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596 Cards in this Set
- Front
- Back
fixed
asset t/o |
sales/ net
pp and e |
|
Does the Dividend
DIscount model use COE or WACC |
Cost of equity
|
|
What is the
operating margin = |
ni/ revenues
|
|
Is Durbin watson appropriate for autoreggressive or tren models
|
trend models
|
|
iS PROPORTIONATE CONSOLIDATION ALLOWED FOR GAAP
|
IN VERY LIMITED CIRCUMSTANcES
|
|
what does the variance of an equally weighted portfolio approach as number of assets increases
|
its convariance
|
|
What is the equation for FCFE Coverage Ratio
|
FCFE Coverage Ratio= FCFE/ (DIvidends +share repurchases)
|
|
when is the opetion gamma and when is the gamma of options largest
|
Options Gamma is the rate of change of options delta with a small rise in the price of the underlying stock and when a call is at the money
|
|
what is the easiest way to solve for the delta of a put option
|
delta of call-1
|
|
What does the Sharpe ratio=
|
(er- risk free rate )/ Sd
|
|
What does the SML and the CML use as it slope
|
SML= beta
CML=Variance "The SML is based on the CML and both are equilibrium relationships." |
|
What does r squared equal
|
(total var- unexplained var)/ total Var
also RSS/ SST |
|
What tests for heteroskedascity
|
breusch pagan
|
|
what is the durban watson statistic
|
2(1-r)
|
|
What tests for serial correlation
|
durban watson
|
|
What is the t stat for serially correlated errors
|
resuidual autocorrelation for lag/ SE of residual autocorrelation
|
|
what is the mean reverting level
|
bo (1-b1)
|
|
Whats the foreign exchange rule
|
follow the up the bid and multiply and down the ask and divide rule
|
|
What is uncover i/r parity
|
expected future spot rate * exchange rate
|
|
What do you have to do with payoffs for forward contracts
|
discount back
|
|
what is the equation for the fischer effect
|
fischer effect= risk free rate + expected inflation
|
|
What is the balance of payments equation
|
current acct + capital acct+ financial acct=0
|
|
expected interest rate differential (currency)=
|
I/R differential + expected inflation differential +Expected risk premium differential
|
|
What is the equation for the production function
|
total productivity factor *quantity of capital raised to alpha*qualtity of labor raised to 1-alpha
|
|
What is the cobb-douglas function=
|
change in GDP= change in average productivity +change in average capital*alpha +change in average quantity of labor*(1-alpha)
|
|
What does potential GDP=
|
long term growth rate in labor + long term growth rate in productivity
|
|
What intitially happens to investing cash flows when costs is capitalized
|
decreases
|
|
what does operating income=
|
EBIT
|
|
IS EBIT higher or lower under finance or operating lease
|
higher under finance lease
|
|
What cant the dubrin watson be used for
|
times series data
|
|
how many dummy variables are used
|
one less than the states of the world
|
|
Are forward contradcts subject to variation margins?.
|
no
|
|
What cost of capital is used target firm or acquirers firm
|
targets
|
|
When is regulatory capture an issue
|
Regulatory capture has always been a concern when SROs are used (Institute 692)
|
|
When reclassification is deemed appropriate how are prior periods restated
|
When reclassification is deemed appropriate, there is no restatement of prior periods at the reclassification date.
|
|
what is multicollinearity
|
A regression assumption violation that occurs when two or more independent variables (or combinations of independent variables) are highly but not perfectly correlated with each other
|
|
describe a dummy variable
|
takes on a value of 1 if a particular condition is true and 0 if that condition is false.
|
|
what is heteroskacity
|
The property of having a non constant variance; refers to an error term that is not constant across observations."
o Ex. CAPM- different standard deviations for small and large firms |
|
what is serial correlation
|
• Serial Correlation-regression errors correlated across observations
|
|
what is a unit root
|
"Unit root-A time series that is not covariance stationary is said to have a unit root."
|
|
what does the current account equal
|
difference between savings and investments
|
|
what is - increase in capital to labor
|
capital deepening
|
|
what is pareto optimal
|
pareto optimal= impossible to make one group better without making one worse
|
|
what is the dutch disease
|
currency appreciation driven by strong export demand for resources makes other segments of the economy, in particular manufacturing, globally uncompetitive. (often for resource rich countries)
|
|
what is the regulatory capture theory
|
Regulatory Capture Theory-Regulations often arise to protect those regulated
|
|
Describe level 1,2,3 assets
|
Level 1 Assets- directly observable market prices
Level 2 Assets- not as easily priced because they are not actively traded Level 3 Assets- illiquid and value is not discernible |
|
common law vs. civil law
|
Common law- interpreted by judges
Civil Law- interpreted by legislation |
|
what is mutually exclusive
|
A statistical term used to describe a situation where the occurrence of one event is not influenced or caused by another event. In addition, it is impossible for mutually exclusive events to occur at the same time
|
|
Describe an equity carve out
|
involves the creation of a new legal entity and sales of the equity in it go to outsiders
|
|
spinoff vs. splitoff
|
• Spinoff-shareholders of the parent receive a proportionate # of shares in the new entity, whereas the sale of a division results in an inflow of cash to the parent.
o Splitoff- similar, in which some of the parents shareholders are given shares of the new entity in exchange for their shares in the parent |
|
What is the equation for harmonic mean
|
n/ sum (1/ Xi)
|
|
what is rachet
|
The contractual term enabling management of the private equity controlled company to be rewarded with increased equity ownership as a result of meeting performance targets is called:
|
|
What is a convertible bond arbitrage strategy
|
purchase a portfolio of convertible bonds and take short positions in the related equity security.
|
|
What is the difference between ordinal and cardinal measurement systems
|
Ordinal ranking because it only orders borrowers’ riskiness from highest to lowest
Cardinal Ranking- rankings based on an amount |
|
What is key rate duration
|
Key rate duration is the sensitivity of a portfolio’s value to the change in a particular key rate.
|
|
What is active risk and what is another name for it
|
Active Risk-the standard deviation of active return. This risk is also often referred to as the “tracking error.”
|
|
What does orthagonal mean
|
uncorrelated
|
|
what method can be used to correct for serial correlation
|
hansen method and this helps to adjust standard errors
|
|
what types of distributions do hedge funds have
|
nonnormal and negative skewmess and positive excess kurtosis
|
|
In the treynor black model what is the weight of a security in the porfolio equal to
|
(alpha/ unsystematic risk) /(sum of (alpha/systematic risk))
|
|
if the OAS is less than zero, is the bond over or under valued
|
overvalued
|
|
what is tthe equation for justified trailing p/e
|
(1- payout)/ (r-g)
|
|
what is tthe equation for Justified LEADING p/e
|
(1- payout) *(1+G)/ (r-g)
|
|
under the neoclassical model what doesnt lead to long term growth
|
capital
|
|
what does the endogenous growth model say
|
social benefits mean that capital ldeeping leads to long term growth
|
|
what is the value of assets under dividend growth theory
|
e/r The srest of stock price= growth
|
|
What does the cash flow accruals ratio=
|
NI- CFO-CFI= accruals / Net operating Assets
|
|
How are pension plan assets and PBO reported under GAAP and under IFRS
|
Both report the funded status
|
|
what does periodic pension cost=
|
contributions- change in funded status
|
|
are pension contributions reporting as operating, investing or financing activy
|
operating
|
|
Are a subsidiaries asset/s liabs restated for inflation underr gaap or ifrs and what is if anything restated
|
only under IFRS and nonmonetary assets/ liabs
|
|
Ina hyperinflationary economy under IFRS what method is used
|
temporal- so functional currency will now equal parents presentation currency
|
|
difference between statutory and subsidiary merger
|
statutory= subsidiary ceases to exist as standalone
|
|
what type of merger defense is a leveraged recapitalization and what is it
|
post-merger and its when a company borrows money to buy back shares
|
|
Total asset t/o
|
Asset Turnover = Sales or Revenues/Total Assets
|
|
What is an option vega
|
The measurement of an option's sensitivity to changes in the volatility of the underlying asset
|
|
what happens to pension service cost if i/r increases
|
service cost and pbo decrease
|
|
how does a higher expected return affect pension expense
|
reduces it
|
|
WHAT HAPPENS to coe for residual dividend policy
|
increases (investor punnish unstable dividends
|
|
When is credit risk for a swap highest?
