Bloomberg Assessment Test Flashcards

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bloomberg assessment test 226 terms by Ro3358

RolesofFinancialReporting FinancialReportingisusedtoprovideshareholders,potentialinvestors,lendersandcreditorsthenecessaryresourcestomaketheirdecisions.

IncomeStatement StatementofoperationsProfitLossStatement

Itisadynamicstatementitspansaperiodoftime.

Itisdividedinto3segments:revenues,expenses,andotherincome(gainsandlosses).

StatementofComprehensiveIncome: Reportsallchangesinequityexceptforshareholderstransactions(dividendsdistribution,buybacks...)

BalanceSheet Atapointintime

CashflowStatement Adynamicstatementthattrackschangesincash.

Thereare3categories:

OperatingCashflow(CFO):Cashgeneratedfromcoreactivities.

InvestmentCashflow(CFI):Buyingassetsforgeneratingrevenue(plants,equipment,etc.)

FinancingCashflow(CFF):Issuingdebt,dividends,etc.



StatementsofChangesinOwnersEquity: Stockholders'equityfromlastyearisreconciledfromthisyear.

Buybackofshares,issuanceofshares,dividends,Netincomefromtheincomestatement,andothercomprehensiveincome(unrealizedgainsandlosses)

Whataretheimportanceoffootnotes? Basisofpresentations

Accountingmethodsandassumptions

Furtherinformationonamountinprimarystatements(moredetailslikepensionliability)

Businessacquisitionsanddisposals

Contingency(liabilityoffutureevents)

Legalproceeds

Stockoptionsandbenefitplans

Significantcustomers

Segmentdata(breaksdownkeyinformationlikesales,assets,operatingprofitsondivisionallevel)

Quarterlydata(IfitisaEuropeancompanytheyreportsemiannually)

RelatedPartyTransactions(anytransactionsbetweenemployees)



ManagementDiscussionandAnalysis: NotAudited:(Thereforenotcompletelydependable)

Adescriptionofhowthefirmhasdoneinthepastandhowitwillpreforminthefuture.

Itbreaksdownitsoperationsandexplainshowtheyaredoingit.

Itisbasicallyanoverviewofthebusiness.

Cashflowtrends

Discussiononcriticalaccountingchoices(alsodiscussedhereaswellasatdisclosure.)

Uncertaintyandriskisdiscussedhere.

TheAuditReportObjective: TheAuditisanindependentreviewofthecompaniesfinancailstatements

AppointedbytheshareholdersItstrivestoreduceagencycost(makingsurethemanagementisn'thidinganythingfromtheshareholders.

ReasonableAssurance: Reasonableassurancethatthefinancialstatementsarefreefrommaterialerror.



AuditOpinions Unqualified:Clean

Qualified:Exceptionstoaccountingprinciples.Theauditorsdisagreewithcertainpartsofthetreatmentofthefinancialstatements.

AdverseOpinion:Wedonotbelievetheaccountsaretrue.Thisstatesthatthefinancialstatementscannotbetrusted.

DisclaimerofOpinion:Thereisinsufficientdatatomakeanopinion.

WhatdoestheUSGAAPrequirefromauditors?

Aopiniononthecompaniesinternalcontrols.

AuditReport 1)ResponsibilityofmanagementtoprepareaccountsIndependenceofauditors.

2)ProperlypreparedinaccordancewithrelevantGAAP:IFRS(IS)orUSGAAP.

3)Accountingprinciplesandestimateschosenarereasonable.

SupplementarySourcesofInformation: Quarterly,semiannualreports.

ProxyStatements

Corporatereports,pressreleases

Economic,Industrydata.

Quarterly,semiannualreports. Updatesofmajoraccountingstatements(Balancesheet,cashflow,incomestatementandfootnotes.

ProxyStatements: Containinformationonwhatshareholdersarevotingon.

Economic,andindustrydata. Wallstreetjournalisanexample.



FinancialStatementAnalysisFramework 1)Purposeandcontextofanalysis2)CollectData3)ProcessData4)Analyze/InterpretData5)Conclusionandrecommendations6)Updateanalysisonperiodicbasis.

RegardingthereportofofindependentauditorsunderU.S.GAAP,theauditreport:

Mustprovideopiniononcompaniesinternalcontrols.

OwnersEquityFormula: ContributedCapital+RetainedEarnings

CapitalatParValue Sharesatparvalue

AdditionalPaidinCapital Anyincreasesinsharevalue

ContributedCapital ContributedCapital=CapitalatparValue+AdditionalPaidinCapital

RetainedEarnings RE=LastyearsRE+/Earnings(Loss)Dividends.

