1st set Flashcards
Can a corporation with no income pay dividends
Yes
When referring to bonds, if you see “7.3s of ‘37” what does that mean?
The bond has a coupon rate of 7.3% and it matures in the year 2037
Is interest on corporate bonds fully taxed
Yes
When would a company issue income bonds
When it’s reorganizing and coming out of a bankruptcy
Are dividends on a municipal bond fund exempt from federal income tax?
Yes
Under the conduit (or pipeline) theory of taxation, a fund is liable for taxes only on the income retained, provided it distributes at least ____% of its net investment income
90 %
When do income bonds pay interest
Income bonds only pay interest if the company declares a payment
Condemnation only applies to what kind of bonds
Revenue bonds
Taxes on interest income from mortgage backed securities
Fully taxed
Mortgage backed get fully taxed
Taxes on interest income from US gov and agency securities
Usually interest income for US gov and agencies is only taxed at the federal level
CAV mean the the _____ of a bond
Cost basis
If someone dies in a tenants in common account, do the assets gets passed into the other person in the account
Nah
When do corporate bonds pay interest
Semi annually
When do Treasury bonds pay interest
Semi annually
When do utility stocks pay dividends
Quarterly
Basis is a common synonym for _____
Yield to Maturity
Is a qualified distribution from a Roth IRA tax free?
Yes
What makes a distribution from a Roth IRA a “Qualified distribution”
A qualified distribution is made after a five-year holding period and after the taxpayer has reached age 59½.
Are municipal notes part of the visible supply
No
Short-term notes are not part of the visible supply, which measures the dollar amount of new issues scheduled over the coming month.
Days used for calculating accrued interest on Muni bonds
30 day month
360 day year
If a customer purchases the same stock that he just sold for a loss within 30 days, is the loss deductible?
No
If he repurchased the same shares that he took a loss on within in 30 days the loss is disallowed under the wash sale rule
The bond resolution includes all covenants between ____
The issuer and the trustee acting for the bondholders.
The bond resolution describes not only the characteristics of the proposed offering, but also the obligations the issuer has to its bondholders.
The City of Columbus issued a 20-year general obligation bond at a price of 50. An original purchaser sold the bond at 75 after holding it for 7 years. For tax purposes, that sale generated
The customer has realized a capital gain of $75. Original issue discount bonds must accrete the discount over the life of the bond. In this example, the amount of the discount (par value minus purchase price) is $500 ($1,000 − $500 = $500). The discount divided by the number of years to maturity determines the annual accretion added to the cost basis. In this question, the annual accretion is $25 ($500 divided by 20 = $25). The adjusted cost basis would be the original purchase price ($500) plus seven years of accretion (7 times $25 = $175) for a total of $675. Because the proceeds of the sale were $750, the customer has realized a capital gain of $75 ($750 − $675 = $75).
Is the effective date (date the SEC releases the securities for sale) found in the preliminary prospectus?
No
A deed of trust is another name for what?
An indenture on a debt security
Formula for current yield on a bond
Annual interest payment / current market price
What is tax equivalent yield useful for
Seeing how much yield a taxable bond (like a corporate bond) would have to yield to be equivalent to tax free interest
Formula for computing tax equivalent yield
Nominal yield ÷ (1 − income tax rate)
Would the tax equivalent yield on a muni bond be higher or lower than its nominal yield
The tax equivalent yield would be higher
A higher percentage
For taxes on capital gains distributions from mutual funds, is the holding period determined by how long the investor held the mutual fund shares or how long the mutual fund held the securities
How long the mutual fund held the securities
At settlement, does accrued interest increase or decrease the amount a buyer must pay
Accrued interest increases the amount the buyer must pay
What is the average holding period for securities in a portfolio with a 25% turnover ratio
Four years
Non recourse debt
Loan secured by collateral (usually real property) but for which the borrower is not personally liable
Does recourse debt increase basis in a DPP?
Yes
Recourse debt increases basis in any DPP
Does non-recourse debt increase basis in a real estate limited partnership (RELP)
Yes
So if an investor bought a unit of a RELP for $20k, and his allocable share NR debt was $50k. His cost basis would be increased to $70k
Do distributions in a RELP add to or reduce from basis
Distributions reduce basis
The Bond Buyer 20-Bond Index uses what in its index?
