Chapter 4 - Risk and return- Describe how price-weighted and market value weighted indices are constructed.
Chapter 5 - Portfolio topics
- What effect does correlation have on risk when combining multiple securities in a portfolio?
- What is the difference between perfect positive correlation, perfect negative correlation, and independent variables?
- How does the shape of the investment opportunity set very with correlation?
- What is diversification? Explain how diversification actually works.
- Differentiate systematic and from specific risks. How is systematic risk measured?
- What is their risk and return relationship depicted in the security market line?
- Explain the two steps involved in finding the optimal portfolio for a specific investor.
- What is depicted in the graph of an indifference curve?
Chapter 6 - Fundamental analysis- What are the steps in top down security analysis?
- What are some of the key issues to consider when performing industry analysis?
- In what order are the items on a balance sheet listed?
- What are the accounting identities in the balance sheet and the income statement?
- What assets that have significant value to a company but do not show up on its balance sheet?
- How does operating income illustrate the health of a business?
- What do the three sections of a cash flow statement indicate?
- Describe some differences between accounting profit and cash.
- How are fixed assets accounted for in a company?s balance sheet, income statement, and cash flow statement?
- What are the four areas of ratio analysis? List common ratios in each of these areas.
- Explain why a company?s ratio (e.g., inventory turnover, DSO, current ratio) may differ from its competitors.
- What is Dupont analysis? How does it help investors?
Chapter 7 - Stock valuation- What are some of the differences between the book value of equity and market value?
- What are some of the implications of the constant growth dividend discount model?
- What are some of the ways to estimate the growth rate of dividends when using the Gordon model?
- Instead of the constant growth dividend discount model, what alternatives exist to value stocks?
- What are the difficulties in applying the Gordon model to stocks that are currently experiencing a high level of growth?
- What are some of the difficulties in applying the multi stage dividend discount model?
- What does the P/E ratio indicate?
- What are some of the variables that influence the level of the P/E ratio?
- What are some difficulties in using the P/E ratio approach for stock valuation?
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