Midterm Review Flashcards
What is the most sensitive/volatile short-term interest rate?
The Federal Funds Rate (vs. the Discount rate, Prime rate, and Broker call loan rate)
What is a technical analyst interested in?
Forecasting market trends and general securities prices (as opposed to individual corps). They’re interested in market prices, trading volumes, DJIA changes, reversals, support and resistance levels, advance/decline lines, short interest, other factors that influence buying and selling decisions
What is a fundamental analyst interested in?
They concentrate on a stock’s intrinsic quality and are more concerned with PE ratios and Earnings Per Share
Who or what sets the amount paid into a defined contribution plan?
The trust agreement. not the contribution requirements
Can a variable annuity lose money?
Yes because its investment portfolio, separate account, incurs investment risk and can lose value
How is commercial paper quoted?
It is quoted on a discounted yield basis. It is short-term, unsecured corporate debt that is issued and traded at a discount of face value w/ no interest payments
What defines a diversified investment company?
The 75-5-10 rule. At least 75% of the total assets must be invested in securities in other investment companies. Of that 75%, no more than 5% can be in any one company and you can’t own more than 10% of one company. Defined under Investment Company Act of 1940.
What is the most conservative way for a company to raise capital?
Sell Common Stock. It’s adds to the capital of the corp and doesn’t add the cash flow demands of bonds.
What is the minimum guaranteed interest rate on a variable annuity?
There is no guaranteed interest rate. The rate of return is subject to the underlying portfolio’s value. They’re designed to combat inflation risk but are still subject to capital risk.
The risk of a bond decreasing in value during periods of inflation is known as:
Interest Rate Risk, not reinvestment risk
If you sell shares of an investment company, when do you know the total received?
The following day. They are priced using forward pricing, which is calculated on the next day.
Does a Jumbo CD make interest payments?
Yes, along with convertible bonds and T-bonds. Zero-coupon bonds do not make any interest payments
rights of accumulation
Allows a customer to use stock growth towards a letter of intent. Reinvested dividends and changes in NAV do NOT count towards a breakpoint for a LOI
Can you get a breakpoint in different accounts?
Yes if one person is investing in different custodial accounts with the same company.
What type of risk should an investor purchasing long-term AAA rated bonds be most concerned with?
Inflation Risk (or purchasing power risk) because the rate of return on the investment may not keep pace with inflation.
For a coveral call, what is the cost-basis of the stock if the call is exercised?
It is the amount paid for the stock and does NOT include the premium for the call
For tax purposes of a covered call, what amount of the proceeds are you taxed on?
You are taxed on the proceeds (strike price) plus the premium.
How do you find the parity price of common stock?
Find the conversion ratio and divide the market price by the conversion ratio. Ex: if covertible PS is trading at $80 and conversation price is $20, CS will trade at $16 (100/20=5; $80/5=$16)
Describe ELNs
Equity-linked notes are debt-instruments that have a partial fixed return as well as a final payment due that is linked to the performance of an underlying asset or index. They can be traded on the OTC; FINRA considered them an ‘nonconventional structured instrument’
How often are Treasury Bills issued?
Every, 4, 8, 13, 26, and 52 weeks. Treasury auctions for the 52-week note occur every 4-weeks. The rest occur every week.
In the event of a bankruptcy, what is the liquidation order?
Wages, taxes, secured debt, unsecured debt (including general creditors), subordinated bonds, preferred stock, and common stock
What does a fundamental analyst focus on?
a particular industry or company within an industry; that company’s relative health or market potential
What does a technical analyst focus on?
timing of market activity and market trends; market price, price momentum, and volume
