Term
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Definition
| Real returns refer to total returns (income and realized capital gains) adjusted for inflation. So, if an investment had total returns of 12% and the inflation rate during that time was 3%, the real return would be 9%. |
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Term
| What is max contribution to Coverdell |
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Definition
| 2000 per year period. Contributions end age 18 unless special needs. If don't distribute before age 30 10% penalty. Not tax deductible, but withdrawals are but must be used for education only or penalty is 10%. |
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Term
| 30 year loan with 360 monthly payments |
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Definition
5% = 52%
7.5% = 40%
10% = 32% |
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Term
| 15 year loan with 180 monthly payments - memorize |
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Definition
5% = the amount borrowed is about 70% of total paid
7.5% = 60% of total paid
10% = 52% of total paid |
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Term
| A stock with a beta of .5 would bewhat percentage more or less volatile? |
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Definition
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Term
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Definition
| 529 is considered asset of the parent for financial aid qualification purposes. Assets in child name assessed at rate of 20% for expected family contribution as opposed to parent assssment bracket of 5.64% --- meaning this is a good idea for financial aid planning. |
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Term
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Definition
| 75k one year kick start; or 15k -study your note on this. |
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Term
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Definition
| A form of DCF that uses discounting to find present value of outflows and inflows for each year of an investment. |
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Term
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Definition
| a negative when a manager drifts from what they historically have done. |
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Term
| What is the simple Alpha calculation when provided with Beta? |
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Definition
Alpha = Realized Return -(Market Return x Beta)
Memory Hint: ARR Mr. B! |
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Term
| Explain thow to calculate present value |
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Definition
| Amount divided by (1 + percent)squared by number of years. |
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Term
| Calculating stock price based on expected annual payouts and clients required rate of return. |
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Definition
| Annual Payout / current market price. |
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Term
| Strategic Asset Allocation |
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Definition
| Assets are kept at an assigned balance. Stick to percentages to get the highest return versus risk. It is a form of Passive Asset Allocation. |
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Term
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Definition
| Buying securities in increments |
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Term
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Definition
| CAPM evaulates expected return of an asset by setting it equal to risk free rate plus risk remium - evaluated in the context of its beta, anticpated market returns, and risk free rate of return. |
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Term
| Dividend discount model is used to determine |
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Definition
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Term
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Definition
| Company by company analysis |
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Term
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Definition
| Company-specific including earnings momentum |
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Term
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Definition
| Data tha can be accurattly measured - no subjective data - profits, margins, assets, specific company data |
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Term
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Definition
| Do the opposite of what most investors are doing |
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Term
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Definition
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Term
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Definition
| Focus on growth stocks with higher p/e earnings - generally 35 or higher. Focused on earnings and momentum. |
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Term
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Definition
| Form of DCF. Considers inflows and outflows. |
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Term
| Barbell investment strategy is what? |
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Definition
| Higher risk end hold long term bond, lower end carries short term bonds. Looks like a barbell. |
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Term
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Definition
How long to double your money.
72 / interest rate = number of years to double your |
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Term
| Sharpe ratio measures what? |
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Definition
| How well does an investment compensate the investor based on risk taken. Rate of Return MINUS Risk Free Return / Standard Deviation |
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Term
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Definition
| If owned by student, BAD. If owned by parent, good. Qualified distributions are not counted as income and don't hurt financial aid. |
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Term
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Definition
| If you want the highest return, choose the highest YTM |
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Term
| If the NPV is negative, below zero, what does it mean? |
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Definition
| Investment will lose money and not meet the required interest rate. |
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Term
| If the NPV is above zero what does it mean? |
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Definition
| investment will meet hurtle rate and make money. |
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Term
| Risk Adjusted Return is what? |
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Definition
| Investments total return minus the risk free rate of return . |
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Term
| If a stock has beta below 1.0, what does it mean compared to its benchmark? |
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Definition
| Less volatile than benhmark. |
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Term
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Definition
| lessens unsystematic risks (those associated with one company or industry). The broader the investment classes the better |
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Term
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Definition
| Low PE and low Price to book with no debt. Overall yield, book value, etc. |
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Term
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Definition
| Market patterns and trends. Point & Figure charting, moving averages, advances and declines, odd lott sales of less than 100, P/E changes of DJIA |
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Term
| What does not matter in the DCF calculation? |
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Definition
| Market price fluctuations.MARKET PRICE IS ALSO NOT INCLUDED IN THE NPV CALCULATION. |
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Term
| Market Capitlization formula |
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Definition
| Market Price x number of shares outstanding. |
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Term
