Securities 2 Flashcards
Liquidation priority
Wages Taxes Secured bonds Debentures and general creditors Subordinated debentures Preferred stock Common stock
Treasury receipts
Issued and backed by broker dealers
Mature at par
Discounts: Accrete (add, adjust cost basis up)
Premiums: Amortize (subtract, adjust cost basis)
Treasury STRIPS
Issued by US Treasury
Mature at par
Discounts: Accrete (add, adjust cost basis up)
Premiums: Amortize (subtract, adjust cost basis down)
Collateralized Mortgage Obligations (CMOs)
Sold by financial institution
Backed by pool of mortgage securities
Associated with refinancing risk
Securities separated into Tranches
Each tranche has different risk characteristics
Investor chooses tranch and signs suitability statement
Unsecured debenture
Backed by issuers full faith and credit
Unsecured subordinated debenture
Paid last of all debt if issuer is in default
Unsecured guaranteed bond
guaranteed by a third party (parent company guarantees subsidiary’s debt)
Unsecured income (adjustment bond)
Interest payable only if earned (risky; not suitable for investors seeking income)
Secured mortgage bond
Backed by real estate
Secured collateral trust bond
Backed by other securities the issuer owns (ex. gov’t debt)
Secured equipment trust certificate
Backed by equipment used in the issuers business
Bearer
Possession proves ownership, no owner name on certificate, interest coupons attached
Registered as to principal only
Registered owner on certificate, interest coupons attached
Fully registered
Owner registered with transfer agent, interest paid directly to owner
Book or journal entry
No certificate, confirmation proves ownership, interest paid directly to owner
Balloon
A repayment schedule over a period of years having the largest number of bonds maturing at the final maturity date
T-bill
1 year or less
annualized % discount from par
Not callable
T-note
2-10 years
% of par in 32nds
Not callable
T-bond
10 years and over
% of par in 32nds
Callable
Government National Mortgage Association (GNMA)
Backed by the full faith and credit of the US government
Approves lenders who issue pass-through certificates created from a pool of FHA and VA insured mortgages
Monthly check to investor includes both principal and interest
Federal farm credit system
Backed by the issuing agency Loans to farmers Finance land purchases Finance farm equipment purchases Establishes buying co-ops to achieve economies of scale when purchasing agricultural goods
Federal national mortgage association (FNMA) and federal home loan mortgage corporation
Backed by the issuing agencies
Lines of credit with the US Treasury
Mortgage-backed paper associated with prepayment risk
Normal yield curve
Yields increase farther out in time
Inverted yield curve
Yields decrease farther out in time
Prime rate
The rate large US money center banks charge their best corporate customers
Discount rate
The rate charged by the FRB for loans to depository institutions
Broker call loan
The rate banks charge broker/dealers for funds borrowed to lend to margin account customers
