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Tutoring For 65 > 4/3/2023 > Flashcards

4/3/2023 Flashcards

1
Q

Tax Free Equivelant Yield

A

Converting Taxable to Tax Free

Corporate Rate x (100% - Tax Bracket) = A Taxable Bond would need __% rate to be equal to a tax free bond

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2
Q

Tax Equivalent Yield

A

Converting Tax Free to Taxable

Municipal Rate / (100% - Tax Bracket) = A Tax Free Bond would need __% rate to be equal to a taxable bond

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3
Q

GNMA

A

Ginnie Mae

Government National Mortgage Association

A pool of mortgages packaged into Bonds then sold to investors

Issued and Backed By: US Treasury
(Safer Than Federal Agencies)

Pays monthly interest

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4
Q

FHLMC

A

Freddie Mac

Federal Home Loan Mortgage Corporation

A pool of mortgages packaged into Bonds then sold to investors

Issued and Backed By: Federal Agencies

Pays Semi-annual Interest

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5
Q

FNMA

A

Fannie Mae

Federal National Mortgage Association

A pool of mortgages packaged into BONDS then sold to investors

Issued and Backed By: Federal Agencies

Pays Semi-annual Interest

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6
Q

SLMC

A

Sallie Mae

A pool of STUDENT LOANS packaged into BONDS then sold to investors

Issued and Backed By: Federal Agencies

Pays Monthly Interest (Not Important for the test)

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7
Q

Bond Amortization

A

How much the bond worth decreases over time
Every year a bond gets closer to its maturity date its worth gets closer to the Par Value

every year
Premium Bonds - go down in price

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8
Q

Bond Accretion

A

How much the bond worth increases over time
Every year a bond gets closer to its maturity date its worth gets closer to the Par Value

Every Year
Discount bonds - go up in price

Has Phantom Interest

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9
Q

Phantom Interest

A

Having to pay interest on a securities growth that hasnt actually been paid to you

ie:
Bond Accertion inceases the value of the bond and so even though you didnt actually get paid the income it will be taxable

TAXED AS ORDINARY INCOME each year

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10
Q

When solving Questions W/ Bonds REMEMBER this

A

find out if its a 10,15 20 year bond

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11
Q

Parity Price

A

The Price in $s the common stock price would have to be in order to be equal to the conversion Price

If you bought a bond at a Premium/ Discount, you would have to get More/Less in stock $ value after converting to be equal to if you bought the bond at Par.

Parity Price is this $ amount it would have to be to be equal

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12
Q

How to solve for Parity Price

A

Not Actual
par/#of shares if converted = Conversion Price

Actual
CMV Bond/#of shares if converted = Parity Price

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13
Q

Draw the Parity Price Formula

A

Draw It

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14
Q

How to decide if you should convert a convertible security or not

A

if CMV of stock is greater than or equal to parity price then yes

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15
Q

When calculating the parity price do you use the par value or CMV of the Bond?

A

CMV

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16
Q

Convertible Bonds

A

Bonds that give you the option to convert the bond into shares of company stock

Only Issued by Corporations (Not the Government)

Par Value = Conversion Price x # of Shares you can convert

The ratio would be:
# of shares : 1 (one bond)
(shares to bond not bond to shares)

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17
Q

Open End Fund

A

a Type of Mutual Fund

Continuous Primary Offering

Can Buy Full or Fractional Shares

The company can only ISSUE Common Stock (of their company)
The funds can be whatever securities they want though (Bonds Stocks etc…)

No Secondary Market
Funds are redeemed to the fund company

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18
Q

Closed End Fund

A

A type of Mutual Fund

Has a single IPO

Can only buy full shares (no fractional)

Company can ISSUE Common Stock, Preffered Stock, or Bonds (of their company)
The funds can be whatever securities they want though (Bonds Stocks etc…)

Has a Secondary Market
Investor sells its shares to other investors
(not back to the investment company)

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19
Q

UIT

A

Unit Investment Trust

A Pool of Investor’s Funds that is invested
Then is NOT actively managed by the company

(basically they invest the funds then let it ride)

2 Types:
Fixed Portfolio - Contains
-Bonds
-Fixed Securities

Non Fixed Portfolio - Contains
-Mutual Fund Shares
(gives investors who cant reach mutual fund minimums a way to invest in them by pooling others money with theirs)