AccrualandValuationAdjustments Accruedexpenses(Liability)Bad/DoubtfulAccounts(Asset)Prepaidexpenses(Asset)AccruedRevenue(Asset)Impairment/Writedown(Asset)UnearnedRevenue(Liability)

FASB: FinancialAccountingStandardsBoard:

IASB: InternationalAccountingStandardBoard

SEC: ThelistingservicesofUS.

IOSCO: InternationalOrganizationofSecurityCommission

1)Protectinvestors2)Insuringmarketsarefair,transparent,andefficient.3)Reducesystematicrisk.



ConvergenceofIFRSandIASB. 1)IncreaseComparability.

2)Decreasetheproblemsandexpensesinraisingcapitalinforeigncapitalmarkets.

3)Decreaseproblemsincreatingconsolidatedfinancialstatementsforforeignsubsidiaries.

BarriersinConvergence: 1)Differenceinviews

2)Pressurefromindustrygroups

3)Manydifferentcountriesinvolved.

IFRSFramework: 1)RelevanceTheinformationcaninfluenceusersopinion.Materiality

2)Characteristics:ComparabilityVerifiabilityTimelinessUnderstandability

IFRSFrameworkTradeoffs: Relevancevs.verifiability(moretimegivenwillgiveabetterideaofcertainaccounts.)

Benefitsvs.Costs

Excludenonquantifiableinformation.

IFRSAssets: Resourcescontrolledbytheentityresultingfrompasttransactions.

Probablefutureeconomicbenefitsflowtoenterprise

IFRSLiability: Obligationsresultsfrompastevents

Settlementresultsinprobableresourceoutflow



IFRS(Equity) Shareholders'residualinterest

AssetsLiabilities

IFRS(Income): Resultinanincreaseinequity

IFRS(Expenses): resultinadecreaseinequity.

IASBRequiredStatements: BalanceSheetIncomeStatementStatementofComprehensiveIncomeChangesinEquityCashFlowStatementsAccountingPolicies,notes

IASBFundamentalPrinciples: FairPresentationGoingConcernAccrualBasisConsistencyMateriality

IASBPresentationRequirements AggregationwhereappropriateNoOffsetting(separateaddingupexpensesandrevenuesintoonetotal)ClassifiedbalancesheetMinimuminformationonfaceMinimumdisclosureComparativeinfo.Reportingfrequencyneedstobeatleastannual.

IFRS/U.S.GAAPDifferences FASBdefinesincomeandexpensesaselementsrelatedtoperformancewhileIASBalsoincludesgains,losses,andcomprehensiveincome.

FASBdefinesanassetasafutureeconomicbenefitwhereIASBdefinesitasaresourcesfromwhicheconomicbenefitscomesfrom.

FASBDoesnotallowupwardvaluation



BarrierstoSingleFramework: Valuation:HistoricvalueReliableFairValueRelevant

StandardSettingPrincplebasedveryewspecificrulesabouttransactions

RulesbasesRespectivebutnotflexible

ObjectbasesCombinesprinciplesandruleswhatIFRSandUSGAAPuse.

Measurement:IFRSandUSGAAPmostlyfocusonthebalancesheetandtheincomestatementcomesasresidualofthat.

IASBRequirementsforRevenueRecognition:

1)Riskandrewardtransferredtonewowner.2)Nocontinuingcontroloverthegoodsold3)Reliablerevenuemeasurement4)Probableflowofeconomicbenefit5)Measurable.

SECAdditionalGuidanceforRevenueRecognition:

1)Evidenceofanarrangmentbetweenbuyerandseller.

2)Completionoftheearningprocess,firmhasdeliveredproductorservice.

3)Priceisdetermined.

4)Assuranceofpayment,abletoestimateprobabilityofpayment.

SalesBasisMethod: Usedforwhenagoodorserviceisprovidedattimeofsale.



PercentageofCompletion: Aconstructionrevenuerecognitioncriteria.

Musthavereliableestimatesoftotalcosts,revenues,andcompletiontime.

SameforIFRSandGAAP.

Revenue=(TotalCosttoDate/TotalProjectCost)xSalesPrice

Profit=RevenueCostincurredthatyear

Rememberforsubsequentyearstodeducttherevenuethatyouhavealreadyrecorded.

CompletedContractMethod: Ifyoudon'thavereliableestimatesoftotalcosts,revenues,andcompletiontime.

Keepseverythingoutoftheincomestatementuntilthecontractisactuallyfulfilled.

Sojusttotalthecostsandsaleintheend!

NotallowedunderIFRS!USGAAPonly!

UnderIFRSyoumatchexpenseswithsales,sonoprofit,untilcompletion.

