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BU473 Midterm Cheat Sheet

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Ning Tang

The Investment Setting OSC Short Form Prospectus reduces pricing risk for underwriters Bottomup forma portfolio that can be purchased at a substantial Industry Analysis markets financial performance operations Investment current commitment that will compensate in future and issuers discount to valuation model management for time committed inflation uncertainty in funds Private placements have lower issuing cost than public offering 13030 long position up to 130 of the portfolios original capital Industry Life Cycle five stagemodel pioneering development Goals of investment capital growth income safety Secondary market is important as it provides liquidity to investors and take a short position up to 30 short creates the leverage rapid growth mature growth stabilize decelerate Inflation if inflation diminishes future payments investors demand who acquire securities in primary markets lower required return needed increases risk and return Company Analysis compare intrinsic value to prevailing market an interest rate higher than the time value of money than if issuer had to compensate for lower liquidity and helps Sector rotation strategy takes advantage of the business cycle full price Uncertainty if uncertainty exists within future payments investor determine market pricing for new issues recession early recovery late recovery early recession and inflation and interest generally move together demands interest rate higher than the time value of money plusdifferent types of sectors cyclicalconsumer discretionary inflation and bond prices have a negative correlation more effect inflation rate to provide risk premium to cover risk Types of stock indicies include technology telecommunications industrial basic industry energy on longterm bondsPrice weighted marketvalue weighted equally weighted staples utilities finance healthcare high inflation is negative for stocks Some important considerations in the investment decision process Contrarian strategy best time to buy sell when others are bearish Globalization technological advances role of institutional bullish mean reversion investors market efficiency corporate governance tax Price momentum earnings momentum calendarrelatedanomalies firmspecific attributes Historical Period Return Value stock generally offers higher return than growth stocks butis not consistent investor focuses on share price not caring of For price weighted indicies the divisor changes every time a stock current earnings assuming PE below natural levels splits Arithmetic mean return captures typical return in a single period Regression AnalysisGeometric mean return reflects compound cumulative returns DE1RR or dividend payout over more than one periodIf rates of return are the same for all years AMGM Company Analysis and Stock Valuation If rates of return are not same for all years AMGM Lessons learned from Peter Lynch favorable attributes of firms products not fadish longrun advantage over rivals industry or product has stability benefitValueweight index price todayso todayprice baseso from cost reduction companies that buy back shares show they arebaseprice baseso base putting money into the firmTypes of valuation approaches includeBook value acquisition value intrinsic value relative value Risk is the chance that the actual outcome will be different thanthe expected outcome Systemic market vs nonsystemic nonmarket riskExpected return the single most likely return from a particular Asset allocation strategies include probability distribution 1 Integrated asset allocation capital market conditions investor Required rate of return determinants risk interest rate timeobjectives and constraints value of money expected rate of inflation during the period 2 Strategic asset allocation constantmix3 Tactical asset allocation mean reversion inherently contrarian 4 Insured asset allocation constant proportionEvaluation of Portfolio PerformanceDollarweighted returns captures cash flows during the evaluation period Equates initial value of portfolio investment with cash inflows or outflows and ending value of portfolio Timeweighted returns captures cash flows during the evaluation period and permits comparisons with benchmarks Calculate areturn relative for each time period defined by a cash inflow oroutflow Professional Money Management Financial company or trust fund that sells shares to the public and uses the proceeds to invest in marketable securities unit trustopenend closedendClosedend funds public firm trades on secondary generally doesnt issue or redeem shares price is different from NAV sells ata discount from NAV invest from foreign continuously trading in the exchange Openend funds continues to sell and repurchase shares at NAVinvestor may pay sales or charges or load mutual funds end of day trading Types of costs when investing in mutua
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