Kaplan Section 1 Flashcards
GDP(gross domestic product) measures growth in the economy.
To retain an accurate comparison of one year to the next, it must be measured with constant dollars(inflation adjusted dollars)
GDP(gross domestic product) measures growth in the economy.
To retain an accurate comparison of one year to the next, it must be measured with constant dollars(inflation adjusted dollars)
The President and Congress have authority over taxing and spending
The President and Congress have authority over taxing and spending
Warrants
Warrants are generally issued with bond offerings to make the bonds more attractive.(rights to stocks usually)
Warrants are long-term options to buy stock and usually have a lifetime of 2 to 10 years
Because they are equity securities, warrants, as investments, are considered less safe than bonds.
Warrants have no intrinsic value when issued and may expire without ever having intrinsic value.
Before expiration, warrants may be, and often are, traded in the secondary market.
Rights
A “RIGHT” is a purchase option for stock, at a set price, for a short period of time, typically 4 to 6 weeks.
CMO (collateralized mortgage obligations) TRANCHES
Collateralized mortgage obligations are divided into maturity classes called “tranches” The tranche determines the maturity schedule and level of risk associated with a particular CMO
Treasury Bonds are quoted as a % of par plus 32nds
Example is a T-bond is purchased for 95.08 the price is $950 plus 8/32(i.e.1/4) of $10 for a total of 952.50
With fluctuating interest rates, the price of LONG-TERM bonds will fluctuate the most
The longer the term to maturity, the greater the risk to the bondholder, resulting in greater price fluctuation for long-term bonds.
An investor who is looking for income but is concerned with rising rates should invest in short-term instruments such as T-Bills
An Investor who is looking for income but is concerned with rising rates should invest in short-term instruments like Treasury Bills
Treasury Bills would be more suitable than CMO’s, treasury bonds or muni bonds as they all have long term maturities so they have a higher degree of interest rate risk.
Treasury STRIPS
Guaranteed by the U.S Government so there is no chance of default.
Zero-coupon bonds that offer no current income which is appropriate for client’s who want 100% return paid at a future date
Good option for a client who wants to invest money that will go towards college expenses in the fututre
Revenue Bond Sources
Typical sources of funds for revenue bonds include:
User Charges
Payments under leaseback arrangements
Lease Revenues
Tolls and other fees from the facilities operation.
(property taxes are used to back general obligation bonds)
Series HH Bonds are no longer issued but many have not yet matured
Series HH Bonds are non-marketable and pay interest semi-annually
Series HH Bonds are no longer issued but many have not yet matured.
Series HH Bonds are non-marketable and pay interest semi annually
Muni Bond Issues
Any bond issued by a state, municipality, or governmental unit OTHER THAN the Federal Government or one of it’s agencies is categorized as a municipal issue
Ginnie Maes
GNMA(government national mortgage association) are pass through certificates guarenteed by the US Government
Investors who purchase them face no credit risk.
Income from Ginnie Maes (GNMA) is paid to the investor on a monthly basis
Which of the following is the most volatile?
Federal Funds Rate?
Prime Rate?
Discount Rate?
Broker Call loan?
The Federal Funds rate which changes daily and that makes it the most volatile of the rates given.
Refunding is synonymous with Refinancing
If you see something like a bond issue is refunding a debt, it’s the same as a refinance so they’re replacing debt for debt
