Securities

Question 1

T Bills vs bonds?

Answer 1

T bills are sold at discount and mature at face value) they do not pay a particular fixed interest rate)

Question 1

What signal would a T.A. issue for a stock with a big increase in trading volume?

Answer 1

Buy

Question 2

What is a spot price?

Answer 2

current price which an investor can buy/sell an instrument

Question 3

What is a European option?

Answer 3

An option that con only be exercised on expiry date

Question 4

when do call options expiry?

Answer 4

3rd Friday of the month

Question 5

If you buy a put, are you long or short?

Answer 5

Long

Question 6

Characteristic of closed end mutual funds?

Answer 6

Given laws of supply and demand, and since no new shares are issued, they can trade above NAVPS

Question 7

Are front end charges included or excluded from ACB?

Answer 7

Included.

Question 8

What is the ask risk rule?

Answer 8

On real estate investments, losses that can be claimed are limited to the capital deemed to be at risk.

Question 9

Limited partnership in real estate advanatges?

Answer 9

Ideal vehicle for tax shelters with real estate:
* Losses can flow through to partners
* limits liability
* can require less capital relative to property value

Question 10

Min holding period for LSIF?

Answer 10

8 years

Question 11

What is yield to call?

Answer 11

Bonds yield if held to specific call date

Question 12

current yield vs yield to maturity?

Answer 12

CY: Annual income / current price

YTM: total return if held to maturity (more comprehensive)

Question 13

What are sinking fund bond ? Risk?

Answer 13

A fund set aside to ensure debt obligation is paid in full by maturity. (essentially, they call X% of a bond issue each year)

Lower the risk of default for investors

Question 14

What is immunization strategy?

Answer 14

Matching bond duration to investors holding period to minimize/eliminate effect of interest rate changes on investor.

Basically, you can simply hold the bond to maturity

Question 15

How do real return bonds work?

Answer 15

Adjusts the face value based on inflation. Because payments are based on face value, payments, too, are indexed to inflation.

E.g.

10K bond at 6%, inflation of 1.5% last year, this years face value is 10150.

Question 16

What is the most senior debt?

Answer 16

First mortgage bonds

Question 17

What is a debenture?

Answer 17

Bond secured only by creditworthiness of issuer

Question 18

What is an income bond?

Answer 18

Bond that pays interest only if the company is profitable.

Question 19

What is a put/retractable bond?

Answer 19

Bond that the holder can call of specific dates (lower risk)

Question 20

Extendable bond?

Answer 20

Allows holder to extend term to maturity

Question 21

Who gets accrued interest on a bond if it is sold?

Answer 21

The buyer (though this will be reflected in the price of the bond)

Question 22

What is riding the yield curve?

Answer 22

Purchasing long duration bonds for short periods (to work, we need a positively sloped curve)

Question 23

main factor in whether rental income is property or business income?

Answer 23

and kinds of services provided.

Question 24

Maturity amount on a real return bond/

Answer 24

Original face value x total inflation since issue (crazy).

Question 25

What is expectations theory?

Answer 25

Current long term bond rates forecast future short term rates

Question 26

What is market segmentation theory/

Answer 26

Yield curve just represents supply and demand of bonds of various terms by bigger players (i.e., life insurance companies, banks).

Question 27

What is bond duration?

Answer 27

the approximate % change in bond price for a 1% change in rates

Question 28

How would a bond with duration of 10 respond to an increase in interest rates of 1% down?

Answer 28

+10% price.

Question 29

What costs are deductible by a rental prop owner?`

Answer 29

Ins. premiums
rent collection fees
legal fees
prop tax
mortgage interest
utilities
lawn maintenance
regular maintenance charged

Question 30

What is the capital cost allowance?

Answer 30

deduction for depreciating assets, and costs to maintain those assets are factors in (e.g. reno materials and labour) but not short term maintenance

Question 31

How is the deduction for a split (owner occupied & rental) unit calculated?

Answer 31

Based on square footage OR # of rooms occupied by tenant and all costs that benefit the tenant as well are split on that basis (e.g., if 50/50 then half, e.g., prop tax is deductible)

Question 32

How does CAA factor into a property sale?

Answer 32

Capital gains (sale price -original cost- cap expenditure) + CCA = taxable income

Question 33

Max capital cost allowance?

Answer 33

Lesser of net rental income or maximum undepreciated capita cost allowance rate

Question 34

Can losses on a rental offset cap gains or employment income?

Answer 34

Yes and Yes

Question 35

What is the ex dividend date?

Answer 35

When a trade needs to be settled to receive dividends
* 2 business days before the date of record.

Question 36

Are dividends always taxed higher than cap gains?

Answer 36

NO, depends on the province

Question 37

How is intrinisc value calc. by the dividend valuation growth model?

Answer 37

(Dividend X (1+ expect growth)) / (Required %return - expected div gwt)

Question 38

What is a board lot? Odd lot?

Answer 38

Depending on value of share:
Under 10C: 1000
10C to 99C: 500
$1+: 100

An odd lot is any other number of shares

Question 39

How can one outperform the market under Efficient Market Hyp?

Answer 39

You cannot consistently outperform

Question 40

3 forms of EMH?

Answer 40

Weak: all past info is priced in
Semi-Strong: all public info
Strong: all info

Question 41

What are rights issued to shareholders?

Answer 41

They can be traded, usually the exercise price is set below market price at time of issue. Expiration is very short, usually a couple of weeks. Often, mutliple rights are need per new share (e.g., 3:1)

Question 42

If you purchase stock with rights during the ex rights period, are you entitled to the rights?

Answer 42

no