|
middle of swap
|
|
what does a low r squared indicate in terms of conditional heteroskedacity
|
low
|
|
under the temporal method how are unrealized and realzied gains and losses recognized
|
unrealized= not recognized
realized- recognized on i/s through depreciation and COGS |
|
what is the equation to determined PVGO
|
p= (E/r) +PVGO..... NOtice E not dividends)
|
|
what does EVA=
|
NOPAT-(WACC*capital)
|
|
What is the intrinsic value equation using a single period residual income model
|
bo+ (ROE-r)/(r-g)
|
|
is there a clearinghouse is forward or future amrkets
|
future
|
|
What types of countries will benefit most from capital deepening
|
those with a high alpha
|
|
How is the rentail price of capital calculated in the steady state
|
r= Alpha* Marginal Product of Capital (Capital/ GDP)
|
|
Under the Temporal Method how are remeasurement gains/ losses reported
|
I/S
|
|
How is the Cumulative translation adjsutment reported in OCI / Balance sheet comupted under the current rate method
|
Get a= D+e to balance for both periods
|
|
If an industry has high variable costs what is the rivalvrly and amount of entrace
|
high entrace and lower rivalry (the result is a lower need for economies of scale
|
|
What does the OAS spread reflect
|
adjustments for liquidity and credit risk
|
|
What does the intercet in a macroeconomi model=
|
expected return assuming no surprises
|
|
What is active factor risk caused by
|
standard deviations from benchmark standard factor senstitivities
|
|
what does standard error equal (equation)
|
(slope estimate- hypothesized value)/ T Statistic
|
|
If the fisher effect holds how do interest rate differentials compare to inflation differentials
|
they are equal
|
|
WHat is the equation for the fischer erffect
|
nominal rates= (1+real rate)(1+inflation)
|
|
Is absolute purchasing power used to predict exchange rates?
|
no
|
|
when is relative purchasing power useful
|
for predicting long term interest rates (not short term)
|
|
What is the discount rate used to evaluate a specifc capital budgeting project
|
rate adjusted for risk
|
|
How are venture capital projects funded
|
primarily through equity and little use of debt etc (little leverage)
|
|
What is the equation for post money valuation
|
valuation= v/ (1+r)^T
|
|
How is the build up method calculated for required return
|
absolutely no use of betas
|
|
What is the equation for prepayment
|
SSM X (Beginning mortgage balance-scheduled principal prepayment)
|
|
what is the equation for SMM
|
1-(1-CPR)^1/12
|
|
do currency swaos reflect the credit of one party
|
no
|
|
describe credit risk of counter parties in I/R swaps and currency swaps
|
I/R swaps it decreases over time and currency swaps maximum in the middle/ end (must swap the final payment)
|
|
What does an AR model predict
|
data from one period will eventually revert back to the mean reverting level
|
|
What is a sunset provision clause
|
revisit cost-benefit analysis everytime the decision may be renewed
|
|
what is the equation for financial leverage
|
average assets/ average equity
|
|
What is the likely effect of a high degree of operating/ financial leverage in an industry
|
more price competition to defend market share/ cover fixed costs
|
|
Which of the following are least likely to relate to rivalry among existing competitors
A) A high degree of operating/ financial leverage B) a short product life C) high switching costs |
C)
|
|
What is the equation for Justified P to S
|
Net profit Margin (1-b)*(1+G)/ r-g
|
|
How can multicollinearity be determined
|
high r squared and low t-stat
|
|
What does the going in capt rate=
|
Discount rate AKA NOI/ Value (therefore the discount rate= cap rate + growth rate)
|
|
What is the F-Statistics
|
Mean regression sum of squares / mean square error
|
|
What does an interest rate collar consist of
|
long interest rate cap and short interest rate floor
|
|
What does a put option on a bond do
|
give the owner of a bond the right to sell it if it drops below a certain point. IT can be sold for higher than market value (so similar to an interest rate cap)
|
|
what is the bootstrap method on earnings
|
when the acquirer's P/E is hgiher than the target and the the acqusition and eps increases but earnings dont increase (meaning p/e also stays the same)
|
|
What does the static trade theory suggest
|
a company should lever up to the point where the additional costs of financial distress exceed the additional increase in tax shield
|
|
What does additional debt do to a capital structure? (agency costs)
|
it decreases agency costs i/r payments reduce free cash flow also (less waste)
|
|
what is the optimal capital structure?
|
the plan that minimizes the WACC
|
|
whatd oes miller and modligiani proposition 2 state
|
coe is a linear function of debt to equity ratio
|
|
in an equity carve out how are shares accounted for
|
minority amount of shares given to new shareholders and majority retained by parent (not given to existing shareholders)
|
|
How are spinoffs viewed by the market
|
favorably because they result in greater efficiency for the parent
|
|
what is the risk of poor financial disclosures known as
|
accounting risk
|
|
What does NOPAT=
|
EBIT (1-T)
|
|
What is the Market Value Added equal to
|
Market Value of Total Capital (MV of stock + liabilities)- BV of total capital
|
|
What is FCFE equal to
|
NI + depreciation -change in WC - change in fixed assets
|
|
what is an assumption of cash flow duration
|
the same rate of prepayments will occur
|
|
What risk exists for futures and forwards
|
credit risk of forwards because they are not marked to market daily
|
|
if interest rates are flat what is the difference in prices between forwards and futures
|
nothing
|
|
What does the futures price converge to
|
the spot price otherwise abritrage opportunities exist
|
|
What is the equation for the adjusted Alpha and what is the weight of a security in an active managers porfolio
|
Adjusted Alpha= [
(correlation between realized and forecasted alpha of that asset^2)*Alpha] / Sum of (correlation between realized and forecasted alpha of that asset^2)*Alpha] |
|
Who does the standard of confidentiality apply to
|
clients former clients and prospects unless disclosure is required by law
|
|
what is the ruling on additional compensation arrangements
|
no gifts or anything are acceptible that may create a conflict of interest with the employer is allowed unless all parties consent
|
|
what is the requirement for record retentions
|
hold things for 7 years unless other regulatory guidance
|
|
what is a random walk
|
A time series in which the value of the series in one period is the value of the series in the previous period plus an unpredictable random error.
|
|
What is a probit model
|
• probit model, which is based on the normal distribution, estimates the probability that Y = 1 (a condition is fulfilled) given the value of the independent variable X.
|
|
What is a logit model
|
• logit model is identical to a probil model, except that it is based on the logistic distribution rather than the normal distribution.
|
|
What is a unit root
|
"Unit root-A time series that is not covariance stationary is said to have a unit root."
|
|
How is economic growth calculated
|
Economic growth is calculated as the annual percentage change in real GDP or in real per capita GDP.
|
|
What is a bear hug
|
Bear Hug- merger proposal is delivered directly to Board of Directors
|
|
What is a tender offer
|
Tender offer- offer to buy shares directly from
shareholders |
|
-(a situation in which financial shocks spread from their place of origin to other locales;
|
Financial COntagion
|
|
is regulation and monitoring of the safety and soundness of financial institutions in order to promote financial stability, reduce system-wide risks, and protect customers of financial institutions.
|
prudential supervision
|
|
What is a requirement of long lived assets
|
tangible, or intangible, future economic benefits must flow to the entity from the use of the asset.
