CSC CX Selection flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Modified duration
- A measure of a bond's price sensitivity to a change in yield, calculated as Macaulay duration divided by one plus the yield per period. Approximate percentage price change equals negative modified duration times yield change.
- Put-call parity
- A no-arbitrage relationship for European options: call price minus put price equals stock price minus the present value of the strike. Violations allow riskless arbitrage by combining positions.
- Sharpe ratio
- A risk-adjusted performance measure equal to portfolio return minus risk-free rate divided by portfolio standard deviation. It measures excess return per unit of total risk.
- Know-your-client rule
- The regulatory obligation to collect and update a client's personal, financial, and investment information, including objectives, risk tolerance, time horizon, and knowledge, before making recommendations.
- Weighted average cost of capital
- The blended required return on a firm's debt and equity, weighted by market values, with debt adjusted for the tax shield. It is the discount rate for projects of average risk.
- Free cash flow to firm
- Cash available to all capital providers, calculated as cash flow from operations plus after-tax interest minus capital expenditures. It is used in discounted cash flow valuation.
- DuPont analysis
- A decomposition of return on equity into net profit margin, asset turnover, and equity multiplier. It shows whether returns come from profitability, efficiency, or leverage.
- Business cycle
- The recurring pattern of expansion, peak, contraction, and trough in economic activity. Leading indicators such as yield curve slope and building permits anticipate turning points.
- Interest rate parity
- A relationship stating that the forward premium or discount on a currency approximately equals the interest rate differential between the two countries. It limits arbitrage in currency markets.
- Overnight rate
- The Bank of Canada's key policy rate target, implemented through a target band. Changes influence short-term money market rates, prime lending rates, and the exchange rate.
- Convexity
- The curvature of the price-yield relationship for a bond. Positive convexity means price gains from yield falls exceed price losses from equal yield rises, improving the duration estimate.
- Treasury bill pricing
- T-bills are quoted on a discount basis: price equals face value times one minus the discount rate times days to maturity divided by 365. They pay no coupon.
- Covered call strategy
- Holding a long stock position and writing a call option on the same stock. The premium provides income but upside is capped at the strike price.
- Protective put
- Buying a put option while holding the underlying stock. It establishes a floor selling price and limits downside loss while retaining upside potential, at the cost of the premium.
- Management expense ratio
- The annual fund cost expressed as a percentage of average net assets, including management fees, operating expenses, and taxes. It excludes trading commissions, which are reported separately.
- Segregated fund guarantee
- An insurance contract feature guaranteeing a minimum of 75 or 100 percent of deposits at maturity or death, subject to reset provisions, plus potential creditor protection.
- Efficient frontier
- The set of portfolios offering the highest expected return for each level of risk. Rational investors choose portfolios on or above this curve, given their risk tolerance.
- Time-weighted return
- A performance measure that removes the effect of external cash flows by linking sub-period returns. It is preferred for evaluating manager skill rather than investor timing.
- Capital asset pricing model
- A model stating expected return equals the risk-free rate plus beta times the market risk premium. Beta measures systematic risk, the only risk that is compensated.
- Gordon growth model
- A dividend discount model valuing a stock as next year's dividend divided by the required return minus the growth rate. It assumes growth is constant and below the required return.
- Current ratio
- Current assets divided by current liabilities. It measures short-term liquidity and the ability to meet obligations due within one year.
- Accredited investor
- A person or entity meeting specified financial thresholds, such as income or asset tests, who may buy exempt securities without a prospectus. Dealers must verify the qualification.
- Client relationship model
- Regulatory requirements for disclosure of charges, performance reporting, and relationship disclosure documents. It aims to give clients clear, ongoing information about their accounts and costs.
- Conflict of interest
- A situation where a registrant's or firm's interests may compromise duties to a client. It must be identified, disclosed in writing, and managed in the client's best interest.
- Insider trading
- Trading or tipping on material information not publicly disclosed. It undermines market integrity and is prohibited under securities legislation and dealer conduct rules.
- Margin requirement
- The minimum equity an investor must maintain in a margin account, set by CIRO. Initial margin applies at purchase; maintenance margin applies afterward, with calls if breached.
- Preferred shares
- Equity securities with fixed dividends and priority over common shares for dividends and liquidation, typically without voting rights. They may be cumulative, retractable, or participating.
- Investment policy statement
- A written document setting out client objectives, risk tolerance, constraints such as liquidity and taxes, and review procedures. It guides portfolio construction and evaluation.
- Principal-protected note
- A structured product combining a deposit or bond with a derivative payoff. Principal is guaranteed at maturity, but returns depend on the underlying and the issuer's creditworthiness.
- Futures margin
- A good-faith deposit, not a down payment, required to open a futures position. It is marked to market daily, and variation margin covers losses.
- Real return bond
- A government bond whose principal is indexed to the consumer price index while the coupon is fixed in real terms. It protects the holder from inflation risk.
- Liquidity preference theory
- A term structure theory holding that long-term bonds carry a maturity premium because investors prefer short-term liquidity. It explains why yield curves usually slope upward.