cheatsheet

Watch the linked video for an introduction to derivative securities.

For more information, here is a very clear, in-depth video on derivatives: Financial Derivatives – Lecture 01. In this video he leaves out the details of swaps, so you can watch this video on swap derivatives: How swaps work – the basics

Related key concepts:

Definitions

• Underlying asset
• Types of derivatives
  • Forward derivatives
  • Future derivatives
  • Swap derivatives
  • Option derivatives
    • Call option
    • Put option
  • Swap derivatives

Forward and Futures

• Forward contract
• Long position
• Short position
• Futures contract
• Marked to market

Options

• Exercise price or strike price
• Expiration date
• In-the-money
• Out-of-the-money
• European option
• American option
• Black-Sholes pricing formula
• Put-call parity

Watch the linked video for an introduction to equity securities.

Related key concepts:

Introduction

1. Debt
   1. Bonds
   2. Fixed-income securities
2. Equity
   1. Stocks

Introduction to Equity

1. Common stock
2. Preferred stock
3. Share
4. Common stockholders or shareholders
5. Board of Directors
6. Mergers
7. Dividend

Valuing Equity Securities

1. Dividend discount model
2. Discounted Cash Flow (DCF)
3. Free Cash Flows (FCF)
4. Weighted Average Cost of Capital (WACC)

Watch the linked video for an introduction to debt securities.

Related key concepts:

Introduction

1. Debt
   1. Bonds
   2. Fixed-income securities
2. Equity
   1. Stocks

Introduction to Debt Securities

1. The principal
2. Interest payments
3. Par value
4. Coupon payments
5. Zero-coupon bonds
6. Defaults
7. Tax shield
8. Maturity
9. Seniority
10. Subordinated debt
11. Collateral
12. Secured debt
13. Debentures
14. Prime rate or LIBOR
15. Floating-rate
16. Standard & Poors scale
17. Moody’s scale
18. Investment-grade
19. High-yield bonds
20. Convertible bond

Valuing Debt Securities

1. Yield
2. Yield to maturity
3. Risk-free rate
4. Duration
5. Macauley’s duration
6. Modified duration

Watch the linked video for an introduction to the Capital Asset Pricing Model (CAPM).

Related key concepts:

1. Diversification
2. Market risk
3. Market portfolio
4. Beta
5. Market risk premium
6. Security market line

Watch the linked video for an introduction to the net present value (NPV).

Related key concepts:

1. Positive NPV
2. Negative NPV
3. Internal rate of return (IRR)

Watch the linked video for an introduction to present value.

Related key concepts:

1. Future value (FV)
2. Rule of 72
3. Annuity
4. Perpetuity

Watch the linked video for an introduction to the time value of money.

Other key concepts:

1. Opportunity cost – Opportunity cost refers to the value a person could have received but passed up in pursuit of another option.
2. Present value – Present value (PV) is the current value of a future sum of money given a specified rate of return.
3. Discount factor – The discount factor is a weighting term that multiplies future value in order to determine the present value of a good or service.
4. Rate of return (ROR) – A rate of return is the gain or loss of an investment over a specified period of time, expressed as a percentage of the investment’s cost.
5. Discount rate vs cost of capital – Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return for business activity.