Original Flashcards
What are revenue bonds?
bonds backed by user fees, revenues or special assessments that are collected from the facility or project
*project-centered
What are Industrial Revenue Bonds?
bonds issued to construct sport stadiums & parking lots for example
backed by a corporation which pays the principal and interest
What does it mean to be Triple Tax Exempt?
a bond that is exempt from federal, state, and local taxes
What are Brady Bonds?
bonds issued by debt-troubled developing or “third-world” nations
issued in US dollars & collateralized with US Treasury Zero-Coupon bonds
have low default risk
What is a Yield?
the rate of distributed or realized return on an investment expressed as a percentage of the cost of an investment
What is the Yield to Maturity?
the overall return an investor will receive from a bond
What is Horizontal or Calendar Spread?
an options strategy where an investor writes a near term option & buys a far dated option of the same type with the same strike price on the same underlying security
only difference is expiration date
What is the Trading Spread?
the difference between the offer price and the bid price
the more narrow the spread, the more active the trading on the stock is
What is the Moody’s Bond Rating Scale?
Investment Grade: Aaa, Aa, A, Baa
Non-Investment Grade: Ba, B, Caa
What is the Standard & Poor’s (S&Ps) Bond Rating scale?
Investment Grade: AAA, AA, A, BBB
Non-Investment Grade: BB, B, C, D
What is Form Schedule 13D?
the LONG FORM used to report beneficial ownership of more than 5% of the outstanding shares of a company
to be filed within 10 days of the acquisition of the security causing the 5% ownership
What is Form Schedule 13G?
SHORT FORM used to report beneficial ownership of more than 5% of the outstanding shares of a company
may be filed within 45 days of the end of the calendar year
What are Collaterized Mortgage Obligations (CMOs)?
investment debt securities consisting of packages mortgages organized according to their risk profiles
played a prominent role during the 2008 financial crisis when they ballooned in size
What is a maintenance covenant?
bond indenture where the issuer promises to maintain the facility so that it continues to generate revenues to repay the bondholders
What is a bond indenture?
a list of covenants, or rules, between the issuer and the trustee, who acts on behalf of the bondholders
What is a call option?
a contract that gives the right to buy an underlying asset at a specified price within a specified time in case the security price goes up
What is a put option?
a contract that gives the buyer the right to sell at an agreed-upon price in case the security price goes down
What are TRANS (Tax & Revenue Anticipated Notes)?
notes for a project that could bear revenue and raise taxes
What are BANS (Bond Anticipation Notes)?
notes that anticipate the issuing of a bond in the future
What are RANS (Revenue Anticipation Notes)?
notes issued in anticipation of facility revenues
notes to get money & pay people back from revenue part of the project
What are TANS (Tax Anticipated Notes)?
based on tax money
notes issued in anticipation of future tax collection
getting money now for a tax they will administer in the future
What is a vertical spread?
when an option has the same expiration date but different strike prices
reduce some risks association with buying and writing puts and calls but can also reduce profit potential
What is Margin?
the amount of equity that must be deposited to buy securities in a margin account
EX: 50% of amt of stock they wish to buy
What is a block share?
a large, privately negotiated securities transaction
What is amortization?
the action of process of reducing or paying off debt with regular payment
What are Unissued Shares?
authorized shares that have not yet been sold
What is the Government National Mortgage Association (GNMA)?
a government-owned corporation within the Department of Housing & Urban Development
only agency that is government guaranteed
What is Duration?
the measure of a bond’s expected volatility in a changing interest rate environment
What is a credit spread?
the difference in the returns of 2 bonds with the same maturity but different credit ratings
What is the Alpha (not equation- definition)?
the difference between the beta and the actual return obtained from an investment
What is a Time Deposit?
an interest-bearing bank account that has a date of maturity
money must be held for the fixed term to receive the interest in full
longer the term, the higher the interest rate
extremely safe investment but low rate of return
What is the discount rate?
the rate that Fed Reserve charges member banks for loans to meet their overnight requirement
What is the Debit Call Spread?
when the investor buys a call with a lower strike price & writes a call with a higher strike price
less risk than owning a call
What is a credit call spread?
