FIN 330Final Review

Woo-hoo!!

Chapter 1

Know how to calculate total dollar returns.Why does a Risk Premium exist?Arithmetic or Geometric?

Chapter 2Know Cash vs. Margin accounts.

Margin Call Maintenance Margin

HypothecationShort Sales, Naked Short Sales

Chapter 3

Know securities types Interest Bearing, stocks, derivatives T-bills, notes, bonds Futures, options – obligations or rights? European or American?

Chapter 4 Mutual funds - Yep….

Chapter 5

Primary marketSecondary marketIPO processBid/AskListed, non-listed securitiesExchanges

Chapter 6

Fundamental analysisTechnical AnalysisFV, PV – Dividend discount model

Constant Growth Perpetual Growth Sustainable growth rate, retention ratio Two-stage growth model

Residual Income Model (RIM)P/E, P/S

Chapter 7

Efficient market hypothesis (EMH) Weak-form Efficient Market Semistrong-form Efficient Market Strong-form Efficient Market

Excess/ Abnormal returnsMarket efficiency

Competition/Profit motive Implications

Random walks & ProphecyWhut is an event study?Informed vs. Insider TradingAnomalies

Chapter 8

Behavioral Finance Rational Behavior

Cognitive psychologyThree Economic Conditions that lead to Rationality

1) Investor rationality2) Independent deviations from rationality3) Arbitrage

Prospect theory Frame Dependence Mental Accounting The House Money Effect

Technical Analysis – why? Dow Theory, Elliot Wave, resistance levels, charts, OHLC, moving

averages

Interest Rates: Prime rate Bellwether rate Federal funds rate Discount rate

Money Market Rates Commercial Paper CD Eurodollar LIBOR

Bank Discount/BEY/EARYield Curve, Term Structure – STRIPSNominal vs. Real Interest RatesTerm Structure Theories

Expectations Theory Maturity Preference Theory Market Segmentation Theory

Chapter 9

Chapter 10Bonds

Prices Yield to maturity Dirty/Clean Callable/convertible Yield to call

Malkiel’s Theorems Teeter-totter

Duration Dmac Dmod Immunization by duration matching

Chapter 11Diversification/Expected Return

Variance/Std Deviation – diversification of risk, correlation

Portfolios – expected returnMarkowitz Efficient Frontier

Minimum variance portfolio

Chapter 12

Systematic Risk, Unsystematic Risk ComponentsPortfolio betasReward to risk ratioSecurity Market Line

Market Risk Premium Determination of Beta

CAPM Implication

Fama French Carhart

Chapter 14

Forward contractsFutures contractsLong, Short, HedgingCash Futures Arbitrage

BasisSpot futures parityCross HedgingHedging stock portfolios with an indexCheapest to deliver

Chapter 15Option BasicsThe minimum terms stipulated by stock option contracts are:

The underlying The strike or exercise The contract size. The expiration date, or option maturity. The exercise style (American or European). The delivery, or settlement

Option MoneynessProtective put, covered call, straddleUpper/lower bounds, intrinsic valuePut call parityESO’s

Vesting

Chapter 16

The Black-Scholes-Merton option pricing model

S, Y, K, r, T, Greeks – Delta, GammaCalculate C, P, Delta, Eta, Vega…Implied VolitalityVIX, VXNDelta hedging

Calls Puts

Chapter 18/19

Protective CovenantsDebentures

subordinatedYield spread, T-bills, Strips (Term Structure)Yield to callInvestment Grade Rating

Good Luck!Bonne chance !Viel Glück! Alles Gute!Maikai Pomaika!Buona fortuna! In bocca al lupo!Bona fortuna!Lykke til!Удачи! Zol zayn mit mazl!

Guid Luck!