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EBITDA is a poor proxy for FCFF & FCFE because?

EBITDA is a poor proxy for FCFF because it does not incorporate the cash taxes paid. EBITDA also fails to reflect the investment in working capital and fixed capital.

EBITDA is an even worse proxy for FCFE as it does not reflect net borrowings or repayment of debt.

In a calendar spread the expectation is…

…that the price move is not imminent.

The expectation is for an upward/downward move after a lag. The trader attempts to capture the decay in time value by selling the near-dated options and buying the long dated options with the same strike price.

Who is exposed to credit risk in a payer swaption at initiation?

The long position is exposed to potential credit risk in a  payer swaption at initiation, but the short position in a payer swaption is not.

Global Best Practices recommend ____ of the board members be independent.


The present value of expected loss on a bond is…

…the maximum amount an investor would be willing to pay to an insurer to bear the credit risk of that security.

Standard I(B) Professionalism: Independence and Objectivity prohibits members and candidates from accepting any gifts that…

…reasonably could be expected to compromise their independence and objectivity.

If you derive consensus GDP estimates from a recognized reporting service is it plagarism?


Stop-Loss Limit

An order placed with a broker to sell a security when it reaches a certain price, below the current price thus stopping your losses.

The initiation of hedges above a certain loss level is an alternative form of a stop-loss limit called drawdown control or portfolio insurance.

Scenario Limit

A portfolio management rule that establishes a limit on the estimated loss for a given scenario that if exceeded would require corrective action.

Risk Budgeting

Risk budgeting occurs when the firm chooses a desired maximum risk and then budgets this out to individual portfolios. The risk will generally be based on ex ante tracking error or VaR.