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Series 6 > Debt Securities > Flashcards

Debt Securities Flashcards

1
Q

municipal bond taxes

A

interest is tax exempt at a federal level and may be tax exempt at a state and local level if the purchaser is a resident of the issuing state.

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2
Q

official notice of sale

A

when municipal issuers raise money through a competitive underwriting

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3
Q

what is published in a notice of sale

A

the details of the offering including amount of capital to be raised and maturity dates for the issue

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4
Q

bankers’ acceptances (BA)

A

Debt securities used to finance foreign trade. This is a money market instrument

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5
Q

Nominal Yield

A

the fixed coupon rate, expressed as a percentage of the par. It is stated as the annual rate, but interest is paid semi-annually.

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6
Q

callable bond

A

bonds that are subject to early retirement at the issuer’s discretion, typically if the interest rates fall in the market. These bonds have higher rates than non callable bonds

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7
Q

premium bond

A

bonds trading in the secondary market at a price higher than par. when rates in the market decrease, bond prices increase

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8
Q

interest-rate risk

A

the risk that an increase in interest rate will result in lower prices

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9
Q

Risk associated with fixed income securities like bonds and preferred stock

A

interest- rate risk

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10
Q

T-Strips

A

U.S. Treasury zero-coupon instrument backed by the U.S. government.

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11
Q

These are issued at a discount and mature at face value up to 30 years

A

T - Strips

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12
Q

Asset- Backed Securities (ABS)

A

A pooled fixed income investment, which contains auto loans, credit card debt and home equities

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13
Q

Subject to both extension risk and prepayment risk

A

Asset-Backed Securities

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14
Q

These bonds are issued by a corporation under reorganization coming out of bankruptcy

A

Income bonds

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15
Q

Income Bonds

A

no legal obligation to pay interest payments, these bonds carry a high default risk

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16
Q

Also called an adjustment bond

A

Income bond

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17
Q

Revenue Bonds

A

they are considered private activity

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18
Q

what are revenue bonds backed by?

A

lease payments pledged by a corporation

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19
Q

T-notes

A

They are issued at par and pay semi-annual interest that is federally taxable

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20
Q

Government bond that matures in 2-10 years

A

T-note

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21
Q

Pass-through certificate that has interest and principal guaranteed by the U.S. government

A

Ginnie Mae (GNMA)

22
Q

Ginnie Mae (GNMA)

A

make monthly payments to investors of principal and interest.

23
Q

Convertible Bond

A

bonds that can convert to shares of common stock based on the conversion ratio

24
Q

These bonds have a lower coupon due to future capital appreciation, if converted to common stock

A

convertible bonds

25
Q

preliminary official statement

A

Prepared by or for an issuer that describes the same details as found in the final official statement, except it doesn’t include price and interest rates.

26
Q

TIPS (stands for)

A

Treasury Inflation Protection Security

27
Q

TIPS

A

U.S. government debt where the principal amount is adjusted every 6 months based on the changes in CPI.

28
Q

CPI

A

Customer Price Index

29
Q

These bonds have no inflation risk

A

TIPS

30
Q

Short government debt with maturities of 1 year or less

A

T-Bills

31
Q

T- Bills

A

Priced at a discount and mature at par with no periodic interest payments

32
Q

Tax-free equivalent yield (equation)

A

corporate yield x (100%- tax bracket)

33
Q

call protection

A

the time between the issue date and the first potential call.

34
Q

par value

A

face value for a bond is 1000

35
Q

Issuers pay investors interest semi annually and the principal at maturity

A

Bond

36
Q

Guarantee Bonds

A

unsecured bond backed by the promise of the issuer to pay, but also a parent company. If the issuer defaults, the parent company makes the payments.

37
Q

Discount bond

A

bonds trading in the secondary market at a price lower than par.

38
Q

Inverse relationship (bonds )

A

when rates in the market increase, bond prices decrease.

39
Q

treasury receipt

A

backed by the interest and principal of treasury securities owned by the BD. Not a direct obligation of the U.S. government

40
Q

Zero- coupon security, similar to a Treasury STRIP, that is created by BDs

A

Treasury Receipt

41
Q

Debentures

A

unsecured corporate debt, backed by the full faith, credit and promise to pay.

42
Q

these are long-term unsecured debt, as opposed to commercial paper, which is short term unsecured debt

A

debentures

43
Q

money market securites

A

short-term debt instruments with 1 year or less to maturity, highly liquid with safety of principal

44
Q

T-bills, commercial paper, BAs, CDs and government debt with less than 1 year until maturity are all

A

Money market securities

45
Q

call risk

A

loss of income due to early retirement of a callable issue of bonds.

46
Q

when will issuers call in bonds?

A

when interest rates fall. The most likely to be called are high interest rate, with low call premium

47
Q

Trust indenture

A

the legal agreement that outlines the terms of the loan between the issuers and bondholders.

48
Q

general obligation municipal bonds (GO)

A

these bonds are backed by the full faith and credit of the issuer and are funded by state or local taxes, including ad valorem, sales, and real estate taxes

49
Q

collateralized mortgage obligations (CMO)

A

a pool of mortgages that divide interest and principal into separate tranches

50
Q

These obligations are subject to prepayment risk when interest rates decline in the market, and extension risk when rates in the market rise

A

CMOs ( collateralized mortgage obligations)

51
Q

municipal bonds (revenue bonds)

A

these bonds are backed by users’ fees, such as toll roads, parking structures, airports, or convention centers. This is a self supporting debt.

52
Q

tax equivalent yield (equation)

A

municipal yield / (100% - tax bracket)

Series 6 (6 decks)

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