Investment Vehicles Flashcards
Which of the following have an equity position? Common stock Preferred stock Debentures Preferred bonds
Only a and b
What is the claim priority in a liquidation?
Secured creditors such as mortgage bondholders and equipment trust certificate holders
Subordinate debentures bondholders
Common stockholders
Preferred stockholders
Unpaid wages taxes and trade creditors
Debentures
Secured creditors first
Unpaid wages taxes and trade creditors
Debenture bond holders
Subordinated debenture holders
Preferred stockholders
Common stockholders
What tax realizations are achieve yearly in a zero coupon bond?
The portion of the discount realized each year must be paid as earned income typically zero bonds are held in an IRA which defers these taxes
What is a strip?
Is strip is a treasury bond that has been stripped of their coupons is there also called zero coupon treasury obligations.
What are the two components of a bond?
Semiannual interest payments represented by the coupons
Final principal repayment at maturity
Which of the following risks are strips highly susceptible to?
Interest rate risk
Reinvestment risk
Market risk
Political risk
Interest rate risk
Because these are long term zero coupon or deep discount obligations price swings are very volatile as interest rates move. Security is highly susceptible to interest-rate risk but purchasers are not too worried about this since strips are usually held to maturity
What was the predecessor to a strip?
Treasury receipts
What are TIPS
Treasury inflation protection securities
These bonds have a fixed interest rate however the principal amount is adjusted every six months by an amount equal to the change in the consumer price index or inflation
What is the minimum denomination issued for 10 year treasury notes
$100 par value
Is interest received on T notes taxable if so at what level of government
Yes it is subject to taxation at the federal level but exempt at the state level. One branch of government cannot tax another
In regards to strips and tips when must the owner claim gains on their taxes as income?
In the year realized
In the previous year
At maturity
When sold
When realized. Although the money cannot be received to the holder until maturity, they still must pay taxes on gains in the year that They are realized.
This is why strips and tips are typically only suitable for retirement plans
Which government agency designed to promote home ownership is backed directly by the United States government?
The government national mortgage Association or Ginnie Mae is the only government mortgage agency that is directly backed