The average yield of 20 general obligation bonds w/ a rating of A or better and a maturity of 20 years
What is the rating of bonds that are included in the 11 Bond index
Bonds that have a rating of AAA and AA are included in the 11-Bond Index.
What kind of bond yields are reported in the Revdex 25 index
Revenue bond yields are reported in the Revdex 25.
What is the maturity of bonds reported in the Revdex index
30 years
But remember it’s the yields that are reported. Not the average maturity
Is a quote on a municipal security between dealers allowed to be a non-firm quote?
No.
Quotes between dealers are required to be bond fide, or firm, quotes.
What are the two things that make up a municipal issuer’s Net Total Debt
Direct debt and overlapping debt constitute the municipality’s net total debt.
What is the dated date on a municipal bond issue?
The date on which newly issued bonds begin to accrue interest
Are certificates of participation (COP) considered revenue bonds
Yes
They are a form of municipal revenue bond
In the case of default, can holders of a certificates of participation (COP) foreclose on the asset associated with the certificate?
Yes
If a customer buys a new issue muni bond at a discount in the primary market, does the discount have to be accreted?
Yes
The discount must be accreted
Many states offer tax benefits to residents who open 529 plans in their home state. In general, are these same benefits available when opening out of state plans
No
Usually STATE tax benefits are not available when opening out of state plans.
(Federal tax benefits are available regardless of what state a plan as opened in)
CMO
Collateralized morgatage obligation
A bond that slices mortgage pools up into tranches based on risk, rewards or maturities
Are T bills purchased at a discount?
Yes
Can Nasdaq securities trade in the OTC market?
Yes
What does the Bond Placement Ratio measure?
The percentage of new muni bonds offered last week that were sold last week
What is the basis for stock that was inherited after someone dies
The costs basis is the fair market value of the stock on the date the descendent died
What class of shares do breakpoints apply to?
Breakpoints apply to class A shares only
Contingent deferred sales charge applies to Class B & Class C shares
Is the underwriter of a new issue responsible for filing the registration statements?
No
The issuer is ultimately responsible
During the order period of a municipal underwriting, would the manager of the syndicate consider time of submission when accepting/allocating orders?
No
What is the Order Period in a muni bond underwriting?
A short time following the award of a municipal issue to the winning syndicate.
During the order period, orders for an issue of muni bonds are allocated in accordance with the priority defined in the syndicate letter. (Not a first-come, first-served basis)
Are REITs flow-through vehicles?
No
If a REIT owns depreciable property, who will take the deduction: the REIT or the investor
The REIT will take the deduction, not the investor
For a CREDIT calendar spread, what expirations are you buying/selling
But near term expiration
Sell long term expiration
Are GNMA securities directly backed by the federal gov?
Yes
Is the underwriter of a new issue responsible for distributing the securities to the public?
Yes
Would mortgages likely be used to back a collateralized debt obligation (CDO)?
No
Unlike CMOs, which are backed by mortgages, CDOs are invariably backed by some other form of asset.
Max deduction of net capital losses against other income in 1 year
The maximum deduction of net capital losses against other income in any one year is $3,000
Does a DPP pay federal income taxes?
No
Are Public Housing Authority bonds (PHAs) backed by the full faith and credit of the us gov?
Yes
Is prospectus filing a requirement of the Securities Exchange Act of 1934 or Securities Act of 1933?
Prospectus filing is a requirement of the Securities Act of 1933.
Would an oil and gas income program or oil and gas exploration program have more risk
The exploration program would have more risk
Do The Federal National Mortgage Association (FNMA) securities trade OTC?
Yes
Do mutual funds that reinvest dividends and capital gains do so at the public offering price or NAV?
Mutual funds that offer automatic reinvestment of dividends and gains distributions must do so at net asset value.
What’s the rating of bond in the bond buyers 20 index
A or better
What makes a sales charge a front end load
The sales charge comes off the amount invested.
