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Series 65 > 3 - Equity & Fixed Income > Flashcards

3 - Equity & Fixed Income Flashcards

This deck focuses on the characteristics and features of both debt and equity securities.

1
Q

Frequency of interest payments to bondholders

A

Semi-annual

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2
Q

Equivalent of 100 basis points

A

1%

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3
Q

Relationship between bond prices and bond yields

A

Inverse

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4
Q

A bond that is priced below par

A

Discount

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5
Q

An unsecured corporate bond

A

Debenture

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6
Q

Most senior form of corporate bond

A

Secured

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7
Q

Security with the most junior claim in a corporate liquidation

A

Common stock

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8
Q

Agency debt that is backed in full by the U.S. government

A

Ginnie Mae

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9
Q

Considered the safest form of debt issued in the U.S.

A

U.S. Government bonds and notes

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10
Q

Taxable at the federal level; may be exempt from taxation at the state level

A

U.S. Government bonds and notes

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11
Q

Of YTC, YTM and CY, the yield that is highest when a bond is trading at a premium and is callable

A

Nominal Yield

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12
Q

Of YTM, YTC and CY, the yield that is highest when a bond is trading at a discount and is callable

A

Yield to call (YTC)

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13
Q

Of YTM, YTC and CY, the yield that is lowest when a bond is trading at a discount

A

Nominal Yield

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14
Q

Of YTM, YTC and CY, the yield that is lowest when a bond is trading at a premium and is callable

A

Yield to call (YTC)

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15
Q

Amount a bondholder receives at maturity of an ABC 9% bond

A

$1045 (par + 1 semiannual interest payment)

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16
Q

Amount of interest paid every 6 months on 5 XYZ 6% bonds

A

$150 ($30 semiannual interest per bond)

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17
Q

Securities that are not represented by a physical certificate

A

Book Entry securities

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18
Q

Interest payment varies based on performance of an index

A

Variable rate or adjustable rate bonds

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19
Q

Fixed rate equity security that responds to market conditions like a bond

A

Preferred stock

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20
Q

The date in the future at which a bondholder receives principal

A

Maturity

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21
Q

Of long-term and short-term bonds, which generally pays a higher interest amount?

A

Long-term bonds

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22
Q

Of long-term and short-term bonds, which generally has lower price volatility?

A

Short-term bonds

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23
Q

The degree of risk associated with an issuer’s ability to repay the principal

A

Credit or default risk

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24
Q

A bond that is rated BBB- or above by Standard and Poor’s

A

Investment Grade

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25
Q

A bond that may be redeemed by the issuer prior to its maturity date

A

Callable bond

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26
Q

Risk that a bond may be called prior to maturity

A

Call risk

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27
Q

The process of calling bonds when interest rates have fallen

A

Refunding

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28
Q

Issuer funds set aside in advance of a call

A

Sinking fund

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29
Q

Allows the issuer to call bonds before maturity if certain specified events occur

A

Catastrophe clause

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30
Q

Specific time period from date of issue when a bond cannot be called

A

Call Protection Period

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31
Q

Type of bond issue that is not typically callable

A

U.S. Government bonds (Treasury bonds)

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32
Q

Risk that proceeds from a called bond cannot be invested as favorably

A

Reinvestment risk

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33
Q

Annual interest divided by current market price

A

Current Yield (CY)

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34
Q

Environment in which longer-term bonds have higher yields than short-term securities

A

Normal yield curve

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35
Q

Corporate instruments with a maturity of no more than 270 days

A

Commercial paper

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36
Q

Maximum maturity of commercial paper

A

270 days

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37
Q

Bonds backed only by the good faith of the issuing corporation

A

Unsecured bonds or debentures

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38
Q

Protects bondholder through a written agreement between issuer and trustee

A

Trust Indenture

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39
Q

Typically backed by real estate holding of a corporation

A

Mortgage bond

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40
Q

Typically secured by other securities owned by the corporation

A

Collateral Trust bond

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41
Q

Secured by physical assets owned by the company

A

Equipment trust certificates

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42
Q

Allow for the exchange of debt for equity issued by the same corporation

A

Convertible debt

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43
Q

The stated number of common shares a bondholder receives upon conversion

A

Conversion ratio

44
Q

The point at which there is neither profit or loss in a conversion

A

Conversion parity

45
Q

Purchased at a deep discount; pays no interest during the life of the bond

A

Zero-coupon bond

46
Q

The amount of interest paid prior at maturity on a Treasury Bill

A

None, T-Bills are zero coupon securities

47
Q

The price of a bond quoted at 105

A

$1,050

48
Q

The price of a bond quoted at 97

A

$970

49
Q

How bond prices are quoted

A

As a percentage of par

50
Q

The difference in basis points between 6.20% and 6.50%

A

30 basis points

51
Q

An issuer with outstanding bonds that have a 5% coupon issues similar new bonds with a 6% coupon. The outstanding bonds will trade at a

A

Discount

52
Q

An issuer with outstanding bonds that have a 5% coupon issues similar new bonds with a 4% coupon. The outstanding bonds will trade at a

A

Premium

53
Q

An investor buys a 6% bond trading at a 6.5% basis. The bond is purchased at a

A

Discount

54
Q

An investor buys a 6% bond trading at a 5.5% basis. The bond is purchased at a

A

Premium

55
Q

An ATT ZR 13 bond will pay how much to the owner at maturity?