|
|
What is a synthetic lease
|
A lease that is structured to provide a company with the tax benefits of ownership while not requiring the asset to be reflected on the company’s financial statements is known as
|
|
What is A lease that is structured to provide a company with the tax benefits of ownership while not requiring the asset to be reflected on the company’s financial statements is known as
|
synthetic lease
|
|
investor who is defined as an investor who is very likely to be part of the next trade in the share and who is therefore important in setting price
|
marginal investor
|
|
Equity carve out
|
• Equity Carve Out- involves the creation of a new legal entity and sales of the equity in it go to outsiders
|
|
Spinoff
|
• Spinoff-shareholders of the parent receive a proportionate # of shares in the new entity, whereas the sale of a division results in an inflow of cash to the parent.
|
|
Splitoff
|
o Splitoff- similar, in which some of the parents shareholders are given shares of the new entity in exchange for their shares in the parent
|
|
What ius the equation for the harmonic mean
|
- equation is easier to understand as xy. (weight 1*Y+ weight 2*X)
|
|
The contractual term enabling management of the private equity controlled company to be rewarded with increased equity ownership as a result of meeting performance targets is called:
|
rachet
|
|
WHat is a convertible bond strategy
|
Convertible bond arbitrage strategies purchase a portfolio of convertible bonds and take short positions in the related equity security.
Arbitrage-based funds typically have a lower standard deviation of returns because they are the hedge funds that explicitly hedge. |
|
what has lwoer standard deviations Arbitrage based funds or hedge funds
|
Arbitrage-based funds typically have a lower standard deviation of returns because they are the hedge funds that explicitly hedge.
|
|
When are fixed Income securities beneficial
|
declining spreads
|
|
Equation for daily standard deviation
|
Daily Standard Deviation- annualized by multiplying times the square root of 365
|
|
WHat does ABS Stand for
|
ABS-absolute prepayment speed
|
|
What is active risk equal to
|
the standard deviation of active return. This risk is also often referred to as the “tracking error.”
|
|
What is another name for active risk
|
tracking error
|
|
What does FCFE equal
|
FCFE= CFO-FCInv- Net borrowing
|
|
which cost of equity model is liquidity factor applicabel to
|
Liquidity factor is only applicable to the Pastor-Stambaugh model and not the Fama and French Model
|
|
When is the build up method used
|
- The buildup valuation method is usually applied to closely held companies when the betas are not readily available.
|
|
What is the vlaue of a 2 year IR put
|
Value of 2 year I/R floor= value of one year put + value of 2 year put
|
|
what is required for an upward shift in the production curve
|
advance in technology
|
|
What does GDp growth rate=
|
growth in TFp +alpha (growth in capital)+ (1-alpha)*growth in labor
|
|
What is not include included in aproject cash flow prosoal analysis
|
interest because it is a financing cost
|
|
what smooths the returns of real estatte indexes and what is the impact
|
appraisal lag which results in a lower correlation with other classes
|
|
How can appraisal lage be mitigated
|
unsmoothing or using a transaction based approach
|
|
What is the income requirement of the old prudent man rule
|
earning income to compensate for inflation
|
|
Why is ROA different after translation
|
numerator translated at average rate and denominator transalted at current rate
|
|
How is Net Profit Margin different after translation
|
its not both numerator and denominator= translated at average rate
|
|
what effect does a high persistance factor have on dividends
|
low dividends
|
|
Value of 2 year I/R floor
|
Value of 2 year I/R floor= value of one year put + value of 2 year putNOP
|
|
What does NOPAT=
|
EBITx(1-T)
|
|
What does MVA=
|
market value- invested capital
|
|
what does clearn surplus relationship=
|
beginning book value+net income- dividends
|
|
The belief that there are patterns/ reversals in in returns provides the rationale to use which indicator
|
relative strength
|
|
DOes IFRS and/or GAAP allow for reclassification into and out of held for trading
|
GAAP yes. IFrs generally not
|
|
what changes when SPE's are considated
|
assets/ liabilities equity but not income
|
|
how much of a board should be independent
|
75
|
|
What is the equation for the value using a one period residual income model
|
Bo+ [(ROE-r)/r-g]*bo
|
|
What type of r squared is used for a breusch pagan test
|
an r square of the regression errors based on the independent variable not an r squared of comparison between independent variables (i.e. not between jewelry and gold prices but between the r squared of the squared residuals from the original regression of the independent variable
|
|
Do hedge fund indexes or funds of funds have biases and what are they..
|
only hedge funds do and they are selection, survivorship. and backfill bias
|
|
What is merger arbitrage compared to
|
selling insurance.. make small profit if successful, large lose if not
|
|
what does a PSA of say 100-300 idnicate
|
range in which preapayments is constant
|
|
What are the limitations on growth in the gordon growth
|
can eb negative (cant be greater than r)
|
|
What is the classical growth of GDP theory
|
an increase in per capita GDP above subsistence level is mean reverting
|
|
what is a poisin pill
|
make stock less attractive
|
|
Do all client communications need documentation
|
yes
|
|
What are some compliance procedures
|
pre clearance of trades and duplicate confirmations
|
|
do market conditions affect the bid ask spread between parties
|
yes
|
|
Does an increase in discount trade increase or lower pbo
|
lower which results in lower service costs
|
|
what does the swap spread measure
|
difference in the credit quality in the global economy
|
|
do hedge funds ior mutual funds use multiple of asset investments
|
hedge funds
|
|
What does merger arbitrage do
|
profit by taking a long position in the target and a short in the acquirer
|
|
What does the value of a combined firm equal
|
Value of acquirer + value of target + synergies- cash paid to target
|
|
what do high yield issuers depend heavily on
|
bank debt
|
|
are transactions to minimize tax liabilities allowed
|
no
|
|
what do diversitures signal
|
bad news
|
|
What do negative alphas in a portfolio signal
|
they should be shorted
|
|
What does non recourse loan mean
|
cash flows come only from property income and value of property not from seizing assets
|
|
what does an AR model predict
|
series will eventually fall back to mean reverting level
|
|
In porters fiver forces if a company has high operating leverage what does this mean and what kind of competition does this cause
|
high fixed costs and high competition
|
|
what type of serial correlation have low standard errors
|
positive
|
|
when is a residual income approach most appropriate
|
if no history of dividends good fianncial reporting and negative cash flow
|
|
average spread over treasury spot rate curve
|
OAS
|
|
avergae spread over tresury yield curve
|
nominal spread
|
|
What type of relationship does correlation coefficient interpret
|
linear relationship
|
|
WHat is the equation for covriance
|
(xi-x bar)*(yi-ybar)/(n-1)
|
|
spurious correlation
|
is a mathematical relationship in which two events or variables have no direct causal connection,
|
|
what is is the regression asusmption of the independent variables and residual terms
|
independently distributed and uncorrelated
|
|
is heterskedascity conditional (breusch pagan)
|
use white-correlated standard errors
|
|
What are the correlation for multiple correlation
|
n-k-1
|
|
what types of variation is anova
|
regression model or residuals
|
|
what is the equation for r squared
|
Regression sum of squares / sst
|
|
What is the f stat equal and the degrees of freedom
|
regression mean square/ mean squared error (k and n-k-1)
|
|
How can heteroskadascity be adjusted for
|
chaning regression coeffients
|
|
what is confidence interval equation
|
regression coefficeient +/-(critical t-value)(standard error of regression coeffient)
|
|
what are 3 problems with regression analysis and what are they
|
1) conditional heteroskadascity- residual variance related to levvvvvel independet variables (hosuehold Income)
2) serial correlation- residuals are correltaed (time series) 3) multicolliearity- two or more independe variables are correlated |
|
what model should be used to measure seasonaility
|
log-linear
|
|
WHat is an ar model
|
dependent variable is regression against previous values of itself
|
|
when testing for serial correlation what model should be used
|
not durbin watson (use t-test)
|
|
what is the 3 step process to see if something is covariance stationary
|
1) plot data to see if mena and variance is constant
2) run ar model and test for correlation 3) perform dickey filley test (test for unit root |
|
What is the mean reverting level for a covariance stationary ar model and if there is no covariance stationary how can you correct for it
|
its defined and first differencing can correct
|
|
is a unit root covariance stationary
|
no
|
|
does a random walk have a unit root
|
yes (correct by first deferencing)
|
|
Is the mean reverting level definied in a random walk
|
mean reverting level is undefined
|
|
do random walks have serial correlation
|
no
|
|
what is used to assess the predictive abitlity of ar models
|
root mean squared error.