So1styearexpense=1styearrevenueandsoonuntilcompletion.Atcompletionyouthenrecordaprofit.



Installment: Allowsacustomertopayininstallments.

Usedwhenacompanycannotdeterminethelikelihoodofcollectionbutdoesknowrelativelytheexpensesitwilloccur.Thereby,theexpensesandsalesarematched.

Theamountofrevenuerecognizedduringaperiodiswhatevertheinstallmentamountis.However,theexpenseisapercentageofhowmuchtheinstallementispayingoff.

Forexample:ifthetotalsalevalueis30,000,totalexpenseis10,000,andtheinstallmentamountinthefirstyearis8,000then:revenue:8,000(installementamount)expense:2,666.67(8,000/30,000x10,000)



CostRecoveryMethod: Therearetwosourcesofuncertainty:1)Whetherthecustomerwillpayyou.2)Youdon'tknowthetotalcostoftheserviceorgoodsprovided.

Matchcostsagainstrevenueandnotrecognizerevenuetilltheend.

Soforinstanceifthetotalsalevalueis30,000butyoudon'tknowtheexpensesquiteYETsoyouwritedowntherevenueandexpensesuntilthefinalyearwhenyouknowthetotalexpenses.

Firstyearsayyoureceived14,000.Revenue:14,000Expenses:14,000(yousimplymatch)

Secondyeartheprojectiscompletedandyourfigureoutthatthetotalexpensesincurredwere$18,000andyoureceiveasecondpaymentof16,000fromyourclient.

Revenue:16,000Expenses:4,000(whateverisleftfromthetotalexpenses).

Whateverleftisprofit,inthiscaseitis12,000.



WhataretheeffectsofPOCvs.CCmethodinregardstotheincomestatement?Incomevolatility?Cashflow?

POCwillresultahigherincomestatement.

CCwillresultinasignificantlyhigherincomevolatilitysincetherewillbenorevenuerecognizeduntilthefinalyearwhereuponamassiverevenuerecognitionoccurs.Remember:volatilityisrisk!

Cashflowmethodsarenoteffected!Thereasonforthisisbecausenoactualcashisseenreceivedtheend.

InstallmentpaymentsunderIFRS: YourecordthePVvalueoftheinstallmentsandrecordwhateverdifferenceyouactuallyreceivefromtheinstallmentsasinterestearnedovertime.

Iftheoutcomeoftheprojectcannotbeestimatedreliably,revenuerecognitionunderIFRSissimilartocostrecoverymethod.

Barter: Anexchangeofgoodsandservicesinsteadofcash.

Recordsthesaleatthepriceofthefairmarketvalue.

Thevalueshouldbeatarmslength(notinsiders.)

IFRS:

USGAAP:Fairvalueonlyifthegoodsweresoldforcashinthepast,orotherwiseyouusethecarryingvalue(assetaccumulateddepreciation.)

Netreporting: Sellproductsbutneverholditintheirowninventory.



USGAAPshouldreportgrossif: 1)Istheprimaryobligator2)Bearsinventoryrisk3)Bearscreditrisk4)Canchoosesupplier5)Haslatitudetosetprice

Giveexampleof"aggressiverevenuerecognition"

Percentageofcompletion(becauseyourecognizerevenuesooner.)

Conservative: Costrecovery.

Expense:Accrualbasis Matchexpensestorevenuesotheydon'tpileup.

COGSCalculation: BGNInventory+PurchasesEndinginventory=COGS

Amortizationforgoodwill: Itisn'tamortized.Insteaditischeckedforimpairment.

AccountingChanges:Principle Principle:forexample:LIFOtoFIFO

Youhavetoshowthepastfinancialstatementsrestatedunderthenewaccountingchanges.

AccountingChanges:Estimates Youdonothavetorestatepriorstatements.

PriorPeriodAdjustments: Typicallyrequiresarestatementoffinancialstatements

Mustdisclosethenatureoftheerror.

NonOperatingItems: InterestDividendsGainandLossondisposal.

SimpleCapitalStructure: Nopotentiallydilutedsecurity.

Adilutedsecurityisanysecuritythatisconvertible(convertiblebonds,warrants,etc.)

ComplexCapitalStructure: Youhavedilutedshares.



Potentiallydilutedsecurities: Stockoptions(employee)WarrantsConvertibleBondsConvertiblepreferredshares

DilutivesecuritiesdecreaseEPSAntidilutivesecuritiesincreaseEPS

BasicEPS BasicEPS=(NetIncomePreferredDividends)/(Weightedaverage#ofcommonstock)

HowisstockDividendaccountedforinaweightedaverage#ofsharesquestion:

Itisappliedtotheamountofsharesoutstandingforthepreviousmonths.

