, but in the long run increases cash. Why? |
Short term ...valuation methods have no effect on short term cash... Long term ... if prices are increasing, then FIFO COGS is lower.. changing to LIFO means higher COGS(higher expense) means a lower gross profit, which means lower taxes in the long run, which increases net cash position |
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What type of short term financing for companies has the cost of financing closely tied to the creditworthiness of the companies customers? why? |
Factoring Is the act of selling your short term accounts recievables, and the burden/risk of collecting those recievables, to someone else The less creditworthy your customers are, the deeper the discount at which you must sell your recievables, the higher the cost of financing |
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What is the difference between a Bond Equivalent Yield question in Quantitative Analysis and in Corporate Finance |
BEY - Quant - 2 x semi-annual YTM BEY - Corp Fin - HPY * (365/t) |
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What is the VaR? What is the conditional Var? |
VaR - the minimum loss x% of the time Conditional Var - Expected loss given that the loss exceed the minimum loss |
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Risk governence - what does senior management determine? Risk ____________ Optimal _____________ ________ ___________ Framework _______ _______ _______ _______ |
Risk exposure Optimal risk exposure strategies Framework for risk management functions |
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FINANCIAL RISKs are NON FINANCIAL RISKs are INDIVIDUALS FACE WHAT TYPE OF RISK |
FR - Liquidity risk, credit risk, market risk NFR - Operational risk and external sources risk Indv - mortality risk, longevity risk, financial risk |
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According to the market model, what is beta measuring the sensitivity of? What is beta a measure of? |
The sensitivity of the returns of an asset to the returns of the market index it is a measure of systematic risk... |
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Why does sharpe account for both systemic and unsystemic risk? What additional information does this tell us about the PM? |
Becuase it uses Standard deviation and the denominator Shows the additional risk taken by the PM from a lack of diversification |
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what is, and How do you find the M^2 number? |
it shows the same thing as sharpe ratio except is stated as a percentage difference between the 2nd portfolios return and the CML's return at the same risk level as the efficient frontier Market Portfolio |
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What are the Beta bsed performance measures , what do they emasure, and how are they calculated? |
Treynors measure - excess returns per unit of systematic risk - sharpe ratio but uses beta instead of Standard Deviation Jensens Alpha - percentage portfolio return in excess of the a portfolio on the SML at the same level of Beta |
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Is a price weighted index affected by a split? how do you calculate a price weighted index? |
Price weighted index is NOT AFFECTED by split (P1 + P2 + P3) / n n = number of different companies |
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What industry stage contains brand loyalty? |
Mature stage, as post shakeout stage the remaining firms have proved themselves |
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Why explains the difference between the total return of an Index (S&P 500) and an investment in all the underlying securities of the index? |
The index does not re-invest dividends, so the total return of the index will lag the investments by the dividend yield |
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what kind of duration measures the sensitivity of a bond portfolios value to a change in the slope of the yield curve? |
Key rate duration |
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based on this one example, when calculating spot and forward rates, does the estimated method over or under estimate the rate? |
based on this example, the estimated method underestimated the spot rate.... it gave me 11.5% when the formula gives you 11.72% |
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What is an interpolated spread |
interpolated spreads are spreads to swap rates |
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Bank Discount Yield |
Amount discounted from par (FV - Price) over Face Value annualized on a 360 day basis |
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difference between covered and securitized bonds |
Both are protected in the case that the issuing corp goes bankrupt Covered is issued by the company itself but with an underlying pool of assets that are legally protected from bankrupcy Securitized is issued by a SPV |
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______ and above is investment grade _______ and below is high yield |
Baa3/BBB - or higher = investment grade Ba1/BB+ or lower = Junk bonds |
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When an underlying asset produces no cash flows, an american call option is equivalent in value to a european call option. Why? |
If the underlying asset has no cash flows/income, then there is no point in exercising early to capture extra cash flows, therefore they are the same value |
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The difference of an options price in excess of it's exercise value is known as it's |
Time value |
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What is the convenience yield associated with holding the underlying asset for a derivative |
The non monetary benefits of holding the underlying asset |
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What is the net cost of carry |
The cost of holding the underlying assets of a derivative, after accounting for the monetary and non monetary benefits of holding it |
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if the margin amount on a futures margin account falls below the margin maintenance level, what must happen? what must not happen? |
Funds must be be added to bring the margin level up to the initial margin level, NOT THE MAINTENANCE LEVEL |
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A leveraged buyout firm exits an investment position in a portfolio company. What is this known as? |
A secondary sale, which is when a PE firm sells one of its portfolio companies to another firm |
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What is the notice period for a hedge fund and what precipitates it? |
It is causes by a request for redemption in shares, and is the time where a HF must fulfill a request for share redemption. |