when the investor receives a premium AKA establishes the spread for a net credit
when the investor writes the call with the lower strike price and purchases the call with the higher strike price
What is an Open Buy Stop?
used the protect a long position’s downside risk or when the stock was put into inventory at a price lower than the current market price
What is the Balance of Trade?
the net difference over a period of time between the value of a country’s imports and exports
What is outstanding stock?
the number of shares in the hands of the investors at any given time
issued shares - treasury stock
What are issued shares?
the portion of total authorized shares that are not actually sold to investors
What is a Direct Participation Program (DPP)?
offers investors access to a business’ cash flow and tax benefits
requires a buy in from the members in order to access the program’s benefits
most are REIT’s and limited partnerships
What is the Dividend Growth Model?
applies a growth rate to the present dividend & is used to predict the future projected income
What is trade surplus?
when exports exceed imports
exports > imports
this is GOOD
What is a trade deficit?
when imports exceed exports
imports > exports
this is BAD
What is a straddle?
a neutral options strategy that involves buying a put option AND a call option for a security with the same strike price and the same expiration
What are preemptive rights (rights)?
the shareholders’ right to purchase a proportionate amount of newly issued stock in a company
offered at a price LOWER than the public offering price
are typically short-term, expiring 30-60 days after issue
What are growth funds?
typically include common stocks of blue-chip companies with solid earnings histories
looking for long-term appreciation
dividend income is LOWER priority
market risk is most prevelant
What is permanent life insurance?
protection with a steady cost which remains in effect until death
cost is initially higher but does NOT increase with age
does have a cash value
remains in effect as long as premiums are paid
What is Whole Life Insurance?
a form of permanent life insurance in which the cash value grows as a guaranteed interest rate
cash value risk is responsibility of the insurance company
What is Hedging?
an investment strategy investors use to protect their investments against loss & to control risk
What are Incentive Stock Options?
also called Qualified Stock Options
no employee tax liability when option is exercised
must be held for 1 year from exercise & at least 2 years from date option was granted
How does a company stock split work?
# of shares increases price per share decreases
What is Net Revenue Pledge?
a bond indenture that requires debt service on bonds paid first, then debt is serviced
What is a Gross Revenue Pledge?
a bond indenture where the debt service on bonds is paid first, then operating & maintenance expenses are paid
What is a redemption fee?
a percentage of the next computed bid price (NAV) at the time of request
What is an Exchange Traded Note (ETN)?
unsecured debt
they are backed by the credit of the issuing bank
no principal protection
don’t pay periodic interest
principal at maturity is based on an index
What is a Sinking Fund Covenant?
bond indenture contained in an escrow account
issuer contributes to fund periodically which is eventually used to retire the bonds at maturity or call them earlier
issuer is NOT allowed to make money on the fund
What is a closed-end/open-end covenant?
a bond indenture covenant that addresses the future issues of new bonds
if an additional bond test determines that revenues from the facility are sufficient to support more new bonds, this covenant determines whether the new bonds are senior or junior to the original bond
What is a Variable Rate Note (VRN)?
fluctuating rate of return
used for short term needs (ex: buying computers)
notes issued to finance short term needs of the municipality
What is hypothecation?
the pledging of securities as collateral
agreement between broker/dealer and customer to pledge securities as collateral in a margin account
What is Form 13f?
used to disclose the holding of discretionary accounts AKA having discretion over accounts holding equity of nationally traded securities with a fair market value of at least $100 million
must file with the SEC within 45 days after the end of each calendar quarter
What is a coupon bond?
also known as bearer bonds
not registered in owners name- bearer is assumed to be the legal owner
issued in the form of actual paper certificates
no longer issued in the US
What is a Rate Covenant?
bond indenture where the issuer promises to set user rates so that they are sufficient to pay interest & repay principal in the bonds
What is a redeemable security?
non-negotiable
must be redeemed by the issuer
a security with NO secondary trading
EX: UITs, Face Amount Certificates, Open-End Mutual Funds
What are Money Market Instruments?
