Bonds Flashcards
PAC
Planned Amortization Class
Companion tranches take prepayment and extension risk
PAC is middle of the pyramid
TAC
Targeted Amortization Class
No extension risk, but if interest rates rise, not protected on the back end
Tack - pointy on one end
Prepayment risk
risk that interest rate fall, causing mortgage holder to refinance, which pays off CMOs
Extension Risk
Risk that interest rates rise, cause mortgage holders not to refinance, which makes mortgage take closer to estimated timeframe.
GNMA
Only purchase FHA and VA loans
Backed by US Gov
High wealth investors, interest payments exempt from state and local tax
FNMA
Implicitly backed, not required but assumed
Buys student loans from originating financial institutions
Higher interest than GNMA
FHLMC
Highest risk
Purchase conventional loans
Implicitly backed by US Gov
General Obligation Bonds
Issued by muni governments that are backed by full credit of US government
Revenue Bonds
Not backed by US Gov, backed by proceeds of what they’re doing
Feasibility Study is used to see if they can pay back debts
GMIB
Guaranteed Minimum Income Benefit
Can be purchased with variable annutiy contract
Guarantees the separate account will grow until guaranteed minimum rate once the contract is annuitized.
CMB
Cash Management Bill
Shortest term security by US Treasury. Maturities in lowest of 5 days
Sold in $100 minimums at a discount
Rights Offering
Preemptive rights to subscribe to newly issued common shares distributed to company’s existing shareholders
Eurodollars
US dollars held in European countries. Interest paid is based on LIBOR
Roth IRA
Not available to high net worth individuals
Max Sales Charge on mutual fund
8.5%
Elder abuse
Hold on account for 15 days, can be extended for 10 additional days
Coverdell plans
Contributions not tax-deductible
Distributions are not taxable
HSA
Health savings account
Has lower contribution limits than IRA
Are funded with tax-deductible contributions
OBO
Order book official
Exchange employee who manages the book of public limit orders
Bond appraisals
Trading market is thin, no “real time” price reporting.
True market value is uncertain, and not reported to consolidated tape
Retirement distributions
Taxable at 50% unless rolled over into an IRA