Posted: February 28th, 2023

This is about financial Investment analysis assignment

1. Forwards & Futures: A futures contract is similar to a forward contract, differing more importantly in the aspects of standardization and daily marking to market, which is the process by which gains and losses on futures contract positions are settled daily. Futures contracts can be used for hedging or speculating.
2. Tobin’s Q. Tobin’s Q is the ratio of market price to replacement cost.
3. Market Value Added: MVA and EVA are usually inversely related. In general, when EVA rises, MVA falls. Conceptually, a positive MVA is a byproduct of a high – or positive – EVA (or series of EVAs).
4. Financial Cost of Carry: The financial cost of carry is determined by the relative costs of buying a stock with deferred delivery in the futures market versus buying it in the spot market with immediate delivery and carrying it in inventory. The financial cost of carry is depicted as F = S(1 + RF – D)^T where the latter term in parenthesis is the cost of carry.
5. Value Proposition: The consulting model value proposition suggests that a stock price will be higher the larger the expected dividend per share (or free cash flow), the higher the market capitalization rate (or risk), and the higher the expected growth rate of dividends (or free cash flow).
6. Out of the Money Call Option. An out-of-the-money call option would be where the stock price is greater than the exercise price.
7. Attribution: Common attribution procedures partition performance improvements to asset allocation, sector selection, and security selection. Performance is assessed by calculating departure of portfolio composition from a benchmark portfolio.
8. Structured Assets. Structuring is the process of reengineering cash flows from existing asset exposures (i.e. portfolios of mortgages, credit card debt, etc.). Financial structuring (or engineering) enables different investors to hold claims with different risk exposures (labeled as tranches) from the same underlying assets.
9. Price Metrics: The P/E ratio is a useful measure of the market’s assessment of the firm’s growth opportunities. Many analysts form their estimates of a stock’s value by multiplying their forecast of next year’s earnings per share by a predicted P/E multiple. The P/B ratio is a useful measure of the market’s assessment of the firm’s return on equity (ROE) opportunities. The P/S ratio is a useful measure of the market’s assessment of the firm’s net margins and the expectations thereof.
10. Earning Quality (EQ): One of the best indicators of EQ is a high percentage of the earnings, accrual accounting defined, covered (or reflected) by working capital.
11. Internal Rate of Return: Dollar weighted rates of return is another term for Internal Rate of Return (IRR). Because of the nuances of the (oftentimes) highly irregular cash flows both into and out of the limited liability partnership (LLP), IRR is used in the performance measurement of alternative assets.
12. Straddle. A long straddle is established by buying both a call and a put on the stock, each with the same exercise price and the same expiration date. A straddle is an example of how options can be combined to capture an anticipated outcome.
13. Portfolio Constraints (PC) in Investment Policy Statements. PC can include liquidity, investment horizon, regulations, tax considerations, and unique needs.
14. Tracking Error (TE). TE is estimated from the time series of differences between the returns of the risky portfolio and the risk free returns. Over the past 30+ years, TEs have tended to decline, suggesting that risky portfolios have become more index-like.
15. Implied Volatility: If the anticipated volatility forecast by the analyst is greater than the implied volatility (the standard deviation of stock returns consistent with the options price), the call option is considered a buy. If the anticipated volatility is less, the analyst should consider selling or writing the call option.
16. Fiscal & Monetary Policy: The traditional tools of macro-policy are government spending and tax collection, which constitute fiscal policy, and manipulation of the money supply, which constitute monetary policy, primarily through the use of the fed funds rate, discount rate, open market operations, and quantitative easing.
17. Futures Profitability and Zero-Sum Game: The profit to a long futures contract is the spot price at maturity minus the original futures price. The profit to a short futures contract is the original futures price minus the spot price at maturity. When summed, the profits to the long and the short suggest that futures contracts are a zero-sum arrangement
18. Good Companies as Good Investments. Good companies are not necessarily good investments. Stock market prices of successful firms may be bid up to levels that reflect that success, or perhaps more. These firms are often labeled glamour firms and have high, embedded growth and/ or profitability expectations.
19. In the Money Put Option. An in-the-money put option would be where the exercise price is less than the stock price.
20. Option Valuation: Option values may be viewed as the sum of intrinsic value plus time value. The value of a call option increases if the stock price increases, the exercise price (or strike price) decreases, the volatility increases, the time to expiration increases, the risk-free interest rate increases, and the dividend payment decreases
21. Commodity Cost of Carry: The commodity cost of carry is similar to the financial cost of carry except that storage costs are added in the place of dividends: F = S (1 + RF + C)^T, where the latter term in parenthesis is the cost of carry.
22. Two Classes of LLP Partners. The two classes of LLP partners are Equity Partners and Debt Partners. Debt partners, while limited in their authority, are nonetheless responsible for providing the majority of the capital investment
23. Defined Contribution (DC) vs. Defined Benefit (DB). The two types of pension plans are DC and DB, the later where the contributions made on behalf of the employees by the firm specifies the retirement benefits to which the employee is entitled. The benefit formula typically takes into account years of service for the employer and level of wages. In DC plans, the investment risk is transferred to the employee.
24. Capitalized Earnings Valuation: For firms with no growth opportunities (i.e., no PVGO), the P/E ratio is simply the reciprocal of the risk-free rate (i.e. the required rate of return).
25. DCF: Discounted cash flow models give estimates of the intrinsic value (V) of a stock that in turn, can be compared to market prices (P) for purchase (buy when V > P) or sale (sell when V

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