Investments Flashcards
Bonds with greatest interest rate risk?
Longer duration bonds = more sensitive the bond price is to interest rate changes
Bonds with lowest coupon = biggest duration
Investor that benefits most from the tax advantage of preferred stocks?
Corporations
The corporate dividend-received deductions are based on ownership. TCJA of 2017 updated the amounts. If a corporation owns 20% or less, the have a DRD of 50%. if 20% or more (and less than 80%) of the corporation paying the dividend is owned by the company receiving the dividends, then up to 65% of the dividend is tax free. If ownership is greater than 80% (affiliated corporations) the DRD is 100%.
A Yield Curve Can Be Described As
The yield curve demonstrates graphically the relationship between long-term and short-term government debt.
What Does A Stock Dividend Signal?
The stock dividend is often taken as a favorable signal. It is used for acquisition, increased R&D or occasionally to fend off takeovers. It is more common to see large amounts of debt taken on to make the firm seem less attractive if large amounts of cash are required.
Muni Bond with Restrictive Revenue Base?
” The limited general obligation bond is a bond issued by an entity that has some ability to levy taxes to support itself (for example, a school district). However, this ability is limited when compared to that of the general taxing power of the state
12b1 Fee’s
Marketing / Distribution only
Intrinsic Value of Put Option
Strike - Stock Price
If negative = 0
OID Bonds
I. The bond basis increases at a set rate each year.
II. The difference between maturity value and the original issue discount price is known as the OID.
III. The bond’s earnings are treated as exempt interest income.
IV. The bond was issued at a discount to its par value.
Difference between open and closed mutual funds
Closed-end funds offer a limited number of shares, while open-end funds continually create new shares as new monies are obtained. Closed-end funds offer no price guarantees and do not always sell at net asset value.
What is true about Preferred Stock?
I. Its market fluctuations are greater than the long-term bond market fluctuations.
II. It is more risky than debt.
Printing Money
Treasury department prints money
Neglected Firm Effect
Firm that goes unnoticed
Underpriced
Superior earnings & rates of return
Value of a Firm
Net Earnings / Cap Rate
120,000 / .10 = 1,200,000
Yield Curve
Demonstrates the relationship between long term & short term government debt
Expectations Theory
Theory of the yield curve that attempts to explain the yield curve based on future rates of inflation
