| The Basics | Equities vs. Debt | Corporate Bonds | Hedge Funds | Private Equity |
|---|---|---|---|---|
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What is a long position?
Purchasing a security with outright ownership and expect the underlying asset to increase in price.
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What is equity?
A portion of ownership exchanged for money invested. Represents an equity interest in a company.
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Why are corporate bonds issued?
To raise capital.
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What is a hedge fund?
An investment fund that can undertake a wide range of investment and trading activities.
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What was the original name for private equity?
Leveraged buyout firms.
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What is a short position?
Borrowing and selling a security with the intentions to buy back at a future price date with the underlying asset decreasing in value.
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In liquidation of a company, when does common stock receive residual claim?
Last to be paid in liquidation.
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What is a straight bond?
A bond that pays a fixed or variable coupon over the life of the bond to the bondholder.
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Who are three type of investors that invest in hedge funds?
High net worth investors, institutions, fund to funds, trusts, estates, foundations, retirement accounts and pension funds.
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What term period is associated with private equity?
Typically 10-12 years.
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What is the difference between an exchange traded and OTC traded?
An exchange in an organized market where buyers and is regulated, open to all investors and subject to registration requirements. OTC are traded outside of exchanges and are not regulated. Contracts are between counter parties and dealers.
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What is debt securities?
A security representing a loan given by an investor, in return for payments of interest and ultimately repayment of the principal amount of debt on a specified maturity date.
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What are three types of corporate bonds?
Straight bond, zero coupon, convertible, PIK, step or step up, callable, puttable, high yield (junk), distressed debt.
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How do managers make money on hedge funds?
Compensation, based on performance.
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What type of controlling interest does private equity have?
Significant or control.
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What are three types of securities traded on exchanges?
Equities, options and futures.
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What is the maturity period of short term bonds, intermediate-term bonds and long-term bonds?
Short-term: 1-5 years
Intermediate-term: 5-12 years Long-term: greater than 12 years |
What is a junk bond?
Corporate and municipal debt securities having a lower than investment grade credit rating.
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What is a loss carry forward?
A provision which carries forward any losses previously allocated to a partner either for one year, some other period, or without time limitation until the loss has been completely absorbed.
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What type of liquidity do private equity and hedge funds invest in?
Private Equity - Illiquid
Hedge Fund - Generally Liquid |
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What are 4 types of OTC traded financial products?
Options, Forwards, Swaps, Debt Instruments, Repos, and Private placements.
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What are the 4 factors YTM takes into account?
Current Market Price
Par Value Coupon Time to Maturity |
What is another name for a callable bond?
Redeemable bond.
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What is a hurdle rate?
The amount a limited partner's or investors capital account or net asset value must appreciate before it is subject to a performance fee charge.
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What were the "boom years" that contributed to unrealized investment increases?
2005-2007.
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