Investments Flashcards
What entity type is most likely to buy preferred stock?
C corps because they can take advantage of the 50% (or more) dividend exclusion.
The current law enacted by the Tax Cuts and Jobs Act states that if a corporation owns less than one-fifth of another company’s shares it can deduct 50% of dividends. If a corporation owns 20% or more of the company, it can deduct 65% of dividends.
T or F:
All ADRs satisfy the IRS definition of a “qualified foreign corporation”.
False. Most ADRs do, but not all.
Mutual fund shares are ______, not tradeable.
REDEEMABLE. Shares of mutual funds are nonnegotiable, redeemable securities.
Non-negotiable describes the price of a good or security that cannot be adjusted, or a part of a contract that is considered a requirement by one or both involved parties.
Both Equity and Mortgage REITS generally pay out at least ______ of Net Investment Income.
90%
_______ REIT income is derived from the difference between net rental income and interest paid on the loans to acquire the properties.
Equity
_______ REIT income comes from the spread between the lending rate and borrowing rate.
Mortgage
T or F: REITs cannot invest in limited partnerships.
True. Limited partnerships are often tax shelters.
If a REMIC (Real Estate Mortgage Investment Conduit) is established as a corporation, how is its income taxed?
As pass-through income
________________ funds are issued with a limited number of shares. Shares in a(n) ______________ fund increase or decrease based on customer deposits and redemptions. _____ issue units, not shares.
Closed-end funds
Open-end funds
Unit investment trusts
True or false - a no-load mutual fund can always be purchased at NAV
TRUE. If the fund is a “no load” fund, there is no sales charge, and customers buy at net asset value (NAV).
_______ funds offer a high level of diversification because they include both US and international issues.
Global
Forms 10K and 10Q are submitted to the _______
SEC.
Annual report goes to stockholders.
Form 1120 is the corporate federal tax return.
Are future contracts securities?
NO. They are not securities. They are regulated by the Commodity Futures Trading Commission - not the SEC.
Buying a long call has _________ profit potential.
Unlimited.
______ a call and ________ a put are generally profitable strategies in a rising market.
Buying / selling
_______ a put and ______ a naked call are generally profitable in a falling market.
Buying / selling
How do I determine the margin requirement?
[(1 - Initial Margin Req. %) / (1 - Maintenance Margin Req. %)] x Stock Purchase Price
In the Arbitrage Pricing Model, when a factor is zero, it is _____________.
Expected or anticipated.
Behavioral finance studies indicate that in a panic mode, most investors ______ make changes.
Will not.
In Arbitrage Pricing Theory, the expected value of each factor is ______.
Zero
Under the Black/Scholes option pricing model, an increase in the _________ will decrease the value of a call.
Strike price
A call with a higher exercise price would have less value than another call with the same remaining time to expiration but with a lower exercise price. The right to buy lower is worth more.
All the other variables have a direct relationship for calls or puts:
Price of the underlying stock
Time remaining to the expiration of the option
Interest rate
Volatility of the underlying stock
True or false: zero coupon bonds do not need to be accreted.
False.
Municipal discount bonds, corporate discount, bonds, and zero coupon bonds must be accreted. Accretion generates phantom income, but enables the bondholder to raise the basis accordingly.