When there might be a wash trade, what are 3 things looked at to see if the bonds were too similar?
In judging whether bonds are substantially identical to bonds sold for a loss, the tax code considers:
Maturity
Issuer
Coupon rate
Are discounts on an original issue of bonds accredited?
Yes
When investors buy or sell mutual funds, at what price do they do so?
The buy/sell at the next computed NAV
So if an investor sold his mutual fund shares at 1:00pm, the price he receives would be the NAV as computed at the end of the day
What is a married put?
Buy 100 shares of ABC at $50 per share and simultaneously buy one ABC 50 put
When a bond is issued by a national government, it is referred to as ______
sovereign debt
For section 529 plan, does the income level of the contributor affect the contribution amount?
No
Unlike Coverdell ESAs, income level of the contributor won’t effect the annual contribution amount
How often can mutual funds distribute capital gains to shareholders?
Apparently, no more than once per year
If falling interest rates & positive yield curve, what bond will appreciate more:
20-year bond selling at a discount
Or
20-year bond selling at a premium
20 year bond selling at a discount will appreciate more
In a scenario of falling interest rates and a positive yield curve, what bond will appreciate more:
1 year bond
Or
20 year bond
The 20 year bond will appreciate more more
When a bond issue is prefunded, how must the bonds be quoted?
They must be quoted in yield to call
Interval fund
Closed end investment company where at certain intervals, investors can sell their shares back to the company for NAV
When investors sell back shares to an interval fund, what amount do they receive?
Net Asset Value
pussy
Is an interval fund open end or closed end?
Closed end investment company
If a customer has a few options positions but doesn’t return the signed agreement within 15 days of acct approval, can they still choose to maintain or close out of existing positions?
Yes
How long after account approval must a customer return the signed options agreement?
15 days
FINRA Rule 2330 deals with what kind of annuities
deferred variable annuities
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with
tax preference items.
Are stocks listed on NYSE marginable?
Yes
Are recent IPOs marginable?
No
you can’t buy recent IPOs on margin
Are OTC stocks marginable?
No
No OTC or bulletin board stocks are marginable
If a bond is trading at par, are the following all equal:
Coupon
Current yield
Yield to maturity
Yield to call
Yes
If trading at par they are all the same
From left to right, what are the bond yields on the seesaw thing?
Nominal (or coupon)
CY
YTM
YTC
If a customer is buying a bond and the BD quotes either he YTM or YTC, how does he decide which one to quote?
(Does he quote the higher/lower of the two)
Whichever is the lower of the two
Always have to quote “yield to worst”
Regulation FD (fair disclosure) applies to who?
Issuers
when they disclose information that people may trade off of
What has greater interest rate risk:
Long term bonds
or
Short term bonds
Long term bonds have greater interest rate risk
Will a bond with a 1 year maturity trade close to par?
Yes, a bond with a only a 1 year maturity will trade very close to par
Give an example of a debit call spread
Long Aug 50 call @ 5.5
Short Aug 55 call @ 3.5
(Debit spread because the option purchased costs more than the one sold)
In a debit call spread, does the long option or short option cost more?
The long option costs more
Example:
Long Aug 50 call @ 5.5
Short Aug 55 call @ 3.5
Define: ACATS
Automated customer account transfer service
When transferring securities from one account to another one at a different BD or bank
When transferring accounts to a new BD using ACATS, how long does the transfer have to be competed
(assuming everything is in order)
If all is in order, the transfer must be completed within 3 business days
When moving accounts to a new BD, who is responsible for sending the signed transfer initiation form (TIF) to ACATS: The sending firm or the receiving firm?
The receiving firm is responsible for sending the signed TIF to ACATS
(the firm the account will be moved to)
An ____________ indenture allows additional bonds to be issued and backed by the same collateral.
An open-end indenture allows additional bonds to be issued and backed by the same collateral
Basic equation for combined equity
LMV + CR - DR - SMV =EQ
T/F: Income on qualified plans grows tax deferred
True
Tax deferred
T/F: RMDs for non qualified annuities start at 59.5
False
>no RMDs for non qualified annuities
