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Comprehensive Review of Financial Concepts: Returns, Risk, and Market Dynamics

Dive into the essential financial principles covered in this comprehensive review. Explore how to calculate total dollar returns and understand the importance of risk premiums. Learn the differences between cash and margin accounts, navigate margin calls, and distinguish between various types of securities including stocks, bonds, and derivatives. This guide covers mutual funds, market efficiency, behavioral finance, interest rates, bonds, and essential analytics like CAPM and option pricing models. Perfect for anyone looking to solidify their financial knowledge!

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Comprehensive Review of Financial Concepts: Returns, Risk, and Market Dynamics

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Presentation Transcript

  1. FIN 330Final Review Woo-hoo!!

  2. Chapter 1 • Know how to calculate total dollar returns. • Why does a Risk Premium exist? • Arithmetic or Geometric?

  3. Chapter 2 • Know Cash vs. Margin accounts. • Margin Call • Maintenance Margin • Hypothecation • Short Sales, Naked Short Sales

  4. Chapter 3 • Know securities types • Interest Bearing, stocks, derivatives • T-bills, notes, bonds • Futures, options – obligations or rights? • European or American?

  5. Chapter 4 • Mutual funds - Yep….

  6. Chapter 5 • Primary market • Secondary market • IPO process • Bid/Ask • Listed, non-listed securities • Exchanges

  7. Chapter 6 • Fundamental analysis • Technical Analysis • FV, 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

  8. Chapter 7 • Efficient market hypothesis (EMH) • Weak-form Efficient Market • Semistrong-form Efficient Market • Strong-form Efficient Market • Excess/ Abnormal returns • Market efficiency • Competition/Profit motive • Implications • Random walks & Prophecy • Whut is an event study? • Informed vs. Insider Trading • Anomalies

  9. Chapter 8 • Behavioral Finance • Rational Behavior • Cognitive psychology • Three Economic Conditions that lead to Rationality • Investor rationality • Independent deviations from rationality • Arbitrage • Prospect theory • Frame Dependence • Mental Accounting • The House Money Effect • Technical Analysis – why? • Dow Theory, Elliot Wave, resistance levels, charts, OHLC, moving averages

  10. Chapter 9 • Interest Rates: • Prime rate • Bellwether rate • Federal funds rate • Discount rate • Money Market Rates • Commercial Paper • CD • Eurodollar • LIBOR • Bank Discount/BEY/EAR • Yield Curve, Term Structure – STRIPS • Nominal vs. Real Interest Rates • Term Structure Theories • Expectations Theory • Maturity Preference Theory • Market Segmentation Theory

  11. Chapter 10 • Bonds • Prices • Yield to maturity • Dirty/Clean • Callable/convertible • Yield to call • Malkiel’s Theorems • Teeter-totter • Duration • Dmac • Dmod • Immunization by duration matching

  12. Chapter 11 • Diversification/Expected Return • Variance/Std Deviation – diversification of risk, correlation • Portfolios – expected return • Markowitz Efficient Frontier • Minimum variance portfolio

  13. Chapter 12 • Systematic Risk, Unsystematic Risk Components • Portfolio betas • Reward to risk ratio • Security Market Line • Market Risk Premium • Determination of Beta • CAPM • Implication • Fama French Carhart

  14. Chapter 14 • Forward contracts • Futures contracts • Long, Short, Hedging • Cash Futures Arbitrage • Basis • Spot futures parity • Cross Hedging • Hedging stock portfolios with an index • Cheapest to deliver

  15. Chapter 15 • Option Basics • The 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 Moneyness • Protective put, covered call, straddle • Upper/lower bounds, intrinsic value • Put call parity • ESO’s • Vesting

  16. Chapter 16 • The Black-Scholes-Merton option pricing model • S, Y, K, r, T,  • Greeks – Delta, Gamma • Calculate C, P, Delta, Eta, Vega… • Implied Volitality • VIX, VXN • Delta hedging • Calls • Puts

  17. Chapter 18/19 • Protective Covenants • Debentures • subordinated • Yield spread, • T-bills, Strips (Term Structure) • Yield to call • Investment Grade Rating

  18. Good Luck! • Bonne chance ! • VielGlück! AllesGute! • MaikaiPomaika! • Buona fortuna! In bocca al lupo! • Bona fortuna! • Lykketil! • Удачи! • Zolzaynmitmazl! • Guid Luck!

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