|
|
what is root mean square errors
|
used to asses the predictive accuracy of autoregressive models. it is the square root of the average square error
|
|
what does it mean for variables to be cointegrated
|
error term from regressing one against the other is covariance stationary
|
|
How do you asses if an autregressive model against two variables is good
|
if both variables=covariance stationary, model= reliable
if one is, then not relaibles if both are not test for cointegration. if conitegration= covariance stationary |
|
Are exchange rates covariance stationary
|
no its a random walk ( no serial correlation)
|
|
what does it mean to be a random walk
|
IF random walk prior perido= good predictor of future period (high r squared)
|
|
What is the order of the assessment of a time series model
|
is it covariance stationary if yes use first differencing
is there serial correlation (durbin watson model)- if yes auto regressive model Check for arch- if arch model = not good the use ar 2 model and start over |
|
When does covered interest rate parity hold
|
when forward premiums or discount exactly offset differences
Covered i/r gives no arboitrage forward xrates and uncovered gives expected future spot rates |
|
when does uncovered i/r parity hold
|
expected future spot rates (instead of forward exchange rates ) equal i/r differentials (This isn't a traded value)
Covered i/r gives no arboitrage forward xrates and uncovered gives expected future spot rates |
|
DO covered and/or uncovered i/r parity hold by arbitraged
|
only covered
|
|
over what time period do covered and uncovered i/r parity hold
|
covered= short and medium term
uncovered= long term |
|
what is the future exchange rate an unbioased
|
covered and uncovered i/r parity hold
|
|
what does fx carry trade seek to profit from and what is it
|
uncovered i/r parity and it involes longing high yield curreny and shorting low yield
|
|
what is the flight to saftey
|
low yield currencies= safe haven during credit crisis
|
|
what is the current account
|
trade balance
|
|
when is sterilized intervention used
|
when inflation is a concern
|
|
What is the difference between sterlized and unsterlized
|
sterilized money base doesnt changed (gov't just buys or sellls some currency
|
|
what is the international fishcer effect
|
nominal i/.r= real i/r +/- expected inflation
|
|
what is the difference in returns by changing various parts of the cobb-doudflag function
|
constant returns to scale
|
|
what does classical growth theory say
|
growth in real gdp= mean reverting when above substitence level
|
|
permanent increase in gdp due to increase in savings rate
|
endegenous theory
|
|
what is absolute covnergence
|
lkess develop countries will converge in terms of standard of living
|
|
reallocation of capital= permanent increase ine conomic growth rate
|
endegenous growth theory
|
|
when are independent SROS (self regulatory agencieis effective
|
when properly supervised by regulatory authorities
|
|
what is an SRO
|
self regualtory organization
|
|
what is regulatory capture
|
a regulatory body will eventualy be controlled by the industry that it is supposed to regulate
|
|
is inventory allowed to be revalued ifrs vs. gaap
|
ifrs
|
|
what is inventory valued at ifrs
|
lower of cost or nrv
|
|
what is inventory valued at gaap
|
cost or market
|
|
what is used to comare whether fixed assets are properly maintained
|
cap ex to average depreciate rate
|
|
how often is goodwill measured for impairment ifrs vs. gaap
|
ifrs- anually
gaap-lost event |
|
asset impairment Gaap-
|
if carrying value= less than undsciounted cash flows at reportin unit level- impairment amount= carrying value- discounted cf
|
|
asset impairment ifrs-
|
CGU level whenrecoverable amount is lower than greater of fair value-costs to sell and value in use
|
|
how are long lived assets value ifrs- vs gaap
|
ifrs-= hc or revaluation model (must be consistent within classes)
gaap= hc |
|
WHAT INTEREST RATe method does ifrs use and what about gaap
|
ifrs= expected life and gaap= contrcat life
|
|
Is non redeemable preferred stock debt or equity
|
equity
|
|
where are unrealized foreign exchange gains/ losses recognized
|
oci for gaap and i/s for ifrs
|
|
in an acquisition i
f fv>bV how is it recorded and if bv>fv |
amortize over life
expense |
|
How is partial goodwill method recorded
|
% share of subsidiaries identifiable assets- bv
|
|
is d/e greater under goodwill or partial goodwill
|
partial
|
|
what is the equtiy for equity method vs proportional consolidation
|
the same
|
|
what is the goal of SPE
|
obtain low cost financing
|
|
What are the criteria to see if an entity is a vie
|
1) issuficient at risk equity
2)shareholders lackd ecision making rights 3)shareholders do not absorb losses 4)shareholders do not receive residual benefits |
|
What does plan assets=
|
fv at beginning of year +
contributions+ actual return- benefits paid |
|
how aree actuarial gains/ losses dealt with gaap vs. ifrms
|
gaap= amortized under coordior method
ifrs= not amortized |
|
how is share based compensation recognized
|
amortized over vesting period based on fv at date of acquisition
|
|
under temporal method and current rate method how are cogs and depreciation accounted for
|
temporal= historical rate
current rate= average rate |
|
under temporal method and current rate method how are equtiy accounted for
|
temporal= miced
current rate= current rate |
|
how are non monetary assets/ liaba ccounted for under temporal method
|
historical rate
|
|
what is the exposure for
temporal method current rate method |
1) net monetary asset
2) sE |
|
when a highly inflationary economy what does ifrs say
|
ifrs says restate for inflation then translate into parents
(ONLY NON MONETARY ASSETS/ liabs= restated |
|
when a highly inflationary economy what does gaap say
|
gaap says no restatement but remeasure
|
|
what is the exposure under temporal method (list accounts)
|
cash + ar- AP- current debt- lt debt
|
|
how are fair value hedges recognized
|
i/s
|
|
how are cash flow hedges recognized
|
equity
|
|
what is the balance sheet based accruals ratio=
|
(NOA end- NOA beginning)/ Noa end+ noa beg /2
|
|
WHAT IS THE CF BASED accruals ratio
|
(ni-cfo-cfi)/ (NOA end +NOA beg)/2
|
|
how does inflationeffect affect cash flow analysis
|
adjust them down
|
|
What does economic invome =
|
after tac cash flow- economic depreciation (change in MV)
|
|
what does eocnomic profit=
|
nopat- wacc
|
|
what is claims valuation
|
seperate cash flows based on equity vs. debt
|
|
what is residual income and what is the equity charge portion
|
nI- Beginning BV of equity *Cost of equity
|
|
what does mm proposition 1 iwth no taxes say
What does mm prostion 2 say with no taxes what does mm proposition 1 say (with taxes) |
1) capital structure= irrelevant
2) capital structure increases linearly as a company increases proportion of debt financing (benefits of using more debt exactly offset rise of cost of equity 3) value= maximized at 100% debt 4) value= maximized at 100% debt |
|
what is the static trade off theory
|
balance benefits of debt (tax) with costs of financial distress (THERE IS AB OPTIMAL CAPITAL STRUCTURE)
|
|
if the legal system= stronger is more or less debt used and what is the maturity of this debt
|
less and longer
|
|
if there is more or less information assymetry is more or less debt used and what is the maturity of this debt
|
less and longer
|
|
what is the equation for a stable dividen policy expected dividend
|
previous dividen + (expected increase in eps)*(target payout ratio)*adjustment factor)
|
|
Explain the 3 types of dividend [policies
|
1)residual earnings- earnings - capital budget* equity eprcentage in capital budget)
2) constant= % of earnings 3) stable- use adjustment factor to move towards stable rate |
|
How is a residual dividend policy calculated
|
1)residual earnings- earnings - capital budget* equity eprcentage in capital budget)
|
|
Calculate dividends under double tax rate system
|
(1-corporate rate)*(1- individual rate)
|
|
Calculate dividends under split rate
|
dividend rate= lower and corporate rate= still the same
|
|
Calculate the dividend under the imputated rate
|
actually taxed at corporate rate and then idnvidiual rate..
