CFA Level I terms: J

The path that results resembles the letter J: negative returns during commitment, a climb that gathers pace as the investments mature, and a leveling off as capital is distributed and the fund closes. That is the J-curve effect.

Why alternative investment performance is hard to judge Alternative Investments

Jensen’s alpha is the portfolio's return minus the return the capital asset pricing model (CAPM) requires for its beta.

Sharpe ratio, Treynor ratio, M² and Jensen's alpha Portfolio Construction

The joint distribution function gives the probability that both variables are at or below chosen values at the same time.

Covariance and correlation from a joint probability table Quantitative Methods

The pair follows a joint normal distribution with the properties you asked for.

Simulating two correlated assets: the Cholesky step Quantitative Methods

A joint probability is the chance that two random variables take particular values at the same time. A joint probability table (also called a joint distribution) lists those chances.

Covariance and correlation from a joint probability table Quantitative Methods

In a joint venture investors team up on a property, typically when one partner brings something the others lack, such as land, capital, development skill, debt due diligence or entrepreneurial talent.

Real estate: features and ways to invest (direct, REITs, funds) Alternative Investments

Judgmental sampling means the analyst hand-picks members using knowledge and professional judgment. When time is short or expertise matters, such as a seasoned auditor choosing which transactions deserve scrutiny, it can reach the target group directly.

Sampling methods and sampling error Quantitative Methods

The justified dividend yield comes from the constant growth model. A higher cost of equity raises it and higher growth lowers it.

Price multiples: P/E, earnings yield, P/S, P/B and dividend yield Equities

Divide EV = FCFF ÷ (WACC − g) by book value of capital and you get the justified EV to book value of capital.

Enterprise value multiples Equities

The justified EV/EBITDA follows from constant growth. EV is next year's FCFF divided by the weighted average cost of capital (WACC) less growth, and FCFF is EBITDA(1 − t) + depreciation × t − capital expenditures − the change in working capital.

Enterprise value multiples Equities

A justified multiple is an estimate of the fair value of a multiple, to compare with the actual multiple. Under the method of comparables it is the peer average or median.

Valuing with multiples: comparables and forecasted fundamentals Equities

The justified P/S follows from the justified P/E, because dividends divided by sales equal the net profit margin times the payout ratio.

Price multiples: P/E, earnings yield, P/S, P/B and dividend yield Equities

A justified price multiple is the estimated fair value of a multiple. It is supported by the method of comparables or the method of forecasted fundamentals (Learning Module 7 covers both).

Equity valuation models: present value, asset-based and relative Equities

Divide both sides by book value of equity (BVE) per share, write next year's dividend as forward EPS times the payout ratio, and use return on equity (ROE), $ROE = EPS_{t+1} \div BVE_t$. The result is the justified price-to-book ratio.

Valuing with multiples: comparables and forecasted fundamentals Equities

Divide the constant growth model by trailing EPS and the drivers of P/E appear: payout, growth and the cost of equity. The justified trailing P/E is the P/E those drivers support.

Price multiples: P/E, earnings yield, P/S, P/B and dividend yield Equities