IncomeTaxExpense= TaxesPayable+ChangesinDeferredTax

TaxLossCarryforward: Whenyouhaveanetlossyougetadeferredtaxfornextyear.

TaxBase: Netamountsofassetsorliabilitiesusedfortaxreportingpurposes

IncomeTaxExpense: Taxpayable+ChangeinDTLDTA(DeferredTaxAsset)

DTL: DeferredTaxLiability:Bypayinglesstaxesnow,youwillhavetopaymoreinthefuture.

DTA: DeferredTaxAsset:Payingmoretaxesnowwillresultinlesstaxesinthefuture.

YieldRatio: Exactlythesameasrelativespreadexceptno1

CreditSpread: Differencebetweenyieldsofbondsthatonlydifferincreditrating.

Oftenknownasaspreadtotreasuries.

Creditspreadsnarrowduringgrowthandwidenduringrecession.



Calloption Callawayfromthebondholder.Thereforeitincreasesyieldinordertokeepthebondattractive.

LessLiquid= Moreyield&greatyieldspread

AfterTaxYield= TaxableYield(1Tax)

Y=7%Tax=30%=0.07(10.3)

TaxableEquivalentYield= Takesthetaxfreeyieldbackwardsinregardstotheaftertaxyieldformula:TaxfreeYield/(1tax)

LIBOR: LondonInterbankOfferRate:Mostimportantreferencerateforfloatingratesecurities.

FundedInvestor: BorrowingshorttermatLIBORtofinanceaninvestment.

ArbitrageFreeBondPricing: Theyieldcurverepresentsachangeinyieldthroughouttime.ByusingaspotrateitispossibletodiscountSINGLEfuturecouponpaymentsusingaspotrate.

Soforawholebondsincethereisabunchofcouponpaymentsyoudiscounteachcouponpaymentsatdifferentspotrates.

Thereisarbitrageinthissincethespotratecanbehigherthantheyield.

PV= FV/[(YTM/2)+1]

Howtoprofitofarbitrageinregardstobonds?

Ifthearbitratefreevalueishigherthenbutthebond,stripandsellthecoupons.

Ifthearbitragefreevalueislessthanthebondvaluethenbuythestrippedcouponsandmakeabond.



YTMisalsoknownas... BEY:BondEquivalentYield

REMEMBERONTHEEXAMTHEYWILLTRICKYOU,ALWAYSMAKEITSEMIANNUALYIELDBECAUSEITSABOND!!!

soifit'sannualonyourcalc,transferitbacktosemiannual!!!

CurrentYield= AnnualCouponPayment/CurrentPrice

SovereignDebt: Bondsissuedbycentralgovernment.

TheUSTreasurysecuritiesareconsideredfreeofdefaultrisk.

Consideredriskfree.

RegularCycleAuctionSingleprice: Thehighestpriceatwhichtheentireissuecanbesold.

RegularCycleAuctionMultipleBid: Winnerbiddersreceivethebondsatwhateverpricetheybid.

AdHocSystem: Governmentauctionsnewsecuritieswhenthemarketconditionsareadvantageous.

TapSystem: Bondsareidenticaltopreviouslyissuedbonds.

Theyreleasethemwhenevertheyneedthem.

TBills: TreasuryBills.Purediscountsecurities,0couponbonds.

Simplybuythemforacertainprice,thenmatureatanother.

NotesandBonds: Offersemiannualcouponpayments.



TIPS: TreasuryInflationProtectedSecurity:

CouponrateisfixedRealrateofreturnParvalueisadjustedforinflation.

1/2couponratexinflatedadjustedparvalue=Semiannualpayments.

LikeafloatingcouponrateexceptthePVisadjusted.

OntheRunIssues: Themostrecentlyissuedsecurity.Havethemostaccuratepricingandarethemostliquid.

OffTheRunIssues: Olderissuedsecurity.

StrippedTreasurySecurity: 0couponbondcreatedfromtreasurynotesandbondsthepiecesareseparated.

CouponstripsaredenotedCIPrinciplestripesaredenotedPI

Stripsaretaxedonexplicitinterest.

SecuritiesIssuedbyFederalAgencies: Federalrelatedinstitutions:GNMA,TVA...

GovernmentSponsoredEnterprises: SalieMae,FreddieMac,MannieMae

AgencySecurities: Verylittlerisk.

Debentures: Securitiesnotbackedbycollateralunsecuredbonds.



MPS: MortgagePassthroughSecurityisasecuritymadefromapoolofmortgages.Theownerofasuchasecuritygetsacertainpercentageoftheinterest,principle,andprepaidprincipleinreturnforpurchasingthesecurity.

