KASNEB CIFA Intermediate flashcards
KASNEB CIFA Intermediate · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Treasury bill pricing
- Price = face value ÷ [1 + (discount rate × days to maturity ÷ 364)]. The Central Bank of Kenya prices Treasury bills using a 364-day year.
- Primary market
- The market where newly issued securities are sold for the first time, raising fresh capital for the issuer through initial public offers, rights issues or bond issues.
- Secondary market
- A market such as the Nairobi Securities Exchange where already-issued securities are traded between investors; the original issuer receives no new funds from these trades.
- Bid-ask spread
- The difference between the price at which a market maker buys (bid) and sells (ask). It compensates dealing and inventory risk and widens when liquidity is low.
- Rights issue
- An offer of new shares to existing shareholders in proportion to their holdings, normally at a discount to market price, allowing them to avoid dilution of their stake.
- Put option
- A contract giving the holder the right, but not the obligation, to sell an underlying asset at a specified strike price on or before the expiry date.
- DuPont analysis
- A decomposition of return on equity into net profit margin, total asset turnover and the equity multiplier, showing whether returns come from profitability, efficiency or leverage.
- Quick ratio
- Current assets excluding inventory, divided by current liabilities. It tests short-term liquidity where inventory cannot be quickly converted into cash.
- Earnings per share
- Net income after deducting preference dividends, divided by the weighted average number of ordinary shares outstanding during the reporting period.
- Dividend cover
- Earnings per share divided by dividends per share. A high cover means earnings comfortably fund the dividend and leave a margin for reinvestment.
- Gordon growth model
- Share value = D1 ÷ (r − g), where D1 is next year's dividend, r the required return and g the constant growth rate; it is valid only when g is less than r.
- Free cash flow
- Operating cash flow less capital expenditure. It is the cash left for debt repayment, dividends and reinvestment after spending needed to maintain productive capacity.
- Working capital cycle
- Inventory days plus receivable days minus payable days. It measures how long cash is tied up between paying suppliers and collecting from customers.
- CAPM
- The capital asset pricing model: required return = risk-free rate + beta × (market return − risk-free rate). It prices only systematic risk, not diversifiable risk.
- Beta
- The covariance of a security's returns with market returns divided by the variance of market returns. It measures sensitivity to market movements; the market has beta 1.0.
- Sharpe ratio
- Excess portfolio return over the risk-free rate divided by the portfolio's standard deviation. It measures reward earned per unit of total risk borne.
- Treynor ratio
- Excess portfolio return over the risk-free rate divided by portfolio beta. It measures reward per unit of systematic risk and suits well-diversified portfolios.
- Jensen's alpha
- Actual portfolio return minus the CAPM-required return for its beta. A positive alpha indicates outperformance after adjusting for systematic risk.
- Systematic risk
- Market-wide risk from interest rates, inflation or economic cycles that affects all securities. It cannot be eliminated by diversification and is measured by beta.
- Efficient frontier
- The set of portfolios offering the highest expected return for each level of risk. Risk-averse investors select portfolios lying on this frontier.
- Value at Risk
- A statistical estimate of the maximum expected loss on a portfolio over a stated holding period at a given confidence level, such as 95% over one day.
- Modified duration
- Macaulay duration divided by (1 + yield to maturity). It approximates the percentage change in bond price for a one-percent change in yield.
- Interest rate parity
- Forward rate = spot rate × (1 + interest rate of quote currency) ÷ (1 + interest rate of base currency). It links spot rates, forward rates and interest differentials.
- Purchasing power parity
- The theory that exchange rates adjust so identical goods cost the same across countries; the expected change in spot rate reflects the inflation differential.
- Five Cs of credit
- Character, capacity, capital, collateral and conditions. Lenders assess these factors to judge a borrower's willingness and ability to repay a loan.
- Liquidity risk
- The risk of being unable to meet cash obligations as they fall due, or of being unable to sell an asset quickly without a significant price concession.
- Interest rate swap
- An agreement between two parties to exchange interest payment streams, typically fixed for floating, on a specified notional principal over a defined period.
- Self-interest threat
- An ethical threat arising when a financial interest, fee dependence or personal benefit could bias professional judgement, for example holding shares in an audit client.
- Audit committee
- A board subcommittee of independent non-executive directors responsible for overseeing financial reporting, internal controls and the independence of the external auditors.
- Insider trading
- Dealing in securities while in possession of unpublished price-sensitive information, or passing such information to others; it is prohibited under securities law.
- Confidentiality principle
- A professional duty not to disclose client information obtained through work without authority, continuing after the relationship ends unless disclosure is required by law.
- Fiduciary duty
- A legal obligation to act in the best interests of another party, requiring loyalty, good faith, avoidance of conflicts and prudent management of entrusted assets.