always short-term with maximum maturities of 1 year
debt instruments
very liquid & always trade consequently
very safe
preservation of capital
What is a catastrophe covenant?
bond indenture where if an extraordinary event such as a natural disaster or condemnation occurs, the issuer collects on an insurance policy- allows them to pay of existing bonds
What is the net credit?
the maximum gain that occurs in a spread
What is the net debit?
the maximum loss that occurs in a spread
What is restricted stock?
stock that has no right of transferability
usually acquired through a private placement
broker/dealers can act as agents
if subject to the SEC, it must be held for 6 months; if not, at least 1 year
must be fully paid for
What is a value fund?
primarily hold stocks that are deemed undervalued in price & thus have upside potential
What is a fund of funds?
a mutual fund that holds shares in several other funds in pursuit of its stated objective
What is an underwriter?
an investment banker who sponsors the sale of an issue
has an exclusive agreement with the fund that allows it to purchase fund shares at the current NAV
What is the 12b-1 fee?
section of the Investment Company Act of 1940 that allows sales literature expenses to be carried by the mutual fund
What is the annuity expense guarantee?
establishes the maximum annuity companies can charge to the contract
annuity company is responsible for any increase in expenses beyond the amount guaranteed in the contract
What is Universal Variable Life Insurance?
life insurance with flexible premium payments after making an initial sufficient deposit
What is Variable Life Insurance?
cash value portion of policy is held in a separate account
cash value NOT guaranteed by the insurance company
similar to Whole Life
What is Term Life Insurance?
lowest cost insurance policy
only a death benefit - no equity or cash value
temporary coverage for a specified time
What are capital gains?
appreciation of the market value of a security
What are Growth/Income Funds?
combination fund
tend to hold well-established companies that pay some dividends (income) but still retain some earnings for expansion (growth)
market risk & potentially purchasing power risk
What is a Unit Investment Trust?
a financial COMPANY that buys or holds a group of securities (stocks, bonds) & makes them available to investors as redeemable units
a designated trustee supervises
no secondary trading & units must be redeemed by the issuer
fixed portfolio held for the life of the trust
What is overlapping debt?
a situation where multiple taxing authorities in a given geographic area have the ability to tax the same
part of the general obligation debt
What are income funds?
funds that have an objective of current income
hold securities with dividend yield potential
have below-average growth potential
exposed to credit & interest rate risk
What is an Employee Stock Option (ESO)?
offered by companies to their employees as equity compensation plans
regular call option
give employees the right to buy company’s stock at a specific price for a finite period of time
What is Blue Chip?
large, mature companies with high consumer recognition and brand loyalty
carry systematic risk, but less credit risk & volatility than other equity funds
What are authorized shares?
the total number of shares authorized in the corporate charter
What is a Real Estate Investment Trust? (REIT)
a company that owns, operates, or finances income-producing properties
publicly traded like stocks
steady income stream, but little capital (the investors don’t have to manage the properties themselves)
What is Treasury Stock?
stock that has been issued (sold to the public) & subsequently bought back by the corporation
no voting rights & receive no dividends
What is a premium bond?
a bond selling above par value
Yields Highest to Lowest: nominal/coupon yield, current yield, yield to maturity, yield to call
yields are always lower than the coupon because the bondholder is losing money over time due to the premium
What is a discount bond?
a bond sold at less than par value
Yields Highest to Lowest: yield to call, yield to maturity, current yield, nominal/coupon yield
What is the yield to call?
evaluates the performance of a callable bond from purchase to the call date
What is the coupon/nominal/stated rate?
the interest rate the investor receives when purchasing a bond
What is a proxy?
a limited power of attorney that the stockholder grants to someone else
What is the ex-dividend date?
for mutual funds, this is the 1st business day after the record date
What is a credit put spread?
when the investor writes the put with the higher strike price & purchases the put with the lower strike price
investor receives a net premium for the spread
What is a debit put spread?
when the investor buys a put with a higher strike price and sells a put with a lower strike price
selling the lower strike price put offsets some of the premium paid for the higher strike price put, but also limits the potential gain
What are demand deposits?
funds held with a financial institution
funds that the owner may receive immediately upon demand
include checking accounts, negotiable orders of withdrawal, money market accounts, and some savings accounts
What is the 10Q report or form 10Q?
reports the financial performance that must be submitted to the SEC quarterly by all public companies
What is a long position?
buy stock FIRST (own), sell it second
What is Form 8K?
