Equities
What does owning a share of common stock represent?
Partial ownership in a company
🧠Explanation: Shareholders own a proportional claim on the company’s assets and earnings and usually have voting rights.
What is a bond?
A loan made by an investor to a borrower
🧠Explanation: The issuer promises to pay interest and return principal at maturity.
What are derivatives, and name two common types
Financial contracts whose value is derived from an underlying asset — examples include options and futures.
What are commodities
Commodities are interchangeable raw materials crucial for manufacturing other goods and are traded globally.
What are alternative investments, and list two common types
Non-traditional assets outside stocks and bonds — such as private equity, private credit, hedge funds, or real estate
Explain the difference between the primary and secondary markets for equities - what is each usually called. What exchanges are primarily used for primary market offerings?
IPO vs APO - NYSE vs Nasdaq
What does the coupon rate represent?
Annual interest as a percentage of face value
🧠Explanation: It determines the size of the bond’s regular interest payments.
What is the main purpose of derivatives in financial markets?
To hedge risk or speculate on price movements
🧠Explanation: Derivatives allow investors to manage risk by offsetting losses or to profit from expected changes in asset prices.
What are 'Hard" and "Soft" Commodities? Give an example of each
Hard commodities are natural resources; soft commodities are agricultural products.
Explanation:
Hard commodities are mined or extracted (e.g., oil or gold), while soft commodities are grown or farmed (e.g., corn or coffee).
What are pros and cons of investing into private assets over public markets?
Pro: Diversification (uncorrelation), potential alpha, exclusive offerings, lower volatility, value creation
Cons: Illiquidity, less regulation, complex, higher fees
Who are the 5 largest companies by market cap? (bonus points if name them in order)
NVDA, AAPL, GOOG, MSFT, AMZN
What is the benchmark fixed income instrument to evaluate the health of the US economy. What influences short term vs long term rates?
10Y Treasury - short term is fed funds rate and long term is inflation expectations
What is the difference between a call and a put option?
Call = right to buy; Put = right to sell
🧠Explanation: Calls benefit from rising prices; puts benefit from falling prices.
How does a weaker U.S. dollar tend to affect global commodity prices?
It usually raises them, since commodities are priced in dollars and become cheaper for foreign buyers
Private equity firms often use leverage when buying companies. What is it called when they use leverage? How does leverage amplify both potential returns and risks for investors?
Leveraged buyout (LBO) - Leverage increases returns when the company performs well because borrowed money magnifies profits. But it also heightens risk — if performance falters, debt costs can wipe out equity value
Why would a company repurchase their stock? What should happen to earnings per share (EPS) and their stock price?
They think their stock is undervalued, want to return cash to shareholders, or offset dilution. EPS should increase as there are less outstanding shares. Stock price rises.
What is duration and why does it matter?
Measures interest rate sensitivity
🧠Explanation: Higher duration means a bond’s price changes more when interest rates move.
Why do investors use derivatives to hedge risk?
To reduce potential losses from adverse price moves
🧠Explanation: Gains on the derivative can offset losses in the underlying asset.
What does backwardation mean in commodity markets?
When futures prices are below spot prices, it usually means the market values the commodity more today than in the future.
🧠Explanation:
Tight current supply and strong immediate demand make the commodity scarce right now.
Buyers are willing to pay a premium for immediate delivery, pushing spot prices higher.
Futures prices are lower because the market expects supply conditions to improve later.
In short: “I need it now” > “I’ll need it later.”
Why are alternative investments typically less liquid?
âś… Answer: Long lock-up periods and fewer buyers
🧠Explanation: Investors may be unable to sell quickly without a discount.
Why might a stock price fall even when a company beats earnings estimates?
Guidance lowered, expectations too high, or macro conditions
🧠Explanation: Markets price future expectations, not past results—strong earnings don’t help if outlook disappoints.
Explain what the yield curve is, what it shows, and what usually happens when we see it inverted curve (bonus points if you can say when was the last time the curve inverted and uninverted)
Line graph that plots the yields of bonds with the same credit quality across 30 years - the curve shows where we can expect short term rates to go - inversion has historically led to recession (2022-2024)
How can Option contracts be used to protect against a company's holdings?
By hedging against price declines.
A company can buy put options on its holdings, which increase in value if prices fall and offset losses, acting like insurance.
Why might investors add commodities to a diversified portfolio?
Inflation protection and diversification
🧠Explanation: Commodity prices often rise with inflation and move differently than stocks and bonds.
Question:
Why do private equity investments typically require long lock-up periods?
Answer:
Because value creation takes time and investments are illiquid.
Explanation:
Private equity firms need multiple years to improve operations, grow earnings, and exit investments, and there is no active public market to sell stakes quickly.