CFA lv1 - finance

  1. guarantee that a payment will be made upon receipt of goods is
    bank acceptance
  2. WACC
    D/V * kd * (1-t) + E/V*Ke
  3. under defined contribution plan, payment is the obligation of
    sponsoring firm
  4. all portfolio on CML has only XX risk
  5. XX firms have beta greater than one (higher systematic risk)
    cyclical firm
  6. XX return is always higher than price return because price return does not consider XX
    total; dividend
  7. difference between sponsored depository receipt and unsponsored DR
    same voting right as stockholder vs depository bank has voting right
  8. reasons for return differences
    • firm size
    • market-to-book
    • excess return on market
    • price momentum
  9. P/E formula (dividend)
    payout ratio / (k-g)
  10. 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    • proceeds from short sales cannot be withdrawn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
  11. the higher the proportion of fixed cost, the XX the sensivitiy to business cycle
  12. 2-step dividend model
    D1/dis1 + D2/dis2 + [D3 / (k-g)]/dis2
  13. from BEY to quarterly YTM
    • 1. divide by 2
    • 2. (1+(1))^0.5-1
    • 0.5 = holding period / half year
  14. full price of bond equal
    clean price + accrued interest
  15. debt covenant to restrict subsidiaries can address
    structural subordination
  16. sinking fund provision increases XX risk if interest rate drops
  17. CMO - if prepayment rate is higher than upper collar of PAC, support tranche ...
    gets more prepayment and life shorten
  18. 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
  19. waterfall bond and serial bond
    • waterfall: different tranche with difference priority
    • serial: different maturities issued at the same time
  20. writing a covered call means .. and maximum profit =
    • owning the stock and writing a call
    • cost = cost of stock - premium
    • 2. max payoff = exercise price
  21. option price =
    time value + intrinsic value
  22. return on commodity exhibit
    lower return and higher price volatility
  23. 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
  24. hedge funds' NAV is lower because
  25. mezzaine financing to LBO most likely
    contain warrant/equity conversion feature
  26. payback period
    • 1. discount CF
    • 2. cumulative discount CF
    • 3. marignal year + remaining -ve/next discount CF
  27. treasury bill yield
    discount / price * 365/t
  28. 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
  29. low diversification ratio means
    more diversified
  30. CML and efficient frontier means XX while security market line means XX
    • expected return against SD
    • expected return against systematic risk
  31. open end mutual fund trade at XXX and holders can redeem shares
  32. fund return calculation
    ending account value / (opening + deposit - withdrawal)
  33. mature, decline and shareout stage
    • mature: no growth
    • decline: negative growth, excess capacity
    • shakeout: slow growth, increased competition, declining profitability
  34. modified duration and Macaulay duration formula
    modified = Macaulay / (1+YTM)
  35. compared to agency MBS, commercial MBS has XX as call protection
    yield maintenance charges
  36. duration gap means
    difference between investor horizon and the bond's duration
  37. borrow for 360 days and simultaneously lend for 90 days is synthetic FRA as..
    long 90 day FRA on 270 day LIBOR
  38. 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
  39. EPS will increase by financing share repurchase with debt if
    earning yield > cost of debt
  40. active manager will purchase security that plots XX the SML
  41. beta = covariance / XX
    market variance
  42. no adjustment is needed to value-weighted-index when XX occurs
    stock split (does not impact market cap)
  43. when will securities market value be persistantly greather than intrinsic value
    short selling prohibited
  44. two-year forward rate two years from today=
    root [(1+spot_4year)^4/(1+spot_2year)^2] -1
  45. for a downward sloping term structure of yield volatility, short term i is more XX than long term i
  46. current yield of a bond =
    annual coupon / bond price
  47. if mortgage rate decrease/interest rate decrease, what happen to prepayment rate and weighted average life
    prepayment rate increase and life decrease (contraction risk)
  48. arbitrage an overpriced forward
    short forward>long asset>short rf asset (i.e borrow)
  49. a swap has xx value at initiation
  50. given put-call parity, a synthetic asset is created by
    long call, short put, long rf asset
  51. given put-call parity, a long call is created by
    long asset, long put, short rf asset
  52. roll yield =
    spot price - future price
  53. 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)
  54. impact of stock dividend on EPS and equity
    decrease; no impact
  55. covariance = correlaiton * sd1 * sd2
  56. global minimum variance portfolio is not XX
  57. trigger price for margin call
    initial price * (1-initial margin) / (1-maintenance margin)
  58. if margin account balance fall below maintenance margin, it must be brought back to XX
    initial margin
  59. price weighted index and value weighted index
    • (new price1 +new price2)/2
    • (new value of portfolio)/(old value of portfolio)
  60. putable bond is more XX than callable bond
  61. modified duration formula
    (V- - V+)/(2*V0*change in yield)
  62. duration means .. and the higher the YTM, the XX the duration
    • price sensitivity of the bond to change in yield
    • lower
  63. difference between american and european option
    american option can early exercise
  64. cost of preferred stock
    dividend/market price
  65. profitable company, issue debt to retire stock will XX ROE and its variability
  66. steeper slope in risk-return indifference curve
    more risk averse and choose a lower return portfolio
  67. commodity index is based on XX price
    future commodity
  68. ABS is bankrupcy-remote issued by XX, hence have higher credit rating
  69. a call feature XX duration and interest rate risk
  70. recession XX yield of low quality bond and XX credit spread between low and high quality bond
    increase, increase
  71. if government spread is similar to zero volatility spread, yield curve is..
  72. if option adjusted spread > zero volatility spread, option has XX value to bondholder
  73. if spot prices are positively correlated with interest rate movements, then its Futures price is going to be XX than its Forward Price
  74. increase in risk free rate XX the value of call
  75. profitability index
  76. beta_equity formula
    beta_asset * [1+D/E (1-t)]
  77. optimal risk portfolio is tangent of
    CAL and efficient frontier
  78. optimal investor portfolio is tangent of
    indifference curve and CAL
  79. Slope of SML represents
    market risk premium
  80. yield curve XX when there is expansionary monetary policy, increasing short term YTM volatility
  81. operating breakeven point
    fixed cost/contribution margin
  82. float factor =
    daily float / (deposits / number of days)
  83. beta formula
    correlation * SD_asset/SD_market
  84. enterprise value
    EBITDA * EV multiple
  85. market cap formula (from EV)
    EV - market value of debt and preferred stock + cash and ST investment
  86. buying stock on margin - initial investment and loan amount
    • P*Q*margin% + commission
    • P*Q*(1-margin%)
  87. meaning of alpha
    measure of risk adjusted return and is the difference between active and passive portfolio return
  88. meaning of repo margin
    difference between collateral market value and loan value
  89. meaning of letter of credit
    reimburse any shortfall from asset backing the issue
  90. the XX the treasury spot rate curve, the greater the difference between nominal spread and z-spread
  91. value at risk is..
    minimum expected loss given a probi
Card Set
CFA lv1 - finance
CFA lv1 - finance