A

$1,000

56
Q

U.S. Government instrument that matures in 1 year or less

A

Treasury Bill

57
Q

U.S. Government instrument sold through weekly auctions

A

Treasury Bills

58
Q

U.S. Government instrument that is quoted on an annualized discounted yield basis

A

Treasury Bill

59
Q

U.S. Government instruments that matures within 2 -10 years

A

Treasury Note

60
Q

U.S. Government instruments that typically mature in 20 - 30 years

A

Treasury Bonds

61
Q

U.S. government instruments that are quoted in 32nds

A

Treasury Notes and Treasury Bonds

62
Q

Inflation-indexed bonds issued by the U.S. Treasury

A

TIPS

63
Q

U.S. government zero-coupon bond instrument that has no reinvestment risk

A

STRIP

64
Q

U.S. non-marketable security that is purchased at a 50% discount and matures to face value in 30 years

A

Series EE bond

65
Q

Three government entities that issue mortgage-backed securities

A

Ginnie Mae, Fannie Mae and Freddie Mac

66
Q

Government agency that provides student loans

A

Sallie Mae

67
Q

Investment risk most associated with mortgage-backed securities

A

Prepayment risk

68
Q

Investment risk that coincides with early payment of a mortgage-backed securities

A

Reinvestment risk

69
Q

Distinct maturity categories of CMOs

A

Tranches

70
Q

Frequency of interest payments on mortgage-backed securities

A

Monthly

71
Q

Mortgage-backed securities with the implied backing of the U.S. government

A

Fannie Mae and Freddie Mac

72
Q

Debt securities that provide immediate term financing

A

Money market securities

73
Q

Source of funds for intermediate to long-term financing for corporate buyers

A

Capital markets

74
Q

Denomination of CMOs

A

$1,000

75
Q

Protects convertible bondholders from a reduction in ownership percentage

A

Anti-dilution covenant

76
Q

The relationship of the coupon rate of a corporation’s convertible debt to its non-convertible debt

A

Lower

77
Q

The corporate practice of raising money to call outstanding bonds

A

Refunding

78
Q

Bonds sold at a deep discount because of their credit rating

A

Junk bonds

79
Q

When interest is paid on 5M XYZ F&A 15 6s bond

A

February and August 15

80
Q

The identification number of a bond issue

A

CUSIP number

81
Q

A bond that is held in the bondholder’s name

A

Registered bond

82
Q

The type of risk rated by Moody’s, Standard & Poor’s and Fitch

A

Default or Credit Risk

83
Q

The risk that the issuer will not be able to pay the principal and interest owed on outstanding debt securities

A

Default or Credit Risk

84
Q

Amount above par that an issuer may pay to call bonds

A

Call premium

85
Q

A bond which can be sold at face value to the issuer prior to maturity at pre-determined times

A

Puttable bond

86
Q

The formula for computing current yield

A

Annual interest divided by current market price

87
Q

Another name for the coupon yield, which is set at the issuance of the bond

A

Nominal

88
Q

Graphically depicts the yield relationship between long- and short-term bonds

A

Yield curve

89
Q

Corporate secured bonds that have the highest priority claim

A

Mortgage bonds

90
Q

Type of corporate security that is backed by the title to newly acquired equipment

A

Equipment trust certificate

91
Q

Two companies that rate bond issues

A

Moody’s and Standard and Poor’s

92
Q

Type of bonds often issued by corporations emerging from bankruptcy that pay interest only if income is available

A

Income bond

93
Q

The stock price at which a convertible bond can be exchanged for shares of common stock

A

Conversion price

94
Q

Federal and state tax treatment of most municipal debt interest

A

Exempt from taxation at the federal level; may be taxable at the state level

95
Q

Tax treatment of capital gains from sales of municipal bonds

A

Taxable

96
Q

Three entities authorized to issue municipal debt

A

U.S. territories, State governments, local taxing authorities like county and city governments and certain authorities

97
Q

Full faith and credit municipal issues

A

General Obligation bonds

98
Q

Backing for Municipal General Obligation Bonds

A

Municipality’s taxing authority

99
Q

Percentage of net investment income that a REIT must distribute to avoid corporate taxation

A

90%

100
Q

For a REIT, the minimum percentage of investment assets that must be invested in real estate

A

75%

101
Q

The minimum percentage of gross income that a REIT must derive from rents or mortgage interest

A

75%

102
Q

Where REIT shares or certificates of beneficial interest can be purchased

A

OTC or on stock exchange

103
Q

Pools of real estate assets that pass through real estate income but not losses

A

REIT

104
Q

Demand Deposit Account

A

A type of bank product where the customer can withdraw funds without advance notice to the bank (i.e. on demand). Examples include checking or savings accounts.

105
Q

Time Deposits

A

A bank product where a customer agrees to deposit funds and not withdraw for a set period of time. Over the period the investor will earn a set interest rate. Early withdrawals can result in penalties. Examples include CDs.

Series 65 (6 decks)

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