however, effectively taxed at shareholder rate ( so if shareholder rate= less than corporate rate receive difference) |
|
what must be approved by shareholders and what %
|
stock purchase by 50% (not the case for asset purchase)
|
|
who pays corporate taxes in a stock purchase
|
non one
|
|
who pays corporate taxes in a stock purchase
|
target company
|
|
wo pays shareholder taxes in a stock purchase
|
stockholders
|
|
wo pays shareholder taxes in a assets purchase
|
no one
|
|
what type of defense is a fair price ammendment
|
pre-offerr
|
|
what type of defense is a golden prachute
|
pre offer and it is when if they are terminated after buyout they get buyout
|
|
what is greenmail and what kind of defence
|
target purchases shares back for acquirer at premium an dpost-offer
|
|
is a share repurchase a pre or post offer defense
|
post
|
|
what is a pacman defense
|
target offers to buy acquirer
|
|
what are the thresholds for HHI and what change= maybe antritrust
|
under 1000 nothing
1000-1800 maybe if 100+ change >18000= 50+ change |
|
what kind of takeover premium is there for comparable company and comparable transaction
|
only for comprable company
|
|
the more confident the parties are in a merger of the synergies who wants stock and who wants cash
|
acquirer wants to pay cash and the target wants stock
|
|
what is the ibbotson chen model
|
supply chain [1 +inflation][i + growth in real earnings][1+p/e growth]-1+expected income component- rf
|
|
What does the fama french model include
|
market risk premium
big/s mall value- high bv low bv |
|
what type of model is the bond yield + risk premium
|
build up model
|
|
If level of debt is always changing should fcff or fcfe be used
|
fcff
|
|
when fcf is negative what valuation method should be used
|
residual income
|
|
when model is good to use for stable mature companies
|
gordon growth
|
|
what is the prat model composed of
|
net profit margin
financial levergae= total assets/ total equity asset turnover= sales/ total assets retention rate |
|
How is fcff calculated from ocf
|
ocf + interest*(1-T) - FC investment
|
|
how does leverage affect fcfe and fcff
|
only fcfe barely
|
|
what does justified leading p/e=
|
(1-b)/(r-g)
|
|
what 2 things does the justified PEG ratio assume
|
1) only growth= due to inflation
2) linear relationship between p/e and growth |
|
What is the justified PEG
|
[(1+Inflation)*Eo]/ (r-g)
or PE/G |
|
is book value good for financial institutions
|
yes liquid assets
|
|
what is justified p/b
|
(ROE-g)/ (r-g)
|
|
what are tha advantages to price to sales
|
ratio is good for distressed firms
sales are not as easily manipulated sales are not as volatile as earnings useful to value start-ups |
|
what is justified p/s
|
[eo/so]*(1-b)*(1+g)/ (r-g)
Net profit margin * justified trail p/e |
|
what is more stable earnings or cash flows
|
cashflows
|
|
what does enterprise value=
|
MV debt +MV equity - cash and short term investments
|
|
which model of valuation assumes a clean surplus relationship beginning + BV + earnings - dividend
|
residual income model
|
|
what does the cost approach to real estate valuation=
|
value of land + replacement cost of building- adjsutments for depreciation and obsolescense
|
|
How is the income approach calculated and what does NOi=
|
noi/ CAP RATE
noi= NOI calculated before subtracting financing costs and income taxes |
|
what does the cap rate =
|
discount rate- growth rate
|
|
What two real estate ratios are used
|
debt service coverage ratio
loan to vlaue |
|
what does debt service coverage ratio=
|
first year NOI/ debt services
|
|
what kind of reits are affected by job creation
|
residential office and shopping and terail
|
|
are industrial reits affected by job creation or population growth
|
population growth
|
|
what is the huge concern for hotel reits
|
financial leverage as income is super variable
|
|
what affects storage retis
|
population growth and job creation
|
|
what does navps=
|
assets- liabilities using market prices
|
|
what does funds fromoperations=
|
net income + depreciation expenses+ deferred tax charges- gains/ losses from sales of property
|
|
What is the goal of adjusted funds from operations
|
more represetation of current economic income
|
|
AFFO=
|
ffo- non cash (straight line) rent adjustment- recurring maintenance type cap-ex and leassing commision
|
|
what is non cash rent
|
Non-cash rent-An amount equal to the difference between the average contractual rent over a lease term (the straight- line rent) and the cash rent actually paid during a period.
"The amount of this deduction is the difference between the average contractual rent over the leases’ terms and the cash rent actually paid.) " |
|
what is used more often and why AFFO or FFO
|
FFO because AFFO is more subjective and uses mroe estimates
|
|
what is a tag alone drag along clause
|
any time an acquirer acquires control of the company they must extend the acquisition offer to all shareholders including firm management
|
|
what is an earnout
|
acquisition price paid is tied to future performance (often for joint venture companies)
|
|
are venture capital firms able to grow through subsequent funding
|
no hard to get subsequent funding
|
|
What is paid in capital
|
% of of commited capital used by the GP
|
|
what is Distributed Paid in capital
|
cumulative distributions paid to the LP and it is net of mgmt fees and carried interest
|
|
How is a 220 psa calculated
|
months of seasoning *2.2*.2
|
|
generate cash inflows primarily from the sale of developed or improved properties as opposed to recurring lease or rental income
|
reoc
|
|
what are the classic symptoms of multicolliearity with r2 f stat an t stat
|
significant r squared and f stat but not t stats
|
|
what is the null hypothesis for the dickey fulley test
|
that the g1- o so there us a unit root and the data is not stationary
|
|
how is fifo assets adjusted for LIFO reserve
|
add in the full lifo reserve
|
|
Given these two conditions compensation is expensed over how long
Options cannot be exercised for 4 years and expire in 10 years from the grant date. Based on prior experience, it is estimated that options are exercised, on average, in five years. |
4 years
|
|
what affect do stock award plans have on debt to equity
|
The new stock awards plan will have no effect on the debt/equity ratio because there will be no change in equity: Retained earnings will be decreased by the amount of the expense and paid-in capital increased by an equivalent amount.
|
|
what does after tax operating cf=
|
sales- cogs- operating expenses + Deprecitaiton *(1-T)
|
|
what is the non operating tax cash flow in the final year of project
|
sale of division less the taxes paid on the capital gains plus the net working capital that is recovered.
|
|
What does the sustainable growth rate assume will finance growth
|
A is correct. The sustainable growth rate model assumes that the growth will be financed with the issuance of debt and only internally generated equity to maintain a target capital structure. No additional common equity will be issued. The ROE is assumed to be a constant during this period.
|
|
What is a receiver swaption
|
gives the owner of the swaption the right to enter into a swap in which they will receive the fixed leg, and pay the floating leg.
|
|
what is a payer swaption
|
gives the owner of the swaption the right to enter into a swap where they pay the fixed leg and receive the floating leg.
|
|
what is the best way to compare bonds with or without options
|
look at the Z-spread of one bond and the option adjusted spread of the other whichever is greater is undervalued
|
|
what does the information ratio measure
|
The information ratio is a measure of the contribution of any new security to the performance of the active portfolio.
|
|
is this a limitation on growth?