Theriskwiththesesecuritiesisthatwheninterestratesgoup,prepaymentofprinciplegoesdownsincenoonewantstorefinanceamortgagewheninterestratesaregoingup.

CMO: CollateralizedMortgageObligations:

CreatedfromMPSwiththemaingoalbeingtolevelouttheriskfromtheprepaymentdropsduetointerestraterises.

TherearethreeTranchesshort,medium,andlongperiodandgetfilledupinthatorder.

BasicallywhenpaymentsstartcominginfromprepaymentsduetolowinterestraterisktheyareredirectedtowardsthesetranchesthatthenpayoutacouponpaymenttomaketheMPSattractiveagain.

PrepaymentRisk: Wheninterestratesfallprepaymentsstartcominginandthiscausesthelendertoreinvestthatmoneyatalowinterestrate.

MunicipalSecurities: Exemptfromincometaxinthestateofissue.

TaxbackedBonds: GeneralObligationBond,dependonthetaxingauthorityforpayments.

RevenueBonds: Dependsontherevenuegeneratedfromaspecificgovernmentproject,likeatollroad.



InsuredBonds: Backedbyinsurancepoliciesintheeventofdefaults.

SecuredDebt: Likeamortgagebonditisassetbacked.

DebentureBond: Unsecuredbond.

RevenueBonds: Dependsontherevenuegeneratedfromaspecificgovernmentproject,likeatollroad.

InsuredBonds: Backedbyinsurancepoliciesintheeventofdefaults.

Prerefundedbond.: Bondsthathavetheirprinciplecashamountalreadyheldasidebytheoriginalissuerofthedebt.Asubsetofthemunicipalandcorporatebondclasses,thefundsrequiredtopayoffrefundedbondsareheldinescrowuntilthematuritydate,usuallybypurchasingTreasuryoragencypaper.

Refundedbondswilltypicallybe'AAA'ratedduetothecashbackingand,assuch,willofferlittlepremiumtoequivalenttermTreasuries.Thedateofrefundingwillusuallybethefirstcallabledateofthebonds.

SecuredDebt: Likeamortgagebonditisassetbacked.

DebentureBond: Unsecuredbond.

SeniorDebenture: Bondshaveapriorityofrepayment,seniorshavethehighestone.

CommercialPaper 2270days,notliquid,basicallycorporateIOU.

MediumTermNote: Continuouslyofferedbyanagent.Theycanbecreatedanytimeandareverycustomizable.

StructuredSecurity: MediumTermNotecombinedwithsomedebenture.



NegotiableCB DaystoYears,Secondarymarket.

BankersAcceptance: Createdtoguaranteepaymentforshippedgoods.

Shortterm,Purediscount,Liquidityrisk.

ABS: AssetBackedSecurity:Backedbyfinancialassetlikereceivables.

SoldbycreatingaSPV:SpecialPurposeVehiclewhichasecurityformedfromAR.

ExternalCreditEnhancement: CertainABShaveahighdefaultrateandthereforeareunattractivetoinvestors.TomaketheABSmoreattractive,aexternalcreditenhancementisapplied.Itbasicallyisaguaranteeofpaymentviainsurance.

CDO: CollateralizedDebtObligation:Asecuritythatcanbecreatedbasicallyoutofanything.

PrimaryMarket: Newlycreatedsecurities:Firmcommitment:thebankerpurchasesawholeissueandresellsit.Besteffortbasis:Bankerattemptstosellasmuchashecan.PrivatePlacement:Theissuesaresoldprivately.

InterestRatePolicyTools: OpenMarketOperations,DiscountRate,BankReserveRequirements.

OpenMarketOperations: Buyingandsellingtreasurysecuritiesintheopenmarket.

DiscountRate: theratethatthebankborrowfromthefedinordertokeepuptheirreserves.



BankReserveRequirements: Theamountofmoneyabankhastokeepinreserve.Iftheychangeitthishasaneffectonlendingratessincealowerbankreservewillfreeupmoneyforthebanks.

Bybuyingbondsintheopenmarkettheyputoutnewcashintothesystembecausebeforethatmoneywassittinginthetreasuryinaccessibletonongovernmentalpeople.

TermStructureTheory: 1)Pureexpectationtheory2)LiquiditypreferenceTheory3)MarketSegmentationTheory

Pureexpectationtheory: ThistheorysignifiesthataYieldgraphisanindicationofthemarketsexpectations.Forinstance,anincreaseinyieldinregardstomaturitysignifiesanexpectationofinterestraterise.

Aflatexpectsinterestratetostayflat.

