-
guarantee that a payment will be made upon receipt of goods is
bank acceptance
-
WACC
D/V * kd * (1-t) + E/V*Ke
-
under defined contribution plan, payment is the obligation of
sponsoring firm
-
all portfolio on CML has only XX risk
systematic
-
XX firms have beta greater than one (higher systematic risk)
cyclical firm
-
XX return is always higher than price return because price return does not consider XX
total; dividend
-
difference between sponsored depository receipt and unsponsored DR
same voting right as stockholder vs depository bank has voting right
-
reasons for return differences
- firm size
- market-to-book
- excess return on market
- price momentum
-
P/E formula (dividend)
payout ratio / (k-g)
-
short sale characteristics
- requires margin account
- proceeds from short sales cannot be withdrawn
- no time limit on when short seller needs to replace borrowed security
-
the higher the proportion of fixed cost, the XX the sensivitiy to business cycle
higher
-
2-step dividend model
D1/dis1 + D2/dis2 + [D3 / (k-g)]/dis2
-
from BEY to quarterly YTM
- 1. divide by 2
- 2. (1+(1))^0.5-1
- 0.5 = holding period / half year
-
full price of bond equal
clean price + accrued interest
-
debt covenant to restrict subsidiaries can address
structural subordination
-
sinking fund provision increases XX risk if interest rate drops
reinvestment
-
CMO - if prepayment rate is higher than upper collar of PAC, support tranche ...
gets more prepayment and life shorten
-
duration and price formula
- %change of price = - duration * change in interest rate (sign matter) OR
- %change of price = - duration * change in interest rate + 0.5 * convexity * (change in int)^2
-
waterfall bond and serial bond
- waterfall: different tranche with difference priority
- serial: different maturities issued at the same time
-
writing a covered call means .. and maximum profit =
- owning the stock and writing a call
- 1.net cost = cost of stock - premium
- 2. max payoff = exercise price
-
option price =
time value + intrinsic value
-
return on commodity exhibit
lower return and higher price volatility
-
macro strategy hedge fund tend to XX while market neutral strategy tend to XX
- trade currency and interest rate derivatives;
- have equal long and short positions, based on fundamental
-
hedge funds' NAV is lower because
illiquid
-
mezzaine financing to LBO most likely
contain warrant/equity conversion feature
-
payback period
- 1. discount CF
- 2. cumulative discount CF
- 3. marignal year + remaining -ve/next discount CF
-
treasury bill yield
discount / price * 365/t
-
break point in marginal cost of capital schedule means XX and formula
- if the cost of one component increase, WACC increase
- value at which cost change / component weight
-
low diversification ratio means
more diversified
-
CML and efficient frontier means XX while security market line means XX
- expected return against SD
- expected return against systematic risk
-
open end mutual fund trade at XXX and holders can redeem shares
NAV
-
fund return calculation
ending account value / (opening + deposit - withdrawal)
-
mature, decline and shareout stage
- mature: no growth
- decline: negative growth, excess capacity
- shakeout: slow growth, increased competition, declining profitability
-
modified duration and Macaulay duration formula
modified = Macaulay / (1+YTM)
-
compared to agency MBS, commercial MBS has XX as call protection
yield maintenance charges
-
duration gap means
difference between investor horizon and the bond's duration
-
borrow for 360 days and simultaneously lend for 90 days is synthetic FRA as..
long 90 day FRA on 270 day LIBOR
-
2-and-20 structure, high water mark and hurdle rate
- 2% mgmt fee and 20% incentive fee
- incentive fee based on increase in value above previous highest value
- minimum return to achieve in order to get incentive fee
-
EPS will increase by financing share repurchase with debt if
earning yield > cost of debt
-
active manager will purchase security that plots XX the SML
above
-
beta = covariance / XX
market variance
-
no adjustment is needed to value-weighted-index when XX occurs
stock split (does not impact market cap)
-
when will securities market value be persistantly greather than intrinsic value
short selling prohibited
-
two-year forward rate two years from today=
root [(1+spot_4year)^4/(1+spot_2year)^2] -1
-
for a downward sloping term structure of yield volatility, short term i is more XX than long term i
variable
-
current yield of a bond =
annual coupon / bond price
-
if mortgage rate decrease/interest rate decrease, what happen to prepayment rate and weighted average life
prepayment rate increase and life decrease (contraction risk)
-
arbitrage an overpriced forward
short forward>long asset>short rf asset (i.e borrow)
-
a swap has xx value at initiation
zero
-
given put-call parity, a synthetic asset is created by
long call, short put, long rf asset
-
given put-call parity, a long call is created by
long asset, long put, short rf asset
-
roll yield =
spot price - future price
-
degree of financial leveraege & degree of operating leverage
- %change in EPS given a %change in OI
- %change in OI given a %change in sales OR (Q*CM)/(Q*CM-FC)
-
impact of stock dividend on EPS and equity
decrease; no impact
-
covariance = correlaiton * sd1 * sd2
-
global minimum variance portfolio is not XX
efficient
-
trigger price for margin call
initial price * (1-initial margin) / (1-maintenance margin)
-
if margin account balance fall below maintenance margin, it must be brought back to XX
initial margin
-
price weighted index and value weighted index
- (new price1 +new price2)/2
- (new value of portfolio)/(old value of portfolio)
-
putable bond is more XX than callable bond
expensive
-
modified duration formula
(V- - V+)/(2*V0*change in yield)
-
duration means .. and the higher the YTM, the XX the duration
- price sensitivity of the bond to change in yield
- lower
-
difference between american and european option
american option can early exercise
-
cost of preferred stock
dividend/market price
-
profitable company, issue debt to retire stock will XX ROE and its variability
increase
-
steeper slope in risk-return indifference curve
more risk averse and choose a lower return portfolio
-
commodity index is based on XX price
future commodity
-
ABS is bankrupcy-remote issued by XX, hence have higher credit rating
SPV
-
a call feature XX duration and interest rate risk
decrease
-
recession XX yield of low quality bond and XX credit spread between low and high quality bond
increase, increase
-
if government spread is similar to zero volatility spread, yield curve is..
flat
-
if option adjusted spread > zero volatility spread, option has XX value to bondholder
+ve
-
if spot prices are positively correlated with interest rate movements, then its Futures price is going to be XX than its Forward Price
greater
-
increase in risk free rate XX the value of call
increase
-
profitability index
1+NPV/cost
-
beta_equity formula
beta_asset * [1+D/E (1-t)]
-
optimal risk portfolio is tangent of
CAL and efficient frontier
-
optimal investor portfolio is tangent of
indifference curve and CAL
-
Slope of SML represents
market risk premium
-
yield curve XX when there is expansionary monetary policy, increasing short term YTM volatility
steepens
-
operating breakeven point
fixed cost/contribution margin
-
float factor =
daily float / (deposits / number of days)
-
beta formula
correlation * SD_asset/SD_market
-
enterprise value
EBITDA * EV multiple
-
market cap formula (from EV)
EV - market value of debt and preferred stock + cash and ST investment
-
buying stock on margin - initial investment and loan amount
- P*Q*margin% + commission
- P*Q*(1-margin%)
-
meaning of alpha
measure of risk adjusted return and is the difference between active and passive portfolio return
-
meaning of repo margin
difference between collateral market value and loan value
-
meaning of letter of credit
reimburse any shortfall from asset backing the issue
-
the XX the treasury spot rate curve, the greater the difference between nominal spread and z-spread
steeper
-
value at risk is..
minimum expected loss given a probi
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