Investment Planning (2024) Flashcards
American Depository Receipts (ADR)
Allow US investors to buy foreign country stock denominated in dollars. They do not eliminate currency exchange rate .
Ex-Dividend Date
The date which the current dividend no longer accompanies the stock
Treasury Shares
Shares that have been repurchased by the corporation .
Preemptive rights
Allows the shareholder to purchase additional shares to retain the same percent ownership they had prior the secondary offering 
Conversion ratio (convertible bonds)
Par/conversion price.  to determine how many shares are available upon conversion.
Conversion value ((convertible bond)
Conversion value = (par / conversion price) x price of stock.
Conversion price =par / shares
Coefficient of variation (risk per unit of return)
Coefficient of variation = standard deviation/expected return.
 The lowest coefficient of variation is the most attractive 
Red herring
Preliminary prospectus issued by the managing house of an offering. Called this because of the red lettering notifying, prospective investors of its status as a prospectus without prices included.
Bottom up analysis 
Bottom up analysts are looking for the next big, but as yet, undiscovered stock that will break onto the scene. They start with the company, then the industry, and finally the economic climate. 
They research specific companies that are chosen as investments based on their end outstanding investment possibilities 
Top down analysis
Top down analyst start with the economic climate, move to the industry and then the company. 
Top- down style managers
Group rotation, managers, and market timers .
Bottom up equity managers
Value managers and technicians 
Odd lot theory
Odd lot purchase levels indicate the number of small investors in the market.
Odd theory states small investors are always wrong. If odd purchases are falling relative to odd sales, it indicates small investors think the market will fall. Since they are always wrong, it would indicate arise in the market is coming. 
1245 property tax treatment
1245 is personal property used in a trade or business held greater than a year.
Basis = purchase price – appreciation
1245 recapture applies to depreciation. Tax at ordinary income.
Rest of gain is 1231 gain. Tax as long-term capital game as all 1231 property is held greater than a year. 
1250 property tax treatment
Section 12 for 50 property is depreciable real estate used in a business or trade held greater than one year.
Basis = purchase price – depreciation
Straight line depreciation is 1250 recapture tax at 25%.
Access depreciation (accelerated depreciation) tax, ordinary income .
Rest is 1231 gain taxed as long-term gain because all 1231 is held greater than year
Ordinary income assets
-Literary compositions in the hands of the author
-note receivable from a trader business
-Stock in a trade held for sale to customers in the ordinary course of business
- these are not section 1231 assets
Preferred stock
Preferred stock is more risky than bond because bonds are legal obligation have higher priority and bankruptcy proceedings.
Dividends are set at issue by the board as a percent of par value and do not change .
Changes interest rate, directly impact preferred stock, and there is no relief on preferred stock because most cannot be held to maturity (as most are issued without a maturity date)
It’s market fluctuations are greater than the long-term bond market fluctuations
It is more risky than debt
If dividends are not paid in a given cycle, they cannot be paid to anyone else until they are paid to preferred shareholders. This is called the cumulative feature.
Convertibility is when the preferred chair holder has the option of accruing a certain number shares and then converting them to common stock
Preferred stocks are non-voting shares M
Participating preferred socks is when there are additional or extra dividends declared, the preferred shareholders have the right to share in the profits
Riding the yield curve
(investment strategy)
Refers to the purchase of debt instruments in anticipation of fluctuations, and the rates of return on both long and short term instruments.
Rising rates of interest require repositioning a portfolio in advance, the rise in order to avoid significant price drops.
These moves based on anticipated changes in the yield curve.
Relationship between bond coupon rate and volatility
The lower the coupon right, the more volatile (price)
Duration is the best indicator for evaluating a bond sensitivity to interest-rate risk because it measures interest rate and reinvestment rate changes .
Zero coupon bond duration
A zero coupon bond duration is always its maturity
Coupon bonds with the same time to maturity as a zero-coupon bond will always have a shorter duration
Immunization (Duration)
The average weighted duration of the portfolio rather than the duration of each Pacific bond is used for successful portfolio immunization
Entire contract clause
The policy and the application attached make up the insurance agreement
Unit investment trust
Passive management of the portfolios
Self liquidating investments, usually holding bonds. (can also hold equities)
No additions to investments are made once the trust has been structured
Closed-End Funds
Only sell a limited number of shares
Offer no price guarantees, and do not always sell at net asset value (NAV). Generally sell it either a premium or discount to par value. When purchased at a discount, they afford investors and opportunity to realize upside capital Appreciation.
Traded on the secondary markets
Actively managed
