Investment Flashcards
Which is a bond rating company: GNMA, S&P, A.M. Best, BRC, FNMA
S&P
Characteristics of an I bond.
Earn interest for up to 30 years, accrue earnings based on a fixed rate of return and the semiannual inflation rate, the special tax benefits available for education savings with series ee also apply to series I bond, the difference between the purchase price and the redemption value is taxable interest.
When is an issuing corporation most likely to call its bonds?
When the bonds are selling at a significant premium.
Dealing with an accrued interest question.
- Report a total of $200 (7/1 semi) or $400 (FY) received in form 1099.
- Subtract the accrued interest paid to seller of bond.
- Taxable interest is the difference above. Basis for the bond is premium/discount sold price and the accrued interest.
Tax implication of a TIPS
Interest is taxable to the holder when received (no change in basis). Any increase in the inflation adjusted principal amount is treated as OID (taxable).
Examples of mangage-backed securities. Are they pass-through security?
GNMA, FNMA, Freddie Mac.
Yes
Will STRIP distribute interest during the holding period?
No
Do ADRs satisfy the requirements for”qualified foreign corporation” to get the 0% to 20% qualified dividend rate?
Generally
Which reflects a disadvantage of an ETF? Liquidity, sales load, tax inefficiency, market price (volatility)?
Market price (volatility)
Which investment vehicles are classified as investment companies under the investment company act of 1940?
Open-ended fund, mutual funds, close-ended funds, UITs, variable annuity.
Which type of entities would be most likely to buy preferred stock paying high dividends?
Pension plan, individual in a 12% bracket, regular C corporation with excess funds to invest.
What type of entities would most likely purchase a mortgage REIT?
A Sep because of its tax-deferred capabilities.
Which investments can always be purchased at NAV?
No-load balanced mutual fund.
Which investment (limited partnership, a municipal bond, gov. Bond, a S&P index fund) is most suitable for growth and tax efficiency?
S&P index fund
Taxation for a stock and a call (selling it).
Treated separately for tax purposes. Lt gains and St gains can’t be netted together.
Are futures contracts considered a security under the Securities act of 1933?
No
Liquid investments? ETF, cd, government bond fund, technology mutual fund, money market mutual fund.
Cd and money market mutual fund
Beta as an indicator for portfolio selection.
Beta alone is generally not a motivating reason to select a particular fund
What factors go into the markowitz model?
Standard donation as a nk measurement (coranance, correlation coefficient, and return). It doesn’t include beta.
When does company want to issue new bonds?
They want to sell new bonds before interest rate rises ( when the previous bonds are selling at a premium or interest rates have fallen). Also when interest rates are expected to rise.
T-bills vs. T-bonds differences.
Maturities (ST vs. LT), risk level ( less ir risk vs. more ir risk), callability (not callable vs. callable) interest paid ( sold at discount vs. Semiannual interest) interest on both is taxed at the federal level only.
Bond with a put feature.
Allows its holders to redeem at specified internals before maturity at face value. More useful when inflation is causing an increase in interest rate.
