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The Basics Equities vs. Debt Corporate Bonds Hedge Funds Private Equity
100
What is a long position?
Purchasing a security with outright ownership and expect the underlying asset to increase in price.
100
What is equity?
A portion of ownership exchanged for money invested. Represents an equity interest in a company.
100
Why are corporate bonds issued?
To raise capital.
100
What is a hedge fund?
An investment fund that can undertake a wide range of investment and trading activities.
100
What was the original name for private equity?
Leveraged buyout firms.
200
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.
200
In liquidation of a company, when does common stock receive residual claim?
Last to be paid in liquidation.
200
What is a straight bond?
A bond that pays a fixed or variable coupon over the life of the bond to the bondholder.
200
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.
200
What term period is associated with private equity?
Typically 10-12 years.
300
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.
300
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.
300
What are three types of corporate bonds?
Straight bond, zero coupon, convertible, PIK, step or step up, callable, puttable, high yield (junk), distressed debt.
300
How do managers make money on hedge funds?
Compensation, based on performance.
300
What type of controlling interest does private equity have?
Significant or control.
400
What are three types of securities traded on exchanges?
Equities, options and futures.
400
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
400
What is a junk bond?
Corporate and municipal debt securities having a lower than investment grade credit rating.
400
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.
400
What type of liquidity do private equity and hedge funds invest in?
Private Equity - Illiquid
Hedge Fund - Generally Liquid
500
What are 4 types of OTC traded financial products?
Options, Forwards, Swaps, Debt Instruments, Repos, and Private placements.
500
What are the 4 factors YTM takes into account?
Current Market Price
Par Value
Coupon
Time to Maturity
500
What is another name for a callable bond?
Redeemable bond.
500
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.
500
What were the "boom years" that contributed to unrealized investment increases?
2005-2007.




Financial Products 101

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