Miscellaneous Reading "Misses"

Question 1

what type of risks do CDs carry

Answer 1

interest rate risk

Question 2

commercial paper

Answer 2

denominations of $100k
maturity is 270 days or less
sold at a discount
rated for quality

Question 3

discount bond

Answer 3

par value is in excess of the bond’s purchase price

Question 4

Yield ladder

Answer 4

*Discount bonds
Yield to call
yield to matuirty
current yield
nominal yield
current yield
yield to maturity
yield to call
*Premium bonds

Question 5

bond interest accrues at what interval?

Answer 5

daily

Question 6

STRIPS

Answer 6

treasury issued zero coupon bonds
direct obligation of the federal government
discount is treated as taxable income, earned annually

Question 7

TIPS

Answer 7

treasury inflation protection securities
inflation protection
marketable
face value is adjusted semiannually to keep pace with inflation

Question 8

are I bonds marketable?

Answer 8

no

Question 9

GNMAs

Answer 9

direct guarantee of the US govt
NOT issued by the treasury

Question 10

taxation of GNMA interest

Answer 10

taxable at federal state and local level

Question 11

risks for GHMA bonds

Answer 11

interest rate and reinvestment rate

Question 12

GO vs Revenue bonds

Answer 12

gos are backed by full faith and credit
safest type of mini credit

revenue are backed by a single source of income, trade at higher yields

Question 13

bond risk

Answer 13

Default Risk
Reinvetment risk
Interest rate risk
Purchasing power rsik

Question 14

Two bond rating agencies

Answer 14

Standard & Poor’s
Moody’s

Question 15

conversion value of a bond

Answer 15

(par/conversion price)xCurrent market price of underlying stock

Question 16

when is an issuer likely to call bonds?

Answer 16

if bond interest rates dropped in the market since the bond was issued

Question 17

10Q vs 10K

Answer 17

qs are quarterly
ks are annual

both are from corporate management to the SEC

Question 18

cumulative vs noncumulative shares

Answer 18

with noncumulative shares, missed dividends do not have to be made up

Question 19

Unit investment trusts

Answer 19

no day to day portfolio managment
unmanaged
passive
no new securities are purchased, and securities are rarely sold
generally redeemed at NAV

Question 20

mutual funds

Answer 20

OPEN end investment companies
redemptions are always at NAV

Question 21

REITs are similar tooooooo

Answer 21

closed end investment companies

Question 22

derivative

Answer 22

financial instrument whose value is based on an underlying asset

Question 23

put options

Answer 23

holder has the right to sell

Question 24

call options

Answer 24

give the holder the right to purchase

Question 25

taxation for the writer of call options

Answer 25

1. if the option lapses, the premium received is a short term gain
2. if the option is exercised the premium received is added to the sale price (and then long or short term depending on how long it was held)

Question 26

taxation for the holder of an option

Answer 26

not exercised = short term loss

Question 27

taxability of punitive damages

Answer 27

generally taxable, regardless of the nature of the claim
exception: damages paid to a bene in conjunction with wrongful death are received tax free