If you’re looking for an Analyst Prep coupon code, you’ve come to the... 3,000 CFA® Practice Questions – QBank, Mock Exams, and Study Notes, 3,000 FRM® Practice Questions – QBank, Mock Exams, and Study Notes. If a company has a high price-to-book ratio (meaning its market price is high relative to its book value), then the market has high growth expectations for the company. The value of the contract is what fluctuates over time. A well-functioning financial system has effective financial intermediaries and financial instruments that allow investors to move money between the future and present at a fair rate of return. Each method of index weighting has strengths and weaknesses.Â Price WeightingsÂ are the easiest to calculate but have arbitrary weightings.Â Equal WeightingsÂ provide diversified exposure but require frequent rebalancing to maintain.Â Market CapitalizationÂ indices are used commonly by index funds due to less frequent turnover but will cause investors to buy and sell in response to market changes on a lag. Since the buyer will only exercise the option if it is “in the money”, then their payoff will either be the amount by which the market price of the underlying asset exceeds the strike price (or the opposite for a put option) or 0. \textbf{Forms of market efficiency} & \textbf{Past market data} & \textbf{Public information} & \textbf{Private information} \\ Asset-backed Securities, which you should remember from the fixed income section, are also a form of contingent claim contract. This is known as default risk. In addition, indices exist for alternative investments. 8 Ways to Improve your Writing Skills for the CFAÂ® Level III Exam, CFAÂ® Level I Exam Study Plan offered by AnalystPrep, CFAÂ® Program Course offered by AnalystPrep, https://www.youtube.com/watch?v=uu7ZmnSlQEs, https://www.youtube.com/watch?v=PJbRtIVGdaI. Click here to access 40 hours of video lectures. AnalystPrep CFA®/FRM Review. Fixed income indices also come in various types. For put options, the calculation for the payoffs reverses the St and X values, since it is profitable for the buyer when the security they are selling is worth less than the strike price. A simple way to visualize the value of the swap is to think of each series of payments as a bond with either a fixed or floating interest rate, and the value of the swap is the net difference of the two. Financial Intermediaries are firms that provide products and services to participants in investment markets.Â BrokersÂ fill orders for their clients by matching them with someone willing to take the other side of their trades.Â Investment BanksÂ help corporate clients issue new investment securities.Â ExchangesÂ provide places where traders can arrange their trades.Â DealersÂ fill client orders by buying and selling directly to them.Â Depository InstitutionsÂ such as banks and credit unions raise money from depositors to lend to borrowers.Â Insurance CompaniesÂ sell protection to people and institutions to hedge risks. In each session, a candidate attempts 90 equally weighted questions. The primary difference is that futures are traded over an exchange while forwards are OTC. $$NB=Net\quad Borrowing$$. Industry analysis is used to understand a companyâs business and its business environment. The higher the risk-free rate, then the higher the value of the call option. When using Dividend Discount Models, it is important to be able to forecast the expected future growth of dividends. OVERALL RATING: â â â â â â Level 1: $129 for 12 PDF mini-mock exams (4 full-length Level I, 2 full-length Level II) with 3,000+ practice questions CFA® Levels Covered: Level I, Level II Number of Practice Questions: 3,000+. CFA preparation platform by review websites AnalystPrep for the CFA ® Program Level I of the CFA Exam At AnalystPrep, we believe that the best way to maximize your chances of passing the Level I of the CFA exam is by practicing as much as you can with â¦ Macroeconomic trends, both cyclical and structural, can speed or slow industry growth and profitability by impacting costs of money and consumer behaviors. AnalystPrep CFA®/FRM Review. need to be comfortable discounting the Present Value and Future Value of cash flows for individual and ongoing payments in the exam Other anomalies include the excess returns that are routinely earned by investors that are able to purchase a stock at its IPO price. Derivatives are split into two classes: Forward Commitments (like futures and forwards contracts) provide the ability to lock in a purchase price of an asset at a future date and a specified price, and Contingent Claims, which are options (but not obligations) to transact in the future at a specified price. This model is especially useful for mature companies but is less applicable for complex companies in uncertain economic environments. If a security is trading at a higher price in one market over another, an investor can quickly buy the security at the lower price and sell at the higher price. Derivative securities are an asset class where they derive (hence the name) their value from an underlying asset. $$r=required\quad rate\quad of\quad return$$ Since the arbitrage mechanism means that any investor can earn the risk-free market return, we can use the risk-free rate and not have to add a risk premium when discounting to find present or future values. Derivative securities like futures and forwards contracts can be used to Manage Risk. $$X =Exercise\quad Price$$ These are commonly traded in forward and futures markets as a way of managing risks for producers whose businesses are exposed to the risk of price changes in these materials.Â Real AssetsÂ are tangible properties usually held by operating companies. Bonds are categorized into three primary sectors based on issuer and structure: Government, Corporate, and Structured Finance. The first is defining how broad or narrow the target market is. $$V=present\quad value\quad of\quad stock\quad today$$ They exist in forms such as time series anomalies like the January effect, in which stocks tend to outperform in the month of January. The binomial tree splits at each outcome point, at which step you calculate the value of the contract given that particular outcome and weight that by the probability of that outcome. Very useful tool for the FRM. In a completely efficient market, security prices will immediately incorporate all new information and it is nearly impossible to create sustained outperformance. There are four financial statements that are used to summarize a companyâs financial positions and performance. TheÂ EmbryonicÂ stage is characterized by slow growth, high prices, and low sales volumes.Â TheÂ GrowthÂ stage is characterized by increasing demand, improving profitability, and relatively low competition. Since both types of contract are very liquid and cheap to purchase (relative to their underlying assets), the prices at which they trade provides information about the expected price and volatility of those assets. There are three primary types of forwards commitment: Forward contracts, Futures contracts, and Swaps. A thorough company analysis must include an overview of the company and its operations, identification of the characteristics and trends of its industry, analysis of demand and supply for its products or services, explanation of the pricing environment the company faces, and interpretation of all relevant financial ratios. In short, the Princeton Review CFA course is excellent for visual learners who will certainly benefit from the 2 different types of lectures available. The secondary markets are where existing securities are bought and soldÂ betweenÂ investors. For example, if an asset moves from$100 to \$150, the long party will earn money while the short party stands to lose from his investment. We’ve already covered the payoff and profit calculations of options securities, but there are several additional considerations for understanding their values. Fixed income indices can also include specialized categories like high-yield, inflation-linked, and emerging markets. All Rights ReservedCFA Institute does not endorse, promote or warrant the accuracy or quality of AnalystPrep. In general, derivatives have lower transactions costs, greater liquidity, and are easier to gain short exposure than the assets to which they correspond. Market efficiency is the measure of how new information becomes reflected in market prices. Long positions mean the investor has possession (cash securities) or will take delivery of the underlying asset (derivative contracts). At the time the contract is created, its value is equal to 0 and the forward price is equal to the spot price discounted to a future value at the risk-free rate, as written out below: $${ V }_{ 0 }\left( T \right) =0$$ This can include shares offered to the public for publicly listed companies or smaller, private listings to qualified investors. This finds the present value of future cash flows that will be available for distribution as dividends. Total Return Swaps are commonly used wherein the buyer agrees to pay a specified interest rate while the seller pays the total return (interest and capital) of a given bond security.