|
Has a relatively low level of capital per worker.
|
|
When calculating interest expense for interest coverage ratios what is included in interest expense
|
interest expense + capitalized interest
|
|
what does the cash flow accruals ratio=
|
(ni- cfo-cfi)/ average noa
|
|
what is the equation for expected dividend
|
previous dividend + (change in earnings)*(target Payout Ratio)(adjustment years)
|
|
GGM equity risk premium estimate = based off of equity index
|
Dividend yield on the index based on year-ahead aggregate forecasted dividends and aggregate market value Consensus long-term earnings growth rate Current long-term government bond yield.
|
|
What type of model is the ibbotson chen model
|
macroeconomic model
|
|
When using a series that has such survivorship bias, however, the historical risk premium estimate is adjusted how
|
should be adjusted downward.
|
|
What is the molodovsky effect
|
High P/Es on depressed EPS at the bottom of the cycle and low P/Es on unusually high EPS at the top of the cycle reflect the countercyclical property of P/Es
|
|
how much does share price drop after the dividend is paid
|
(1-Td)/(1-CG)
|
|
Which method allows for valuing working capital, fixed assets, and intangible assets using different discount rates.
|
The excess earnings method (EEM)
|
|
what does the Old prudent man rule say about
1) risk taking 2) What kind of returns to base decisions off 3) what about diversification |
only take mild risks novequitvsecurities.
And judge based on actual returns not total returns. Ignores diversification |
|
what does the new ivnestor rule say about income
|
balance current income against growth
can look at Current income + capital gains |
|
what kind of t values do you want
|
high
|
|
what are the five goals of the new investor rule
|
Careful
Skilled CAution Loyalty Impartial |
|
How often is disclosure of referreal fees required
|
quarterly
|
|
what is a protective put strategy
|
long stock and long put
|
|
what is a covered call
|
by a stock and sell a call
|
|
what types of returns are there for commodities
|
colalteral yield
price return roll yield |
|
what is the calculation of the absolute spread
|
higher yield- lower yield
|
|
what is the calculation of the relative spread
|
(yield on subject bond/ yield on benchmark bond)-1
|
|
yield ratio
|
(yield on subject bond/ yield on benchmark bond)
|
|
does a call option increase or ddecrease yeild spreads
does a put option increase or decrease yield spread |
call= increases spread
put= decreases |
|
the value of an S& P index futures contract is how many times the level of the index
|
250
|
|
what is a call provision on a bond
|
issuer can repay principal prior to maturity
|
|
How do TIPS work
|
coupon is fixed percentage of par. Par is adjusted for inflation
|
|
what are three types of hedge fund biases
|
survivorship
backfill bias selection (better firms are more likely to report) |
|
Do hedge fund managers of mutual fund managers get more performance fees
|
hedge funds because mutual funds must share in losses too
|
|
What is notching
|
process pf assigning differnt ratings to bonds of the same issuer
|
|
what is structural subordination
|
when a subsidiary restricts the flow of assets to the parent util the subsidiaries debt is satisfied
|
|
What are the 4 c's of credit analysis
|
capacity
collateral covenants character |
|
what is the equation for convexity and duration
|
return= -modified duration * chnge in spread + 1/2(convexity * (change in spread))^2
|
|
what is a change of control put
|
debt holders can require the issuer to buy back debt in the event of an acquisition
|
|
what kind of credit ratings do governments get assigned
|
local currency debt rating and foreign currency debt rating
|
|
Which ratings are generally lower and why
local currency debt rating and foreign currency debt rating |
foreign currency debt rating because higher default rate as government must purchse foreign currency in open market to make payments
|
|
what has higher credit risk general obligation or revenue bonds
|
revenue (debt payments strictly come from revenue)
|
|
what is the debt service ratio
|
ratio ofprojects net revenue to interest and principal payments
|
|
which i/r benchmarkt is preferred
gov't bond yield curve or swap rate (libor curve) |
swap rate
|
|
does the liquditiy preference theory say premium is directly related to maturity
|
yes
|
|
does the preferred habitat theory say premium is directly related to maturity
|
no
|
|
what is particularly useful in measuring the effect of a non-parralel shift in the yield curve on a bond porfolio
|
key rate duration
|
|
" a measure of spread that the investor would realize over the entire Treasury spot rate curve if the mortgage-backed or asset-backed secu- rity is held to maturity. "
|
zero volatility spread
|
|
" is the spread that will make the present value of the cash flows from the mortgage-backed or asset-backed security when discounted at the Treasury spot rate plus the spread equal to the price of the security"
|
zero volatility spread
|
|
How are interest rates adjusted for a capped floater
|
when I/R exceeds cap, coupon is substituted equal to cap
|
|
What is the value of a puttable bond
|
valuable of a putable bond- value of non-puttable bond
|
|
what types of risks do nominal spreads account for
|
liquidity
credit risk option risk |
|
what is the minimum value of a convertible bond
|
greater of conversion value or straight value
|
|
what does the value of a callable convertible bond value=
|
straight value of bond + value of the call option on the stock - value of the call option on the bond
|
|
what happens to the value of the call o n the stock and the value of a callable convertible bond when stock volatility increases
|
both increase
|
|
what happens to the value of the call o n the stock and the value of a callable convertible bond when i/r volatility increases
|
value of call option on stock increases and the value of the bond convertible bond decreases
|
|
on a callable convertible bond what is the payback eqwual to
|
conversion preimum / favorable incomde differential
favorable income differential per share= coupon interest - (conversion ratio * CS diluted per share)/ conversion ratio |
|
what does condtional prepayment rate=
|
annual rate at which mortgage is prepaid (single monthly mortality= monthly prepayment rate
|
|
are prepayments higher for new or older mortgages
|
older mortgages
|
|
when does bond extension risk occur
|
when interest rates rise
|
|
What does regression analaysis assume about the correlation about the dependend or independepend variable and residuals
|
assumes independent variable is uncorrelated with residuals
|
|
what does standard error of estimate (SEE) is equal
|
the square root of the
mean squared error: |
|
what does the presence of conditional heteroske- dasticity results in in terms of parameter estimates, standard errors, t statistics, and f statistics
|
consistent parameter estimates, but biased (up or down) standard errors, t-statistics, and F-statistics.
|
|
How is root mean square calcualted
|
i. Take the difference between the actual and the forecast value. This is the error.
ii. Square the error. iii. Sum the squared errors. iv. Divide by the number of forecasts. v. Take the square root of the average. We show the calculations for RMSE in the table below. |
|
IF covered and uncovered i/r parity hold then
|
Thus, the forward exchange rate is an unbiased
|
|
does expansionary fiscal policy= appreciation or depreciation of currency in the long run
|
depreciation
|
|
If capital mobility is low, and monetary and fiscal policy are high what happens to currency..
|
appreciates
|
|
Foreign exchange reserves tend to increase or decrease before a currency crisis.
|
decline
|
|
Broad money growth in nominal and real terms tends to rise or fall sharply in the two years leading up to a currency crisis,
|
rise
|
|
peaking around 18 months before a crisis hits. In the period leading up to a currency crisis, the real exchange rate is lower or higher than its mean level during tranquil period
|
higher
|
|
What does increase in capital deepening equal=
|
growth in TFP- growth in labor productivity
|
|
Who should referal fees be disclosed to
|
clients, prospective clients, and employers
|
|
When is additional compensation allowed
|
properly disclosed to all parties and written consent from all parties involved
|
|
a transaction that involves the payment of a commission
|
Agency Trade-
|
|
a transaction that involves discount or a spread, as the broker owns the security
|
Principal Trade-
|
|
research generated by the broker
|
Proprietary research-
|
|
What is the rule regarding research performed by a broker paid by the clients
|
must directly ssist manager in investment making process and not in management company itself (if it benefits both it is mixed used research
|
|
what is the rule on mixed use research
|
Client brokerage can be used to pay for mixed-use research with the caveat that the research must be reasonable, justifiable, and documentable, and that the client brokerage is only used to pay for the portion of the research that will be used in the investment decision-making process.