Adeclineexpectsinterestratefalls.

LiquiditypreferenceTheory: Similartopurseexpectationtheory.Sincelongermaturity=morerisk.

MarketSegmentationTheory: Therearesegmentationtotheyieldcurveinregardstoshort,medium,andlongtermdurations.Somecompaniesworkintheshorttermwhileothersinthelongterm.

Thereisasupplyanddemandineachsegmentandacurvecanbeanyshape.

TreasurySpotRates: theappropriatediscountrateatapointinthefuture.

AbsoluteSpread: AbsoluteSpread=Highyieldlowyield

RelativeSpread: Yieldonsubjectbond/yieldonbenchmarkbond



GDP: GrossDomesticProduct.

Itisthetotalmarketvalueoftheproductsproducedinacountryoreconomyduringaperiod.

Thiscountsforfinalproductsonly.Separatecomponentsdonotcount.

GDPalsoincludesrentalvalueforowneroccupiedhousing.

Governmentservices(atcost).

GDP:IncomeApproach. +Earningofallhouseholds+business+government=GDP

GDP:ExpenditureApproach C=Consumptionspending+I=businessinvestment(capitalequipment+changeininventories)+G=Governmentpurchases+X=ExportsI=Imports

Sumofmarketvaluesofallfinalgoodsandservicesproducedintheeconomy.

or

Sumalltheincreasesinvalueateachstageoftheproductionprocess(Valueadded).



FinalValueAdded:Giveexampleandexplain:

Material>FabricatorFabricator>AssemblyAssembly>Consumer

Eachofthesestagesaddedvalue.Thisvaluecanbelookedatintwoways:asatotalofthevalueaddedandasafinalpricegiventoconsumers.Thefinalpricegiventoconsumershouldbeequaltothevalueadded.

NominalGDP: (QtxPt)P=PriceQ=Quantity

RealGDP: Withbaseyear=t5:(QtxPt5)UsesbaseyearpricesbecauseifitdidnotPcouldrisewhileQisdecreasingtherebygivingtheillusionthattheGDPisnotchanging.ThereforeabasepriceisgiveninordertogivetherealGDP.

GDPDeflator: NominalGDP/RealGDP

Thisisreallyameasureofinflation.

GDP =NationalIncome+CapitalConsumptionAllowance+statisticaldiscrepancy(notinCFA)

CapitalConsumptionAllowance: Theoutputthatgoestoreplacethestockthatiswearingout.

Basicallylikeallocatingmoneytowardsdepreciationofmoneymakingobjects.



NationalIncome= =EmployeewagesandBenefits++corporateandgovernmentprofitspretax+Interestincome+unincorporatedbusinessowners'income+rent+indirectbusinesstaxessubsidies.(taxesandsubsidiesincludedinfinalprices)

PersonalIncome: =NationalIncome+TransferpaymentstohouseholdsIndirectbusinesstaxesCorporateincometaxesUndistributedcorporateprofits

PersonalDisposableIncome: =Personalincomepersonaltaxes=Aftertaxincome.

Thismoneycaneitherbesavedorspent.

FundamentalRelationship: S=I+(GT)+(XM)Savings=Investment+GovernmentExpendituresTaxCollections+ExportsImports

Savingsareeitherinvested,usedtofinancegovernmentdeficit,prusedtofundatradesurplus,whenbothexist.

Whatismonetarysupply? Themanagementofmoney&creditsupply.



Howdoesmonetarypolicywork? Throughexpansionaryandcontractionaryactions.

Expansionaryrefererstotheincreaseinmoneysupplywhichcanbeviewedasanincreaseininventoryforbankswhichtherebyreducesborrowingcosts(lowerinterestrate).Contractionaryisjusttheopposite.

WhatarethetoolsofFiscalPolicy? Fiscalpolicyimplementsspendingandtaxrevenue.

Expansionaryincreasesspendinganddecreasestaxes.

Contractionarydecreasesspendingandincreasestaxes.

Whatisthepolicycalledwhenabankhavetokeepacertainamountofmoneythatitlendsoutinthereserves?

FractionalReserve.

DescriptiveStatistics: Describethepropertiesofalargedataset.

InferentialStatistics: Useasamplefromapopulationtomakeprobabilisticstatementsaboutthecharacteristicsofapopulation.

Population: Acompletesetofoutcomes.

Samples: Asubsetofoutcomesdrawnfromapopulation.

NOIR: Nominal,Ordinal,Interval,Ratio.

Nominal: Onlynames(bird:robin,parrot,seagull)

Ordinal: Ordered(large,mid,small).

Interval: Gobyintervals(040,4180,81120).

Ratio: Ratiosmakesense,absolutezero.

