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SIE > Ch. 6 > Flashcards

Ch. 6 Flashcards

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SIE Exam flashcards
1
Q

Define: basis

A

Total cost to acquire an asset

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2
Q

A yield has gone from 3.44% to 3.53%. What is the amount of the increase?

A

9 bps

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3
Q

What is the formula for calculating current yield?

A

Annual interest / current market price

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4
Q

If interest rates are falling, bond prices are _____

A

Rising

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5
Q

On a discount bond, which yield is the highest?

A

YTM is always the highest. Remember, NY, CY, then YTM (lowest to highest)

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6
Q

For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the _____ date

A

Ex-dividend

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7
Q

When is a due-bill required?

A

If a trade occurs before the ex-dividend date but the seller delivers after the record date

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8
Q

What is the formula for calculating a stock’s current yield?

A

Annual dividend / current share price

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9
Q

An investor buys 100 shares at $10 and gets a $0.50 dividend. If the shares are sold at $12, what is the total return?

A

25%: (12 + .5 - 10)/10

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10
Q

T/F: For trades involving bonds, confirmations must disclose the yield computation used (YTM, YTC)

A

True

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11
Q

On a premium bond, which yield is the highest?

A

NY: For a premium bond, highest to lowest maturity is (NY, CY, YTM) (reverse of discount bond)

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12
Q

Rank in order, from highest to lowest, the (3) yields on a bond priced at a premium.

A

Nominal Yield (NY), Current Yield (CY), Yield-to-Maturity YTM

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13
Q

At what rate are short-term capital gains taxed?

A

Ordinary income rate

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14
Q

An investor buys 100 shares at $10. If the company declares a 10% stock dividend, what is the new basis per share?

A

$9.09: 1000 (100 x $10) / (100 + (100 x 10%))= $9.09

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15
Q

A bond has a 12% coupon and is trading for $1,200. What is a realistic YTM for this bond.

A

Since this a premium bond, YTM is less than CY, which is 10% (120 (12% x 1000) / 1,200).

Premium bond (highest to lowest): NY, CY, YTM

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16
Q

For a gain to be considered long term, the asset must be held for _____

A

More than 1 year

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17
Q

What yield would be disclosed for a bond purchased at a discount?

A

YTM (highest interest rate on discount bond)

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18
Q

What are two synonymous terms for a bond’s interest rate?

A

Coupon rate and nominal yield (NY)

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19
Q

If a bond has a basis of 5.68%, what is its YTM?

A

5.68%- basis and YTM are synonymous

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20
Q

Assuming regular way settlement, if a trade occurs before the ex-dividend date, the ____ receives the dividend

A

Buyer

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21
Q

The _____ date is the date on which a dividend is authorized by the company.

A

Declaration date

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22
Q

Does the receipt of a stock dividend create a taxable event?

A

No, not until the stock is sold

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23
Q

As a bond’s price falls, its current yield will _____

A

Rise

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24
Q

A bond has a 4% coupon and inflation is 1%. What is the bond’s inflated-adjusted rate of return?

A

3%

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25
Q

By what date must a buyer own stock to be entitled to a dividend or stock split?

A

The record date

26
Q

What is the formula for calculating inflation adjusted return?

A

Actual rate of return - inflation rate

27
Q

T/F: The nominal yield includes the premium or discount on a bond purchase?

A

False, it includes only the annual interest payment

28
Q

If using a cash settlement, what is the last possible date to purchase a security and still be entitled to the dividend

A

The record date

29
Q

What is the current yield on a 10% coupon bond selling at 90?

A

100/900 = 11.1%

30
Q

T/F: T-bonds are often used to represent the risk free

A

False, T-bills due to shorter maturity

31
Q

In chronological order, list the dates that are related to a cash dividend.

A

Declaration, ex-dividend, record, payment

32
Q

Of what information must buyers of callable bonds be made aware?

A

The call dates and prices

33
Q

What is the current yield for a 10% coupon bond that’s selling at 100?

A

10%= 100/1000

34
Q

An investor buys 100 shares at $25, receives an $0.80 dividend and sells at $23. What is the total return?

A

-4.8%= ($25-$23+$0.80)/$25

35
Q

What can be determined if given the following bond information? 7% bond due 6/1/20xx, yielding 8.7%

A

$70 interest and is a discount bond (YTM is greater than NY)

36
Q

What is the current yield for a 10% coupon bond that’s selling at $110.

A

9.09%= 100/1100

37
Q

The ex-dividend date occurs ____ business days ____ to the record date

A

1 business day before the record date

38
Q

What yield would be disclosed for a bond purchased at a premium and callable at par?

A

Yield to Call

39
Q

What is the tax consequence for an investor who receives a stock dividend?

A

Cost basis must be adjusted

40
Q

The ____ date is the date by which stock must be owned to receive the dividend.

A

Record date

41
Q

Rank in order, from highest to lowest, the (3) yields on a bond priced at a discount

A

YTM, CY, NY

42
Q

T/F: The issuing corporation determines the declaration, record and ex-dividend dates.

A

False; exchange rules determine the ex-dividend date based on the corporations determination of the record date

43
Q

What is the maximum tax rate for long-term capital gains?

A

20%

44
Q

What does YTM take into account that current yield does not?

A

Discount/premium made or lost at maturity, reinvestment risk at YTM, and time value of money

45
Q

What yield would be disclosed for a bond purchased at a premium and callable at a premium?

A

Lower of YTM or YTC.

46
Q

When discussing a bond, YTM may also be referred to as:

A

Basis

47
Q

What is the formula for calculating a bond’s current yield?

A

Coupon rate / current price

48
Q

As a bond’s price rises, its current yield will ____

A

Fall

49
Q

What does one basis point represent as a percentage?

A

.01%

50
Q

____ return measures how much an investment returns in relation to the risk that was assumed to attain it

A

Risk-adjusted

51
Q

The ex-dividend date is ____ business days prior to the record date.

A

One

52
Q

What is the current yield on a 4% coupon bond selling at 50?

A

8%= 40/500

53
Q

T/F: when interest rates go up, bond prices go up, and when interest rates go down, bond prices go down

A

False

54
Q

If a bond has an 8% coupon and inflation is 3%, what is the bond’s inflation adjusted rate of return?

A

5%

55
Q

If a stock is trading at $50 and pays a $0.25 quarterly dividend, what is its current yield?

A

2%= (.25 x 4)/50

56
Q

IF a bond is trading at $1,200 and has a 6% coupon, how much interest will it pay per year?

A

$60; remember coupon rate and its annual interest payments stay the same regardless bond price

57
Q

What generates a capital gain or loss?

A

Sale of an asset greater / less than its basis

58
Q

ABC sets a record date of Oct. 19. Would a buyer of ABC on Oct. 18 be entitled to the dividend?

A

No, investor must own (trade settles) before record date. Settling trade would take (2) days

59
Q

If an asset was held for one year or less prior to its sale, any gain or loss would be ____-term

A

Short-term

60
Q

If a stock is sold before the ex-dividend date but not delivered by the record date, what must be attached?

A

A due bill

61
Q

Assuming regular way settlement, if a trade occurs on or after the ex-dividend date, the ____ receives the dividend

A

Seller

SIE (20 decks)

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