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20
Q

Fixed UIT

A

Fixed Portfolio - Contains
-Bonds
-Fixed Securities

21
Q

Non-Fixed UIT

A

Non-Fixed Portfolio - Contains
-Mutual Fund Shares
(gives investors who cant reach mutual fund minimums a way to invest in them by pooling others’ money with theirs)

22
Q

What is a Common Stocks Par Value

A

Par Value = What Its Worth

Price = What it Costs

23
Q

Mutual Fund has what types of employees

A

Board of Directors - defines investment objectives

Investment Advisor - manages the investment portfolio

Custodian Bank - holds the funds cash and securities

The transfer agent - issues cancels and redeems shares

24
Q

Duration

A

How quickly Until we get our investment back

Coupon Rate = High => Lower Duration
Time to Maturity = High => Higher Duration

25
Q

Margin

A

Means Buying a Securities w/ a Loan

Required to put down 50% of the Securities price

the other 50% can be loaned

Components:
DB (Debt balance)
+Down
+Excess Equity
=LMV (Long Market Value)

26
Q

Regulation T for Buying on Margin

A

When buying on Margin you must put down 50% of the price on your own

27
Q

If Margin Excess Equity is positive

A

You can borrow up to 50% of this amount aswell as the amount that you initially put down

28
Q

If Margin Excess Equity is negative

A

You must have 25% minnimum Equity in account at all times

29
Q

SMA

A

Special Memorandum Account

When buying on Margin if the Securities are up in value you can use 50% of the excess equity to buy even more on margin

30
Q

Margin Maintenance Requirement

A

When buying on Margin whether the securities go up or down in value you must maintain at least 25% in equity at all times

If not you will get issued a margin call

31
Q

Margin Call

A

if your margin LMV ends up with less than 25% in actual equity you get issued a margin call

the company demands you put more money or securities into the account to reach at least 25%

if paid in cash it can be 100% all cash

if paid in more securities only 50% added counts toward the amount needed
(because they are more securities they are counted for Regulation T’s 50% rule)

32
Q

Bond Ratings Companies

A

Moodies and S&P

33
Q

Where is the line between Investment Grade and Junk Bonds

A

Moddies - above Baa = Investment grade

S&P - above BBB = Investment grade

34
Q

Statutory Voting Rights

A

Cannot Pool Votes

Favors Large Investors

35
Q

Cumulative Voting Rights

A

Can Pool Votes

Favors Small Investors

36
Q

Preemptive Rights

A

Also Known as Anti-Dilution Rights

gives you the option to maintain your current % ownership of the company

you have to pay (buy more securities) to maintain that ownership

NOT offered to preferred Stock holders only common

37
Q

Difference between stock Rights and Warrants

A

Rights - Short term usually 2 yrs or less

Warrants - Long term 5-10 years (or forever)

38
Q

Ex-Rights

A

The subscription Period for the rights is over

39
Q

Prior Rights

A

The subscription period is still in effect

This means to calculate anything you have to increase the # of rights by 1

40
Q

Cum Rights

A

Same as Prior Rights

The subscription period is still in effect

This means to calculate anything you have to increase the # of rights by 1

41
Q

The subscription period for warrants and rights

A

is the period of time where you can still exercise the right/warrant to gain stock in the company

42
Q

Formula forRights and Warrants

A

of rights + Conversion Price = Price of on Stock

43
Q

Preferred Stock Par value

A

$100 unless otherwise stated

44
Q

Cumulative Preferred Stock

A

The company has to pay ALL missed dividends that should have been paid to PREFERRED STOCK holders before they can pay dividends to any COMMON STOCK holders

45
Q

Non-Cumulative Preffered Stock

A

The company DOES NOT have to pay all missed dividends that should have been paid to PREFERRED STOCK holders before they can pay dividends to any COMMON STOCK holders

But they do have to pay that years dividend to preferred stock before they can pay one to common

46
Q

Adjustable Preferred Stock

A

—On the test—
Same as Variable Preferred

Company can adjust the dividend % semi-annually and the change is linked to an index (ie S&P 500)

47
Q

Variable Preferred Stock

A

—On the test—
Same as Adjustable Preferred

The company can adjust the dividend % semi-annually and the change is linked to an index (ie S&P 500)

48
Q

what is the compound interest formula

A

P(1+(i/n)^(n*t)

P - Principle Value
i - Interest rate
n - number of times it compounds per year
t - number of years

Use this when calculating TIPS questions

Tutoring For 65 (11 decks)

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