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Series 65 Prep > Original Flashcards > Flashcards

Original Flashcards

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Series 65 flashcards
1
Q

What are revenue bonds?

A

bonds backed by user fees, revenues or special assessments that are collected from the facility or project

*project-centered

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2
Q

What are Industrial Revenue Bonds?

A

bonds issued to construct sport stadiums & parking lots for example

backed by a corporation which pays the principal and interest

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3
Q

What does it mean to be Triple Tax Exempt?

A

a bond that is exempt from federal, state, and local taxes

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4
Q

What are Brady Bonds?

A

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

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5
Q

What is a Yield?

A

the rate of distributed or realized return on an investment expressed as a percentage of the cost of an investment

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6
Q

What is the Yield to Maturity?

A

the overall return an investor will receive from a bond

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7
Q

What is Horizontal or Calendar Spread?

A

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

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8
Q

What is the Trading Spread?

A

the difference between the offer price and the bid price

the more narrow the spread, the more active the trading on the stock is

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9
Q

What is the Moody’s Bond Rating Scale?

A

Investment Grade: Aaa, Aa, A, Baa

Non-Investment Grade: Ba, B, Caa

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10
Q

What is the Standard & Poor’s (S&Ps) Bond Rating scale?

A

Investment Grade: AAA, AA, A, BBB

Non-Investment Grade: BB, B, C, D

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11
Q

What is Form Schedule 13D?

A

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

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12
Q

What is Form Schedule 13G?

A

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

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13
Q

What are Collaterized Mortgage Obligations (CMOs)?

A

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

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14
Q

What is a maintenance covenant?

A

bond indenture where the issuer promises to maintain the facility so that it continues to generate revenues to repay the bondholders

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15
Q

What is a bond indenture?

A

a list of covenants, or rules, between the issuer and the trustee, who acts on behalf of the bondholders

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16
Q

What is a call option?

A

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

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17
Q

What is a put option?

A

a contract that gives the buyer the right to sell at an agreed-upon price in case the security price goes down

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18
Q

What are TRANS (Tax & Revenue Anticipated Notes)?

A

notes for a project that could bear revenue and raise taxes

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19
Q

What are BANS (Bond Anticipation Notes)?

A

notes that anticipate the issuing of a bond in the future

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20
Q

What are RANS (Revenue Anticipation Notes)?

A

notes issued in anticipation of facility revenues

notes to get money & pay people back from revenue part of the project

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21
Q

What are TANS (Tax Anticipated Notes)?

A

based on tax money

notes issued in anticipation of future tax collection

getting money now for a tax they will administer in the future

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22
Q

What is a vertical spread?

A

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

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23
Q

What is Margin?

A

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

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24
Q

What is a block share?

A

a large, privately negotiated securities transaction

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25
Q

What is amortization?

A

the action of process of reducing or paying off debt with regular payment

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26
Q

What are Unissued Shares?

A

authorized shares that have not yet been sold

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27
Q

What is the Government National Mortgage Association (GNMA)?

A

a government-owned corporation within the Department of Housing & Urban Development

only agency that is government guaranteed

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28
Q

What is Duration?

A

the measure of a bond’s expected volatility in a changing interest rate environment

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29
Q

What is a credit spread?

A

the difference in the returns of 2 bonds with the same maturity but different credit ratings

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30
Q

What is the Alpha (not equation- definition)?

A

the difference between the beta and the actual return obtained from an investment

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31
Q

What is a Time Deposit?

A

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

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32
Q

What is the discount rate?

A

the rate that Fed Reserve charges member banks for loans to meet their overnight requirement

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33
Q

What is the Debit Call Spread?

A

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

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34
Q

What is a credit call spread?

A

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

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35
Q

What is an Open Buy Stop?

A

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

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36
Q

What is the Balance of Trade?

A

the net difference over a period of time between the value of a country’s imports and exports

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37
Q

What is outstanding stock?

A

the number of shares in the hands of the investors at any given time

issued shares - treasury stock

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38
Q

What are issued shares?

A

the portion of total authorized shares that are not actually sold to investors

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39
Q

What is a Direct Participation Program (DPP)?

A

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

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40
Q

What is the Dividend Growth Model?

A

applies a growth rate to the present dividend & is used to predict the future projected income

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41
Q

What is trade surplus?