Parameter: Describeacharacteristicsofapopulation.

Samplestatistic: Describesacharacteristicofasample.



FrequencyDistribution: atablethatsummarizesalargedatasetbyassigningtheobservationstointervals(Histogram).

Relativefrequencydistributions: Atableorderedbypercentage

CumulativeFrequencyDistribution: Showsthepercentageofobservationslessthantheupperboundofeachinterval.

PopulationMean: Mew

SamplesMean: Xbar

GeometricMean(Descriptionandformula):

Usedtocalculatecompoundgrowthrates.Ifthereturnsareconstantovertime,geometricmeanequalsarithmeticmean.

Thegreaterthevariabilityofreturnsovertime,themorethearithmeticmeanwillexceedthegeometricmean.

AlsoknownasAverageAnnualCompoundRateofReturn

PeriodicR=[(1+R1)(1+R2)...(1+Rn)^(1/n)]1

sqroot^nof(x1x2x3*xn)example:2,3,4Gmean=sqroot^3(2x3x4)=2.88

WeightedMean: Placesapercentageweightonsectionsofaproblem.Ameaninwhichdifferentobservationshavedifferentproportionalinfluenceonthemean.

X=sumofWixRi=W1R1+W2R2+....WherebyWistheweight(%)



HarmonicMean: Usedtofindouttheaveragecostpersharesovertime.

Xharmonic=N/sum(1/Xi)

T1=3,000@$20/shareT2=3,000@$25/shareXharmonic=6,000/270shares=$22.2/share

Arithmeticmean: =(x1+x2+x3+...+xn)/n

Example:=(2+3+4+5+6+7)/6

Median: Itismidpointofapopulationofnumbers.Ifthereisanevennumberthenyouadd2middlenumbersanddivideby2.

Advantages:resistanttooutliers.

Mode: Themostcommonobservation.

Example:1,2,3,3,4,4,4,4,4,5,5,6,7,8,8,9.Modeis4becauseitappearedthemost.

Therecanbemorethanonemode(bimodal).

Quantiles: Likefromstandardizedtests.

Example:"Youareinthe75thpercentile."

"60%ofthedatapointsarelessthanthe6thpercentile."

Range: Rangeofthedata.



MeanabsoluteDeviation: Averageoftheabsolutevaluesofdeviationsfromthemean.

[I(X1mean)I+I(X2mean)I+...+I(Xnmean)I]/n

StandardDeviationandVariance: Howspreadoutthedatais.Thebiggerthestandarddeviation,thebiggerthedeviationfromthemean.

Variance=sum[(Ximean)^2]/nStdDiv=sqroot(Variance)

Example:Mean=2X1=2,X2=3X4=5=[(22)^2+(32)^2+(42)^2]/3=1.33

StdDiv=sqroot(1.33)

SampleVariance: Sameequationasthemeanexceptyouadd1tothen.Variance=sumof[(Ximean)^2]/(n1)

Chebyshev'sInequality: Specifiestheminimumpercentageofobservationsthatliewithinkstandarddeviationofthemeanappliestoanydistributionwithk>1.

Min%=1(1/k^2).

Example:Theminimumpercentageofobeservationsofanydistribtuionsof2standarddeviationsofthemean?=1(1/2^2)=75%

Remember,thisisforANYdistribution.

CoefficientofVariance. Riskperunitofmeasure.Therefore,thelowerthebetter.CV=StdDiv/Mean



SharpeRatio: Excessreturnperunitofrisk.Morethebetter.

(RpRf)/StdDivP

Rf=AverageriskfreerateRp=MeanPortfolioRiskStdDivP=PortfolioStandarddeviation

RandomVariable UncertainNumber

Outcome RealizationofrandomVariable

Event Setofoneormoreoutcomes

Mutuallyexclusive Cannotbothhappen.

Exhaustive Setofeventsincludesallpossibleoutcomes.

Empirical: Basedonanalysisofdata.Usingpastinformationtomakeapredictionaboutafutureoutcome.

Subjective: Personalopinion.

APriori: Basedonreasoning,notexperience.

Oddsfor: Example:20%ofthetimeahorsewillwin.

Oddsagainst: Example:80%ofthetimeahorsewilllose.

Unconditional: Probabilityofaneventthatisindependentofotherevents.P(A).

Conditional: Aprobabilitythatisdependentonotherevents.P(A|B):ProbabilityofAgivenB.



Whataretheprobabilityrules? Additionrule:P(AorB)=P(A)+P(B)P(AB).