“current report”
form companies must file with the SEC to announce major events that shareholders need to know
must be filed within 4 business days of the event
What is credit/business risk?
the risk that an issuer may become unable to meet interest or principle payments on its bonds
What is regulatory/legislative risk?
the risk that changes in law will negatively impact the value of a security
What is liquidity risk?
the risk that an asset can’t be sold quickly or that selling quickly will result in substantial loss
What is opportunity cost?
the cost of one choice that must be forfeited to pursue another
What is inflation risk or purchasing power risk?
the risk that an investment’s value is negatively affected by inflation
What is interest rate risk?
the threat of suffering a loss due to a change in the interest rate
EX: all fixed income securities, US Treasury Bonds, longer maturities
What is market/systematic risk?
the risk that the entire market declines at once, causing investors to sustain losses
What is a limit order?
an order to trade a security at a given price or better
potentially won’t execute if the stock never reaches the price
What is a stop order?
order to trade a security if a given trigger price occurs
What are leading indicators?
estimates of where future economic activity in a business cycle is going
EX: machine tool orders building permits housing starts S&P 500
What is preferred stock?
stock that pays dividends before common shareholders
NO voting rights
fixed dividend in perpetuity (like a bond)
What is the bid price?
the price at which the dealer will BUY shares that the client SELLS
What is the reserve requirement?
the overnight cash reserve that each Federal Reserve member bank is required to maintain
What is the offer/ask price?
the price at which the dealer will SELL shares and the client will BUY
What is the 10K report or 10K form?
comprehensive report filed annually by publicly traded companies about financial performance
required by the SEC
What is Keynesian Theory?
economic theory that advocates for fiscal policy (gov involvement) to jump-start the economy
What is fiscal policy?
involves the president & congress passing bills that influence the economy
EX: federal taxation and government spending are primary tools
What is a short positon?
first you sell, then you buy it back second (hopefully at a lower price)
occurs when an investor sells shares they don’t own, but has borrowed
BEARISH - believe the market will go down in value
unlimited upside risk
What is a market order?
an order to immediately buy or sell a specified amount of a security at the most advantageous price obtainable
What is a markup?
the difference between selling price of a product and its cost
how the firm gets paid when acting as a dealer- selling from their own inventory/account
What is cumulative voting?
number of shares x number of vacancies = number of votes
What is disintermediation?
large-scale investor movement into long-term debt instruments
often happens with an inverted yield curve
What is supply side economics?
economic theory that says the government should NOT meddle & the economy will take care of itself
growth occurs through tax cuts & deregulation
What is commercial paper?
unsecured, short term debt instrument used by corporations
issued to dealers only
matures in less that 270 days
trades at discount, sold at discount it issued by a nonfinancial corporation
matures at face value
What are American Depository Receipts?
certificates issued by a bank in the USA to represent a certain amount of shares of a foreign company
What are Auction Rate Securities?
issued by municipalities, corporations, and certain government agencies
long-term bond with an interest rate that regularly resets through Dutch auction (high price reduced until buyer consents)
What are statutory voting rights?
allows for one vote per share per vacancy (no matter what the number of vacancies are)
What is monetary policy?
attempt to control the supply of money & credit in the economy
controlled by the Federal Reserve Board
they use Reserve Requirement & Discount Rate & Federal Open Market Operations as tools to control the money supply
What are coincident indicators?
current indices that show the current phase of a business cycle
EX:
personal income
index of industrial production
manufacturing and trade sales
What are lagging indicators?
measures historical data
compares to current market to show the business cycle after its already happened
EX:
employment/unemployment rates
corporate profits
business inventories
What is a margin account?
not a liquid account
account that borrows money to pay for other securities
What is the dark pool of liquidity?
pool of information that the public canNOT see the # of shares or price per share
mainly large institutional investors