A

when exports exceed imports

exports > imports

this is GOOD

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42
Q

What is a trade deficit?

A

when imports exceed exports

imports > exports

this is BAD

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43
Q

What is a straddle?

A

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

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44
Q

What are preemptive rights (rights)?

A

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

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45
Q

What are growth funds?

A

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

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46
Q

What is permanent life insurance?

A

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

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47
Q

What is Whole Life Insurance?

A

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

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48
Q

What is Hedging?

A

an investment strategy investors use to protect their investments against loss & to control risk

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49
Q

What are Incentive Stock Options?

A

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

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50
Q

How does a company stock split work?

A 
# of shares increases
price per share decreases
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51
Q

What is Net Revenue Pledge?

A

a bond indenture that requires debt service on bonds paid first, then debt is serviced

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52
Q

What is a Gross Revenue Pledge?

A

a bond indenture where the debt service on bonds is paid first, then operating & maintenance expenses are paid

53
Q

What is a redemption fee?

A

a percentage of the next computed bid price (NAV) at the time of request

54
Q

What is an Exchange Traded Note (ETN)?

A

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

55
Q

What is a Sinking Fund Covenant?

A

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

56
Q

What is a closed-end/open-end covenant?

A

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

57
Q

What is a Variable Rate Note (VRN)?

A

fluctuating rate of return

used for short term needs (ex: buying computers)

notes issued to finance short term needs of the municipality

58
Q

What is hypothecation?

A

the pledging of securities as collateral

agreement between broker/dealer and customer to pledge securities as collateral in a margin account

59
Q

What is Form 13f?

A

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

60
Q

What is a coupon bond?

A

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

61
Q

What is a Rate Covenant?

A

bond indenture where the issuer promises to set user rates so that they are sufficient to pay interest & repay principal in the bonds

62
Q

What is a redeemable security?

A

non-negotiable

must be redeemed by the issuer

a security with NO secondary trading

EX: UITs, Face Amount Certificates, Open-End Mutual Funds

63
Q

What are Money Market Instruments?

A

always short-term with maximum maturities of 1 year

debt instruments

very liquid & always trade consequently

very safe

preservation of capital

64
Q

What is a catastrophe covenant?

A

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

65
Q

What is the net credit?

A

the maximum gain that occurs in a spread

66
Q

What is the net debit?

A

the maximum loss that occurs in a spread

67
Q

What is restricted stock?

A

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

68
Q

What is a value fund?

A

primarily hold stocks that are deemed undervalued in price & thus have upside potential

69
Q

What is a fund of funds?

A

a mutual fund that holds shares in several other funds in pursuit of its stated objective

70
Q

What is an underwriter?

A

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

71
Q

What is the 12b-1 fee?

A

section of the Investment Company Act of 1940 that allows sales literature expenses to be carried by the mutual fund

72
Q

What is the annuity expense guarantee?

A

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

73
Q

What is Universal Variable Life Insurance?

A

life insurance with flexible premium payments after making an initial sufficient deposit

74
Q

What is Variable Life Insurance?

A

cash value portion of policy is held in a separate account

cash value NOT guaranteed by the insurance company

similar to Whole Life

75
Q

What is Term Life Insurance?

A

lowest cost insurance policy

only a death benefit - no equity or cash value

temporary coverage for a specified time

76
Q

What are capital gains?

A

appreciation of the market value of a security

77
Q

What are Growth/Income Funds?

A

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

78
Q

What is a Unit Investment Trust?

A

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

79
Q

What is overlapping debt?

A

a situation where multiple taxing authorities in a given geographic area have the ability to tax the same

part of the general obligation debt

80
Q

What are income funds?

A

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

81
Q

What is an Employee Stock Option (ESO)?

A

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

82
Q

What is Blue Chip?

A

large, mature companies with high consumer recognition and brand loyalty

carry systematic risk, but less credit risk & volatility than other equity funds

83
Q

What are authorized shares?

A

the total number of shares authorized in the corporate charter

84
Q

What is a Real Estate Investment Trust? (REIT)

A

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)

85
Q

What is Treasury Stock?

A

stock that has been issued (sold to the public) & subsequently bought back by the corporation

no voting rights & receive no dividends

86
Q

What is a premium bond?

A

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

87
Q

What is a discount bond?

A

a bond sold at less than par value

Yields Highest to Lowest: yield to call, yield to maturity, current yield, nominal/coupon yield

88
Q

What is the yield to call?