Multiplication(JointProbability):P(AB)=P(A|B)xP(B)

Multiplication(IndependentPr.):P(AB)=P(A)xP(B)

TotalProbabilityRule: P(A)=P(A|B)xP(B)+P(A|Bc)xP(Bc)

P(A)=P(AIS1)xP(S1)+P(AIS2)xP(S2)+...

Giveexampleofajointprobability: P(Interestrateincreased)=P(I)=0.4P(Recessiongivenatarateincrease)=P(R|I)

Theprobabilityofarecessionandanincreaseinrates=P(R|I)xP(I)=0.7x0.4=28%

Giveequationforjointprobabilityeventsandexplainit.Howisthisdifferentfrommutuallyexclusive?

P(AorB)=P(A)+P(B)P(A|B).

YoumustsubtractP(A|B)becauseifyoulookataVenndiagramyouwillnoticethatyouhavecountedtheoverlappingsectionoftwocirclesmorethanonce.Mutuallyexclusiveeventsdonotrequirethefinalsubtraction.

DependentEvents: Knowingtheoutcomeofonetellsyousomethingabouttheprobabilityoftheotherevent.

IndependentEvents: Occurrenceofoneeventdoesnotinfluencetheoccurrenceoftheother.



Covariance: Ameasureofhowtwovariablesmovetogether.Thevaluerangefrom+infinity,toinfinity.

[(xmean)/(Sx)]

Correlation: p(Ri,Rj)=(Cov(Ri,Rj)/(Ri)(Rj)

Smallprepresentscorrelation.

ExpectedValue: P*x

Example:75%chancethatyouwillreceive$125,000.Theexpectedvalueis93,750.

PortfolioExpectedValue: WeightedAveragebasically.

PortfolioVarianceandStandardDeviation. Var(Rp)=w+w+2wwp

note:piscorrelation.Derivedfromcorrelationformula.

Factorial: Example:3!=3x2x16!=6x5x4x3x2x1

WhenshouldyouusenCrandwhenshouldusenPr?

nCrwhenorderdoesnotmatter.nPrwhenorderdoesmatter.

Signforsamplemean? Samplemean=xbar

Signforpopulationmean? Populationmean=



Explainthegeometricmeanformula: SimplymultiplyallthenumbersgivenX1xX2xXn...thentaketheroottothepowerofhowevermanyobservationsthereare(n).

Sinceyoucannottaketherootofanegativenumberyoumustinsteadaddeachreturnby1thenmultiply(X1+1)x(X2+1)x(Xn+1)...thentaketherootofthattothepowerofn.

WhatisMADandhowisitdifferentfromvariance?

MADusesanabsoluteandisnotsquared.

MAD=[|X1mean|+|X2mean|+|Xnmean|]/n

Variance=[(X1mean)^2+(X2mean)^2+(Xnmean)^2]/n

So,basicallyinsteadofabsolutesyouhavesquares.

Standarddeviation= Squarerootofthevariance.

What'sthedifferencebetweenthesamplevarianceformulaandthevarianceformula?

the1atthedivisor.

CoefficientofVariation? StDiv/Mean.Notbloodyhard.

SharpeRatio? Thesharperatioissimplythemeanreturnfromaninvestmentminusariskfreerate(likeatbill)alldividedbythestandarddeviationofthatinvestment.

Theinvestmentcanbeaportfolio.



Kurtosis?Leptokurtic?Platykurtic?Mesokurtic?

Kurtosisisameasureofthepeeklikeqinafrequencyfilter.

Leptokurtic=morepeek.Platykurtic=lesspeek.Mesokurtic=normalpeek.

SampleSkewness? Howskewedthesampleis.(1/n)[(X)^3/(^3)]

SampleKurtosis? Sameassampleskewnessbutreplacethe3swith4s.

HowtodetermineiftheIRRisacceptableforaproject?

Itishigherthanthegivendiscountrate.

HoldingPeriodYield: Theactualreturnaninvestorwillreceiveifthemoneymarketinstrumentishelduntilmaturity.

HPY=Profit/Purchaseprice

Example:100,000TBillboughtfor98,000.2,000/98,000=2.041%

rMM anannualizedHPYonthebasisof360daysanddoesNOTincorporatetheeffectsofcompounding.

Rmm=HPY/(#ofdaysheld/360)

EAY anannualizedHPYonthebasisof360daysanddoesNOTincorporatetheeffectsofcompounding.

EAY=(1+HPY)^(365/150)1



BondEquivalentyield 2timesthesemiannualdiscountrate.ThisconventionstemsfromthefactthatyieldsonU.S.bondsarequotedastwicethesemiannualrate,becausethecouponinterestispaidintwosemiannualpayments.

[(1+HPY)^2]1

Bloomberg Assessment Test Flashcards

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