|
|
Is it permissable to use client brokerage from agency trades to obtain research if it may not directly benefit the client
|
yes as long as over time it does
|
|
Is it permissable to use client brokerage from principal trades to obtain research if it is used to benfit other clients
|
yes if client consents
|
|
Are research objectivity standards or soft dollars mandatory
|
no both are optional
|
|
are absolute (buy, sell, hold) or relative market outperform etc. recommendations allowed
|
both
|
|
Can a person express their opinion/ beliefs on the CFA designation
|
Yes
|
|
What is the ruling on using client brokerage (soft dolalrs)
|
only can use if meets definition of research
|
|
what is the required communication with clients regarding soft dollars
|
send clients annual statements confirming maintainenace of soft dollar standards
|
|
What does period pension cost =
|
net change in Pension funded status + contributions
|
|
What does net operating assets=
|
" Net operating assets = (Assets – Cash and short-term investments) – (Liabilities – Total debt), "
|
|
"A warning sign that a company may be deferring expenses is sales revenue growing at a slower rate than:"
\ |
P,P, and E
|
|
What does "PP&E growing at a faster rate than sales indicate
|
that expenses may be inappropriately capitalized."
|
|
"Total accruals measured using the balance sheet is most likely to differ from total accruals measured using the statement of cash flows when the company has made acquisitions:"
|
"Stock-based acquisitions do not flow through the cash flow statement."
|
|
do early trances or later protect against extension risk
|
early
|
|
what are accrual bonds
|
often have z tranche- interest accrues with principle until all paid off at end
|
|
in an accrual bond what tranch absorbs most of extention riski
|
z tranche (end one)
|
|
what is a planned amortization tranch
|
tranches are amortized based on sinking fund within range of prepayment speeds (initial PAC collar)
|
|
do planned amortization bonds have high and / orlow extension and contraction risk relative to support tranches
|
lower for both
|
|
if i/r falls what happenes to inerest only strips
|
value falls becuase prepayments increase
|
|
do interest only strips want high or low prepayments
|
low
|
|
do principal only strips want high or low prepayments
|
high
|
|
what are non-recourse loan
|
lender can only look to collateral to repay loan. cant sue further etc.
|
|
what kinds of mortgages are structured as non recourse loans
|
mortgage
|
|
what level call protection is provided by segregating pools into credit tranches
|
CMBS
|
|
what level call protection is provided by prepayment penalty points. yield maintenance charges, prepayment lockout etc.
|
loan level call protection
|
|
what is the problem with third-party gaurantees
|
if their credit quality isn't higher than the issuer, they serve no value
|
|
what kind of credit enhancement is an excess servicing spread
|
internal
|
|
what is curtailment
|
a partial pament
|
|
what is the lockout period or revolving period"
|
"The period of time for which principal repayments are reinvested rather than paid out to the security holders is called the
|
|
is refinancing important for autoloans
|
no because rates are already below market price
|
|
how volatile are manufactured housing MBS's and why
|
not very because loan balance= small and borrowers have low credit ratings so hard to finance
|
|
whata re the 3 periods in student loan
|
deferrment period
grace period loan repayment period |
|
what are sesoned prepayment speeds
|
speeds have stablized
|
|
what types of assets back abs's
|
amortizing and non-amortizing
|
|
Describe the collateral of non-amortizing abs's and give an example
|
ever changing and credit card loan
|
|
what is a synthetic cdo
|
bondholders take on the risk of the underlying assets but not the legal ownerhsip
|
|
what is the ramp up period
|
period in which mgmt invests funds of a cdo
|
|
What is the cash flow yield
|
discount rate that equates the price of the MBS or the ABS to the PV of cash flows
|
|
what are the 3 definiciencies of the cash flow yield
|
1) assumption of reinvestment at same rate
2) assume ABS or MBS= Held to maturity 3) assume cash flows will be realized |
|
what doe soption cost=
|
zero-volatility spread- option adjusted spread
|
|
what have a higher oas pac or support tranches
|
support
|
|
if the amount of cash lows are i/r dependent what spread is used and what are examples
|
home equity mbs and oas from monte carlo model
|
|
if the amount of cash lows are not i/r dependent what spread is used and what are examples
|
callable corporate
OAS from binomial model |
|
what is the value of a forward during the life of a contract
|
St- FP/1+r^t
|
|
what is the value of a forward during life of contract
|
St- PV dividends- FP/1+r^t
|
|
what investments tend to have long-term equity returns with less risk
|
commodities
|
|
desribe default risk between futures and forwards
|
futures have none because marked to market daily.
|
|
if the corelated between underlying asset value and interest rates are positive than is a future or forward preferred
|
future because gains from marked to market cna be reinvested immediately
|
|
The Fama–French model incorporate what risk factors
|
s market, size, and value risk factors. One possible interpretation of the value risk factor is that it relates to financial distress.
|
|
what is PEG ratio based off p/Eo or P/E1
|
p?E1
|
|
what is P/bo
|
(ROE-G)/ R-g)
|
|
what is P/S=
|
Net Profit Margin *(1-b)(1+g)/(r-G0
|
|
what is another name for prepayment option
|
call option
|
|
who pays expenses in gross lease
|
owner
|
|
who pays expenses in a net lease
|
tenant
|
|
what is a put option on a bond and what is the effect on i/r
|
Put Provision creates the right to give bond back to the firm if yield increases. As a result of this option. The ytm is lower than a normal bond
|
|
what type of relative valuation measure is good for banks
|
price to book
|
|
what type of DCF method is approriate to use for income method for realestate if there are mutiple growth periods
|
"A direct capi- talization method would not be appropriate due to the multiple growth rates. A discounted cash flow method that assigns a terminal value, or a layer method, should be used."
|
|
what are the most significant valuation components for FFO and AFFO valuation
|
growth and leverage
|
|
How is NOA calculated for a reit
|
PV of NOI +cash/ receivables- debt/ liabilities
|
|
what does FFO=
|
"FFO = accounting net earnings, excluding: (a) depreciation charges on real estate, (b) deferred tax charges, and (c) gains or losses from sales of property and debt restructuring."
|
|
"The exit route for a venture capital investment is least likely to be in the form of a(n):
A initial public offering (IPO). B sale to other venture funds targeting the same sector. C buyout by the management of the venture investment." |
Buyout by the management of the venture capital firm because "Leverage needed to finance a management buyout is not readily available to firms with limited history."
|
|
what does the reduced form model assume
|
some of the company's debt is traded and the assets dont trade
|
|
what does a structural model compared to a reduced form model assume
|
assumes the assets trade
|
|
"The reduced form model produces credit risk measures that reflect what
|
the changing business cycle. "
|
|
What is the average life for a bond
|
projected principal repayment/ 12* tranche repayment
|
|
what does a lockout period for a bond=
|
"not repaid to bondholders)"
|
|
"Normal backwardation is what and what is backwardation
|
normal backwardation=defined as “futures prices are lower than expected spot prices.”"
