Bottom up is a portfolio construction method

that starts with security analysis

WSJ
Commercial banks, insurance companies,
Virtue financials (high
investment companies, and credit unions are
frequency)// Beijing (reducing)//
all examples of financial intermediaries
yield to maturity reported in the
McDonalds REITThe
(Franchises)//
Financial intermediaries exist because small
financial pages for treasury securities is
Exchange traded funds
investors cannot efficiently diversify their
by doubling the semiannual
(stock;asset class)//calculated
Chaotic Stock
portfolios, assess credit risk of borrowers,
yield
and
is
also
called
the
bond
(Circuit breakers sometimes)//
advertise for needed investments, and
equivalent
yield
Likely beneficiaries
(CBOE)//
diversify their portfolios and assess credit risk
A call
option
August S&P (Down
6.3)//
FHAallows the buyer to buy the
of borrowers
underlying
asset
at
the
exercise
price
on
or
(580;3.5)// GDP (3.7;3.1)//
In 2012 loans and leases were the most
before
the
expiration
date
and
sell
the
Unprecedented stock market
significant financial assets of us commercial
option
in the open market prior to
(Volcker rule)// Direct
lending
banks in terms of total value
income (12;25.5)//expiration
ETFs (traded
In 2012 deposits were the most significant
A
put
option
allows
the
holder
to
sell
the
at large discounts)// First half of
liabilities of us commercial banks in terms of
the year (.84;.08)//underlying
Money asset at the strike price on or
total value
before the expiration date and sell the
market funds management
IN 2012 bank loans were the least significant
option
in
the
open
market
prior
to
companies (to keep expenses)//
liabilities of us nonfinancial businesses in
expiration
Pensions (drop of one
terms of total value
The capital
Nikkei index represents the
percentage)// Element
In terms of total value, the most significant
performance
of the Japanese stock market
(exploit)// Collapsing
commodity
liabilities of us nonfinancial businesses in
The
TSX
index
represents
the
(Rose 7%)// Online banks
2012 were bonds and mortgages
performance
of
the
Canadian
stock
market
(speeding the process)//
In 2012 marketable securities were the least
ultimate
stock index in the US is the
Corporate bonds The
(Credit
cycle)//
significant financial asset of us nonfinancial
Wilshireloan;
5000
Cash=cash on hand+bank
businesses in terms of total value
The
DJIA
is
an
example
of
a
US
index
of
Shareholders equity = total assetsInvestors trade previously issued securities in
firms to
bankloan; Ratio of large
real assets
the secondary market
Bankers acceptances are used extensively
total assets = real assets/total
The glass-steagall act prohibited banks in the
in
foreign
trade
when
the
creditworthiness
assets; After tax rate of return
us from both accepting deposits and
of
one
trader
is
unknown
to
the
trading
aftertax income/ investment
underwriting securities
(yearly income *(1-partnet
tax exclusion)
The spread between the LIBOR and the
US dollar
then that * tax rate.AThen
yearlydenominated bond that is sold
treasury-bill rate is called the TED spread
in
Singapore
is
a
Eurobond
income subtracted by tax amount
The sale of a mortgage portfolio by setting up
Unsecured
bonds
are
called
either
then divided by your investment
mortgage pass-through securities is an
debentures or subordinated debentures
purchase
example of securitization
The trading of stock that was previously
Shares purchased=
The money market is not a subsector of the
issued
takes
place
in
the
secondary
market
investment/price per share
commodity market, the capital market, the
A purchase
of a new issue of stock takes
Annual dividend income
= shares
derivatives market, or the equity market
place
the primary market and usually
purchased * dividend
perinshare
The price of a t-bill in the secondary market is
with
the
assistance
of
an
investment
P/E= Share price/EPS
the price at which the dealer in t-bills is
banker
Closing price the day before =
willing to buy the bill
Firms
raise
capital by issuing stock
Current closing price
net
change
The smallest component of the money market
Investment
bankers act as intermediaries
PWI = (sum of prices
at year 0)/
is small-denomination time deposits
between
issuers
of
stocks
and
investors
number of stocks
Deposits of commercial banks at the FED are
and
ROR= PWi 1 / PWi
0 act as advisors to companies in
called federal funds
helping
them analyze their financial needs
New divisor= [(price
of A/1)+
In the event of the firms bankruptcy the most
and
buyers for newly issued
(price of b/1)+(price
offind
c/2)]/PWI
shareholders can lose is their original
securities
of t-1
investment in the firms stock and the claims
Initial index
margin requirements are
Market value weighted
of preferred shareholders are honored before
determined by the FED
rate of return = VWI=
those of the common shareholder
A
market
order
is
simply
an
order
to
buy
[(Price of stock a in year t *
Preferred dividends are contractual
or
sell
a
stock
immediately
at
the
quantity)+(price of stock b *
obligations
prevailing
quantity)+.]/[(Price
of stockmarket
a in price
In calculating the s&ps stock price indices,
A limitof
sell
order is where investors
year t-1*quantity)+(price
stock
the adjustement for stock split occurs
specify
prices
at
which
they
are
willing
to
b*quantity)+] * VWI in t-1
automatically
security
then ROR= VWI ofsell
t / aVWI
of t-1
Broker calls are funds used by individuals
stockror
ABC is selling at $50, a limit buy
Equally WeightedIfindex
who wish to buy stocks on margin and are
order
may
instruct
the
broker
to
buy
the
= [(price of stock a in year t * 1)/
funds borrowed by the broker from the bank
stock
if
and
when
the
share
price
falls
(price of stock a in year t-1)+(price
with the agreement to repay the bank
belowof
$45
of stock b in t *1)/(price
stock b
immediately if requested to do so
cost of buying and selling a stock
in t-1)+]/ numberThe
of different
consists
of
brokers
commissions,
dealers
Homework
multiple
choice
shares * EWAI in t-1
bid
asked
spread
and
a
price
concession
The material
wealth
of
a
society
is
a
function
of
all
real
assets
ROR= EWAI t / EWAI t-1
investor
Derivatives and US agencyanbonds
are makes
financial assets
Financial assets indirectly contribute to the countrys productive capacity
In 2012, real estate was the most significant real asset of US households in terms of total value
In 2012, life insurance reserves was the least significant financial asset of US households in terms of total value
In 2012 pension reserves was the most significant financial asset of US households in terms of total value
In 2012 mortgages was the most significant liability of US households in terms of total value
The largest component of domestic net worth in 2012 was residential real estate
The national net worth of the US in 2012 was 48.616 trillion
A debt security pays a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security
Money market securities are short term highly marketable generally very low risk and are highly marketable and are generally very low risk
A call option on Intel stock and a commodity futures contract are examples of a derivative security
Corporate shareholders are best protected from incompetent management decisions by the threat of takeover by other firms
Theoretically takeovers should result in improved management and increased stock price
The stocks on the dow jones industrial average are changed occasionally as circumstances dictate
Municipals offer =
Bond yield % *(1-tax rate)