A

evaluates the performance of a callable bond from purchase to the call date

89
Q

What is the coupon/nominal/stated rate?

A

the interest rate the investor receives when purchasing a bond

90
Q

What is a proxy?

A

a limited power of attorney that the stockholder grants to someone else

91
Q

What is the ex-dividend date?

A

for mutual funds, this is the 1st business day after the record date

92
Q

What is a credit put spread?

A

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

93
Q

What is a debit put spread?

A

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

94
Q

What are demand deposits?

A

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

95
Q

What is the 10Q report or form 10Q?

A

reports the financial performance that must be submitted to the SEC quarterly by all public companies

96
Q

What is a long position?

A

buy stock FIRST (own), sell it second

97
Q

What is Form 8K?

A

“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

98
Q

What is credit/business risk?

A

the risk that an issuer may become unable to meet interest or principle payments on its bonds

99
Q

What is regulatory/legislative risk?

A

the risk that changes in law will negatively impact the value of a security

100
Q

What is liquidity risk?

A

the risk that an asset can’t be sold quickly or that selling quickly will result in substantial loss

101
Q

What is opportunity cost?

A

the cost of one choice that must be forfeited to pursue another

102
Q

What is inflation risk or purchasing power risk?

A

the risk that an investment’s value is negatively affected by inflation

103
Q

What is interest rate risk?

A

the threat of suffering a loss due to a change in the interest rate

EX: all fixed income securities, US Treasury Bonds, longer maturities

104
Q

What is market/systematic risk?

A

the risk that the entire market declines at once, causing investors to sustain losses

105
Q

What is a limit order?

A

an order to trade a security at a given price or better

potentially won’t execute if the stock never reaches the price

106
Q

What is a stop order?

A

order to trade a security if a given trigger price occurs

107
Q

What are leading indicators?

A

estimates of where future economic activity in a business cycle is going

EX:
machine tool orders
building permits
housing starts
S&P 500
108
Q

What is preferred stock?

A

stock that pays dividends before common shareholders

NO voting rights

fixed dividend in perpetuity (like a bond)

109
Q

What is the bid price?

A

the price at which the dealer will BUY shares that the client SELLS

110
Q

What is the reserve requirement?

A

the overnight cash reserve that each Federal Reserve member bank is required to maintain

111
Q

What is the offer/ask price?

A

the price at which the dealer will SELL shares and the client will BUY

112
Q

What is the 10K report or 10K form?

A

comprehensive report filed annually by publicly traded companies about financial performance

required by the SEC

113
Q

What is Keynesian Theory?

A

economic theory that advocates for fiscal policy (gov involvement) to jump-start the economy

114
Q

What is fiscal policy?

A

involves the president & congress passing bills that influence the economy

EX: federal taxation and government spending are primary tools

115
Q

What is a short positon?

A

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

116
Q

What is a market order?

A

an order to immediately buy or sell a specified amount of a security at the most advantageous price obtainable

117
Q

What is a markup?

A

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

118
Q

What is cumulative voting?

A

number of shares x number of vacancies = number of votes

119
Q

What is disintermediation?

A

large-scale investor movement into long-term debt instruments

often happens with an inverted yield curve

120
Q

What is supply side economics?

A

economic theory that says the government should NOT meddle & the economy will take care of itself

growth occurs through tax cuts & deregulation

121
Q

What is commercial paper?

A

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

122
Q

What are American Depository Receipts?

A

certificates issued by a bank in the USA to represent a certain amount of shares of a foreign company

123
Q

What are Auction Rate Securities?

A

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)

124
Q

What are statutory voting rights?

A

allows for one vote per share per vacancy (no matter what the number of vacancies are)

125
Q

What is monetary policy?

A

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

126
Q

What are coincident indicators?

A

current indices that show the current phase of a business cycle

EX:
personal income
index of industrial production
manufacturing and trade sales

127
Q

What are lagging indicators?

A

measures historical data

compares to current market to show the business cycle after its already happened

EX:
employment/unemployment rates
corporate profits
business inventories

128
Q

What is a margin account?

A

not a liquid account

account that borrows money to pay for other securities

129
Q

What is the dark pool of liquidity?

A

pool of information that the public canNOT see the # of shares or price per share

mainly large institutional investors

Series 65 Prep (7 decks)

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