backwardation= future pricfes are less than spot prices |
|
when is the roll yield
|
backwardation
|
|
WHat is the risk netural probability of an upward move in price of stock {{{{ This is used for option hedging}}}
|
[(1+rf-Size of doward movement {%of previosu state}]/ Up stte- Down state
|
|
What does thehedge ratio do and whats the equation
|
number of stocks that needs to be purchased to neutralize options written
(C+(-)C-)/ (S+(-)S-) |
|
what kind of distribution does the black scholes mertins model assume is followed
|
lognormal
|
|
what does the black scholes model assume about assets and cash flows
|
generates no cash flows
|
|
what kinds of investments cant be prices by black scholes mertins
|
interest rate options and options on bond prices because the assumption of constant rrf is violated
|
|
what is vega for BSM
|
volatility
|
|
what is an option delta
|
change in call price/ change in stock price
|
|
what is the range of delta for calls
and for puts |
0 to 1
-1 to 0 |
|
what does the gamma of a stock price measure
|
curvature rate of change of the delta
|
|
What does AAR
|
Accounting average return
Average NI/ Average BV (notice if an asset is 200K and depreciated to 0, average BV= o |
|
What does profitability index=
|
1+NV? initial investment
|
|
What is residual risk
|
the leftover risk that canot be attributed to the beta systemativ risk of the portfolio
|
|
Does relative PPP hold over short or long term
|
long term
|
|
What is the macroeconomic balance approach
|
how much current exchange rates need toadjsut to get current account to balance
|
|
What does uncover i/r parity state for high i/r and low i/r currencies
|
high i/r currency should depreciate relative to a currency with a lower i/r
|
|
Is covered or uncovered i/r parity covered by arbitrage
|
covered
|
|
Does the carry trade work well during high or low volatility periods
|
low
|
|
is the carry trade profitable if uncovered i/r parity holds or doesnt hold
|
doesnt hold
|
|
what types of filters re there for the carry trade
|
volatility filter
valuation filter |
|
Describe expansionary fiscal policy under high and low capital mobility
|
high mobility (capital flows dominate so expansionary policy increases i/r increases demand for currency which is appreciation but (economy grows so current account deficit depreciates currency so result is ambiguous
low monbility (trade flows domiante so depreciation) |
|
Describe expansionary monetary policy
|
expansionary= decrese i/r and currency depreciation
|
|
what is a fixed exchange rate regime
|
government fixes the rate of exchange of its currency relative to one of the major currencies
|
|
what does the monetary model assume for currency valuation
|
output is fixed
|
|
what does the mundell fleming model assume
|
inflation is not a factor
|
|
what are two types of monetary models
|
pure monetary and dornbusch overshooting model
|
|
wha tis the dirnbusch overshooting model
|
prices are not flexible in short term
|
|
what is the portfolio balance model for currency
|
mundell fleming take short term few and this is long term impact of sustained fiscal polciies
|
|
are developed markets central banks effective at itnervening in the foreign exchange markets
|
no due to lack of adequate resources
|
|
for a currency swap how can credit risk be reduced
|
netting or marking to market
|
|
in a cds who is exposed to counterparty credit risk and when does this happen
|
protection seller if premium payments arent mad eand this is a concern when market CDS soreads are lower than the contracted spread rate
|
|
what is the variance of a 2 investment portfolio
|
[w1^2*sigma1^2]+[w1^2*sigma1^2]+2W1W2*correlation*sigma1*sigma2
|
|
where si the global minimum variance portfolio
|
all the way to the left
|
|
is the line from the rff to the pint of tangency on the efficient frontier
|
capital allocation line
|
|
point of tangency between the CAL and the efficient forntier represents what
|
the best risky portfolio
|
|
When is an investment beneficial to add to a portfolio
|
if sharpe ratio of a security is greater than the prtfolio sharpe ratio* correlation between new security anf portfolio
|
|
what is the slope of the sml
|
market risk premium
|
|
wha tis the slope of the CML
|
market portfolio sharpe ratio
|
|
what does the ebta of a security=
|
covariance between security and market/ SdMarket^2
|
|
Which model uses unexpected changes (surprises) in macroeconomic variables to explain asset returns
|
macroeconomic model
|
|
is an edqulibrium asset pricing model similar to CAPM that makes less restrictive assumptions
|
APT
|
|
what does active risk squared =
|
active factor risk + active specific risk
|
|
what does the information ratio=
|
active return/ active risk
|
|
What does the optimal level of residual risk=
|
IR/ 2X riska version level
|
|
what is the assumption of the treynor black model relating to efficieny
|
indexes are nearly efficient and that the number of misprice securities is limited
|
|
what types of securities does the treynor black model penalize
|
high unsystematic risk securities
|
|
What happens to the ability to tolerat risk as size of portfolio increases
|
increase
|
|
what is the rulling on gifts disclosure
|
disclose to employer ideally prior to acceptance
|
|
Cans someone promote a bank CD as gauranteed
|
yes as long as FDIC limits are disclosed
|
|
is an analyst conference call public disclosure
|
no
|
|
what two measure relating to ipos and porivate placements are there for traders
|
limited participation in equity IPOs and restrictions on private placements
|
|
what is the t stat fir sugnificance of correlation
|
r*(square root of (n-2))/(square root of (1-r squared))
|
|
If you have CDS protection and the spread shrinks do you win or lose money
|
lose
|
|
WHta kind of trades
are transactions that involve payment are transactions that involve a discount or spread |
agency
principal |
|
What trades can research be used to benefit other clients with disclosure to client
|
principal trades
|
|
How often must compliance to research objectivity standards be affirmed
|
annually
|
|
what is the degrees of freedom for a t-stat for test of correlation
|
n-2
|
|
What does rejecting the hypothesis for an F-test mean
|
at least one y variable is significantly different than 0.
|
|
What is R in 2(1-r)
|
correlation of residuals from one period to the next
|
|
When is durbin watson inconcolusive
|
when between Di and Du
|
|
What model calculates a model based on normal distribution
|
probit
|
|
what model produces a score to classify things intop categories
|
discriminant
|
|
what model cant be used witha utoregreswsive models
|
DW
|
|
If there is serial correlation in an autoregressive model whats the impact
|
model is incomplete
|
|
What is the SE for an autoregressive model
|
1/ square root of N
|
|
How is the RMSE compared to the SEE
|
The RMSE is the SEE version for multiple regression
|
|
If there is a unit root what is the mean reverting level
|
undefined
|
|
When determining cross spreads with Bid and ask prices, how are they determined
|
(multiplying the Bids and Multiplying the asks)
|
|
What does covered i/r parity say about high i/r and low i/r rates.
|
High i/r will deprecitate
|
|
What is the relationship between PPP and pure monetary model-
|
PPP Will always hold
|
|
What kind of cash flow is capitalized interest
|
CFI (contrary to most interest which is CFO)
|
|
How is R and D recorded under GAAP and IFRS
|
IFrs- D is capitalized
GAAP- All is expensed |
|
how is change in deprecition methods reported
|
prospectively
|
|
How does greater expected return on plan assets affect PBo and Pension expense
|
no affect on PBO and decreases pension expense
|
|
How is hyperinflation dealt with under GAAP and IFRS
|
GAAP used temporal method
ifrs restated for inflation and then current rate method |
|
What doess MM Proposition 1 with out taxes say
|
value of firm unaffected by capital structure vl=vu
|
|
What doess MM Proposition 2 with out taxes say
|
wacc unchanged by leverage
|
|
What is bootstrapping
|
positive impact on EPS from stock sale
|
|
What is the conglomerate discount
|
sum of the parts- market price
|
|
What is justified Price to dividends
|
(r-g)/(1+G)
|
|
What is residual Income equivalent to
|
financial profit
|
|
How are management fees calculated for private equity firms
|
as a percentage of commited capital
|
|
Does a positive butterfly have more or less curvature
|
less
|
|
When prepayments increase, do support or PAC tranches have more contraction risk
when prepayments fall, do support or PAC trances have more extension risk |
support for both
|
|
What does relative PPP state
|
The relative version of PPP states that the percentage change in the spot exchange rate
will be completely determined by the difference between the foreign and domestic inflation rates |
|
convergence is associated with which growth model
|
neoclassical
|
|
What is another name for the residual income model
|
excess earnings model
|
|
How are income statement items and dividends recorded using the current rate method
|
income statement items= average rate
dividends= historical rate |
|
SHould FCFE or FCFF be used when
dividends differ significantly from the company’s capacity to pay dividends or when a change of control is anticipated. |
FCFE
|