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Terms in this set (17)

The internal rate of return (IRR)

The internal rate of return (IRR) assumes all cash flows are invested at the internal rate of return. The IRR is the rate that makes the discounted value of cash inflows and outflows equal to zero. If an investor is choosing between two investments, she should choose the one with the higher IRR. (67741)

The internal rate of return (IRR) assumes all cash flows are invested at the internal rate of return. The IRR is the rate that makes the discounted value of cash inflows and outflows equal to zero. If an investor is choosing between two investments, she should choose the one with the higher IRR. (67741)

Issuer, Broker dealer, and Investment advisor representative

The term registered representative is not defined in the Uniform Securities Act, although it is used in federal law. According to the Uniform Securities Act, an issuer is a person who offers securities, or plans to offer them. A broker-dealer is in the business of buying and/or selling securities either for customers or on its own behalf. An investment adviser representative is an employee of an investment adviser who gives advice to clients, sells these services, or supervises people who do. Remember, the term person in the Uniform Securities Act applies both to entities, such as companies, and individuals. (89347)

The term registered representative is not defined in the Uniform Securities Act, although it is used in federal law. According to the Uniform Securities Act, an issuer is a person who offers securities, or plans to offer them. A broker-dealer is in the business of buying and/or selling securities either for customers or on its own behalf. An investment adviser representative is an employee of an investment adviser who gives advice to clients, sells these services, or supervises people who do. Remember, the term person in the Uniform Securities Act applies both to entities, such as companies, and individuals. (89347)

Per capita

A per capita distribution of an estate ensures that each member of a generation will receive the same amount as any other. Per stirpes distributions are done per branch of a family and, in some instances, members of the same generation of a family will receive different amounts from an estate. Inter vivos and testamentary are terms that are associated with trust accounts, but not estates. (15425)

A per capita distribution of an estate ensures that each member of a generation will receive the same amount as any other. Per stirpes distributions are done per branch of a family and, in some instances, members of the same generation of a family will receive different amounts from an estate. Inter vivos and testamentary are terms that are associated with trust accounts, but not estates. (15425)

Limited liability company (LLC)

Each of the answer choices provide for the pass-through of income for tax purposes to investors. However, only limited partnerships, LLCs, and S-corporations will report their income on a Form K-1. The reason that LLCs is the answer is because they refer to their owners as members. Owners of an S-corporation are referred to as shareholders, while owners of a limited partnership are referred to as partners. (18564)

Each of the answer choices provide for the pass-through of income for tax purposes to investors. However, only limited partnerships, LLCs, and S-corporations will report their income on a Form K-1. The reason that LLCs is the answer is because they refer to their owners as members. Owners of an S-corporation are referred to as shareholders, while owners of a limited partnership are referred to as partners. (18564)

An unlimited amount

When and investor sells call options and does not own the underlying stock, the call writer has an unlimited potential maximum loss. If the underlying stock's price increases, the call seller/writer may be exercised against and forced to buy the stock in the market at its current higher price and subsequently sell at the lower strike price. Theoretically, the stock's potential upside is unlimited. (67268)

When and investor sells call options and does not own the underlying stock, the call writer has an unlimited potential maximum loss. If the underlying stock's price increases, the call seller/writer may be exercised against and forced to buy the stock in the market at its current higher price and subsequently sell at the lower strike price. Theoretically, the stock's potential upside is unlimited. (67268)

1&3

Discounted cash flow analysis uses the present value formula and applies it to an investment with multiple future cash flows (e.g., the interest and principal payments of a bond). In order to find the present value of a single cash flow, an investor needs the future cash flows, an expected rate of return (i.e., discount rate), and the number of years until the future cash flow will be received. The risk free-rate of return is used in the Capital Asset Pricing Model (CAPM) formula and is generally not required when performing a discounted cash flow analysis. (15570)

Discounted cash flow analysis uses the present value formula and applies it to an investment with multiple future cash flows (e.g., the interest and principal payments of a bond). In order to find the present value of a single cash flow, an investor needs the future cash flows, an expected rate of return (i.e., discount rate), and the number of years until the future cash flow will be received. The risk free-rate of return is used in the Capital Asset Pricing Model (CAPM) formula and is generally not required when performing a discounted cash flow analysis. (15570)

Present value

Discounted cash flow analysis is a method for estimating the current market price of a bond, project, or business. Discounted cash flow analysis involves estimating or projecting future income (i.e., cash flows) and discounting them back to their present value using the present value formula. Duration measures a bond's risk relative to interest rates and the yield-to-maturity measures a bond's rate of return. (15439)

Discounted cash flow analysis is a method for estimating the current market price of a bond, project, or business. Discounted cash flow analysis involves estimating or projecting future income (i.e., cash flows) and discounting them back to their present value using the present value formula. Duration measures a bond's risk relative to interest rates and the yield-to-maturity measures a bond's rate of return. (15439)

Readily transferable

Unlike forward contracts, futures contracts are standardized agreements that are traded on exchanges and readily transferred. Forward contracts are not readily transferable since both parties to the original contract must agree before one of them may sell the contract to a third party. (62918)

Unlike forward contracts, futures contracts are standardized agreements that are traded on exchanges and readily transferred. Forward contracts are not readily transferable since both parties to the original contract must agree before one of them may sell the contract to a third party. (62918)

A state pension fund is evaluating three separate investment advisers to manage the equity portion of its portfolio. Two of the advisers have had significant client growth in the past three years. The pension fund is worried that the positive in-flows of cash may distort the returns of the advisers. Which of the following measures would give the fund the BEST comparison of the three advisers' returns over that three-year period?

Time-weighted return

Time-weighted return (TWR) is a more accurate measure of a portfolio manager's performance since it eliminates the effects of cash flowing into the portfolio over a given period. It is assumed that all cash distributions are reinvested in the portfolio and the same periods are used for comparisons. The effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of value to the end of that period. (74502)

Time-weighted return (TWR) is a more accurate measure of a portfolio manager's performance since it eliminates the effects of cash flowing into the portfolio over a given period. It is assumed that all cash distributions are reinvested in the portfolio and the same periods are used for comparisons. The effect of varying cash inflows is eliminated by assuming a single investment at the beginning of a period and measuring the growth or loss of value to the end of that period. (74502)

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