Which of the following

orders is most useful to
short sellers who want to
limit their potential losses?
Stop-buy order
Which of the following
orders instructs the broker
to buy at or below a
specified price? Limit buy
order
Which of the following
orders instructs the broker
to sell at or above a
specified price? Limit sell
order
Shelf registration is a way
of placing issues in the
primary market and allows
firms to register securities
for sale over a two year
period
A program trade is a
coordinated purchase or
sale of an entire portfolio
of stocks
You want to buy 100 shares
of hotstock inc at the best
possible price as quickly as
possible, you will most
likely place a market order
One outcome from the
SEC investigation of the
FLASH CRASH of 2010
was approval of new
circuit breakers
High frequency trading,
algorithmic trading, and
dark pools are all
considered new trading
strategies
You sell short 100 shares of
a stock at a market price of
$45 per share. Your
maximum possible loss is
Rate of return for an initial position is ROR= profit / initial equity, profit = value of stock + dividend loan from
unlimited
broker interest on loan- initial equity
The preliminary prospectus
Margin Call = (equity/ value of stock) < .30
is referred to as a red
Margin call at ? or lower
herring
Equivalent taxable yield ($P x 200 5000) < .30
$P x 200
= Rm/(1-t)
Call Option Profit =
Max(S-X,0)-C, where S is$P x 200 5000 < .30 x $P x 200
the stock price, X is the $P x 200 5000 < $P x 60
strike price, and C is call $P x 200 - $P x 60 < 5000
$P x 140 < 5000
option
$P < 5000
Put Option Profit =
140
Max(X-S,0)-P, where S is
the stock price, X is the $P < 35.71
Margin call at ? or higher
strike price, and P is the put
(7500 - $P x 100) < .30
option
$P x 100
To find cash or securities to
be put into a brokerage 7500 - $P x 100 < .30 x $P x 100
account take the number of7500 < $P x 30 + $P x 100
shares times the price per 7500 < $P x 130
share then multiply that by7500 < $P
130
the brokers initial
57.69 < $P
marginal requirement