| Tactical Asset Allocation |
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Definition
| Market timing market timeing. Short term asset mix focus. It is a form of market timing!!!! And is a form of active. |
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Term
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Definition
| Measures risk adjusted return but uses beta as denominator instead of standard devion. A high Treynor ratio means a fund will have high historical returns when compared to market related risk. |
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Term
| How do you calculate the Overall return on a diversified portfolio or expected return comprised of different products. |
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Definition
| Multiply portfolio % x expected return for each allocation. Add those together to find total expected return. |
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Term
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Definition
| Municipal securities exempt from registration. |
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Term
| Can you transfer real estate to an UGMA? |
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Definition
| No. limited to securities, insurance and bank deposits; however, you could with an UTMA. |
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Term
| What is the real return calc |
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Definition
| Nominal return MINUS inflation |
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Term
| Differences between NPV and IRR? |
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Definition
| NPV is expressed as dollar; IRR is expressed as a percentage. |
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Term
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Definition
| Only the account owner can withdraw. Not beneficiary. |
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Term
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Definition
| Owner assumes risk. Stocks and bonds. Earnings accumulate tax free. Potential for higher returns than prepaid plans but have risk. Secure Act of 2019 now allws withdrawals up to 10k to payoff student loans. |
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Term
| Indexing is passive or active? |
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Definition
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Term
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Definition
| Performance relative to amount of risk taken. Uses fundamentals and beta. |
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Term
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Definition
| Portfolio is set and rebalanced at pre-determined intervals. This is what we do. Rebalancing brings it back to life. |
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Term
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Definition
| Pre-paid tuition. Prepaid tuition is a hedge and can be used for all education levels. Prepaid plans DO NOT HAVE INVESTMENT RISK. |
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Term
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Definition
| Present value of all cashflows based on present value of the future coupons and principal. |
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Term
| Holding Period Rate of Return |
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Definition
| Profit or Loss / Investment or Cost |
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Term
| Holding Period Rate of Return |
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Definition
| Profit or Loss / Investment or Cost |
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Term
| What if NPV is equal to zero? |
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Definition
| project will have no gains or losses. |
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Term
| What are Contributions. limits to cont |
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Definition
| Qualified higher and secondary. If agi is over 95 to 110k single; 190 and 220k married. Can be transferred to a sibling. |
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Term
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Definition
| Ready AIM Fire. Annual interest/market price |
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Term
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Definition
| receipt of scholarship will not hurt |
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Term
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Definition
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Term
| Alpha greater than 0, say 3%, means what |
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Definition
| Returns were grater than adequate for the risk and outpeformed risk by 3%. |
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Term
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Definition
| Returns were NOT adequate for risk taken - investment underperformed by 5% relative to amount of risk taken. |
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Term
| If a stock has a beta of 1.0, what does it mean compared to its benchmark? |
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Definition
| Same volatility as benchmark. |
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Term
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Definition
| Similar to EMH but that stock market prices are totally random |
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Term
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Definition
| Simplist form of portfolio management. No rebalancing so no transactions costs. |
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Term
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Definition
| Starts with global outlook downward |
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Term
| What is the termination age for an UTMA? |
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Definition
| states sometimes set higher like age 25. |
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Term
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Definition
| Stock picking and timing the market |
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Term
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Definition
| Tendency for inflation to remain constant unless there is a demand or supply shock. |
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Term
| The higher the IRR means? |
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Definition
| The better the investment. |
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Term
| What are three characteristics of IRR? |
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Definition
| The higher the IRR, the better; it considers cashflows always; always assume re-investment |
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Term
| What else is the expected return called (mathematically)? |
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Definition
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Term
| What is the risk free rate of return? |
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Definition
| The rate of return on a 3 month Treasury Bill |
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Term
| what is the expected return, also called the mean return or expected annual return. |
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Definition
| the Weighted average of expected annual return for ALL OF THE PORTFOLIO COMPONENTS. |
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Term
| What is termination for an UGMA? |
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Definition
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Term
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Definition
| Volatility of price compared to a benchmark. |
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Term
| Efficient trading market: Explain Wek, Semi-strong, and Strong versions: |
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Definition
Weak: Market prices reflect past prices and volumes;
Semi: publicly available info is reflected in prices:
Strong: All info, public or private, is reflectedin prices |
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Term
| If a project has an IRR of 7.5% and the hurdle rate is is 7.5%, what does that mean the NPV is? |
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Definition
| Zero - so that investment would |
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