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Series 6 Exam > Series 6 Exam - My Study Cards > Flashcards

Series 6 Exam - My Study Cards Flashcards

1
Q

Effective Funds Rate

A

the daily rate charged by Federal Reserve member banks

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2
Q

Federal Reserve Board

A

Responsible for Monetary Policy:

Raising/Lower reserve requirements
Raise/Lower interest rates
Change the amount of US government debt held by institutions
Sell securities in the open market

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3
Q

Short Sales

A

Strategy of borrowing shares to sell that an the investor must eventually replace. Used for bearish investors. The sell the borrowed shares at a high price and buy back to replace low.

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4
Q

Tier 1 Global Select Market Companies

A

Companies of global interest that meet the MOST stringent standards for listing

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5
Q

Tier 2 Global Market Companies

A

Companies of global interest that do NOT meet the extremely high standards for listing

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6
Q

Tier 3 Global Market Companies

A

Companies of global interest that meet the MINIMUM listing requirements

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7
Q

Pink Sheets

A

Most SPECULATIVE of all equity securities traded in the OTC market

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8
Q

Convertible Preferred Stock

A

Often issued with a lower stated dividend because the investor may have the opportunity to convert it into common stock shares and enjoy capital gains.

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9
Q

How many shares are there in a standard unit of stock

A

100

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10
Q

American Depository Receipts

ADR’S

A

Facilitate trading of foreign stocks in the US markets. They are susceptible to CURRENCY exchange risk.

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11
Q

Preemptive Rights

A

allows shareholder the RIGHT to buy more, newly issued stock so that he may retain the same percentage of ownership in a company

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12
Q

Rights Offering

A

Allows stockholder to purchase common stock below the current market price. Stockholder may sell these rights in the secondary market if he chooses.

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13
Q

Warrant

A

Certificate granting its owner the right to buy more securities from the issuer at a specified price, normally HIGHER than the market price when issued at later date (longer than what preemptive rights can provide).

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14
Q

Par Value of a Bond

A

$1,000

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15
Q

Bond Pricing

A

Stated as a Percentage of Par

Mature in 10 - 30 years

Quoted in 1/8th of a point:
1 point = 10.00 , 1/8th of a point = 1.25

Therefore, a bond quoted at 98 3/4% = 987.50.

95 1/2 = 955.00

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16
Q

Liquidation Priority

A
  1. Unpaid Wages
  2. IRS, state and county tax
  3. Secured Debt (bonds and mortgages)
  4. Unsecured Debt (debentures)
  5. Subordinate debt
  6. Preferred Stockholders
  7. Common Stockholders
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17
Q

Refunding

A

Practice of raising money to call a bond.

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18
Q

High Risk to Low Risk Bond Rank

A
  1. Secured Bond
  2. Debentures
  3. Subordinate debentures
    4 Income Bonds
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19
Q

Determining YTM, CY and Par

A

Premium - CY TYM
- -
Par - - - - - - - - - - - -
- -
Discount - - PAR -

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20
Q

T-Bill

A

Short-term obligation debt instruments issued in denominations of 1,000 (PAR VALUE) to 1M and mature in 4 to maximum of 52 weeks.

Does not pay regular interest payments. They are purchased at a discount. The return is the difference between the discount and the par value.

Example:

Purchase of T-Bill at 975.00 will have a return of 25.00. (1000 par - 975.00 purchase price)

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21
Q

T-Notes

A

Issued in denominations of 1,000 (PAR VALUE) to 1M

Mature in 2 - 10 years

Stated in 1/32 of a point. 1 point = 10.00

Therefore, bond quote of of 98 2/32 = 980.6250

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22
Q

Standard Trading Registered Interest and Principle Securities (STRIPS)

A

Government backed, ZERO-COUPON instruments/bonds

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23
Q

Series EE Bonds

A

NONTRANSFERABLE bonds

Issued at 50% of their face value from $50.00 - 10k

Can be redeemed before mature but will receive a lower rate of return.

EXEMPT from STATE and LOCAL TAX. Federal tax may be paid annually or deferred until the bond matures.

24
Q

Series HH Bonds

A

Nontransferable sold between investors.

Issued at 50% of their face value from $500.00 - 10k

Mature in 10 years.

EXEMPT from STATE and LOCAL TAX. Federal tax may be paid annually or deferred until the bond matures.

25
Q

GNMA (Ginnie Mae)

A

Private lenders who pool together mortgages invested into with compound interest. Investor receives principal payment plus interest each month. Has PREPAYMENT RISK when interest rates in the market are low as this anticipated longterm investment can be paid off early.

26
Q

Freddie Mac

A

Public corporation who’s stock trades on the NYSE.

Purchases residential mortgages from financial institutions and packaging them into mortgage backed securities to sell to investors.

27
Q

Fannie Mae

A

Public corporation who provides mortgage capital.

Purchases conventional and insured mortgages from agencies like FHA and the VA .

28
Q

General Obligation Bonds (GOs)

A

Also known as FULL FAITH and CREDIT BONDS because the interest and principal are paid back solely on good faith. Backed by income taxes, license fees and sales taxes.

The money is used for public projects such as schools, courthouses, etc.

29
Q

Tax Equivalent Yield

A

Municipal Yield / (1 - investor’s tax bracket)

30
Q

Tax-Free Equivalent Yield

A

Corporate Yield (tax free rate) / (1 - investor’s tax bracket)

31
Q

Revenue Bonds

A

Used to fund municipalities such as Utilities, housing, transportation, education, health, industrial…etc.

Not backed by full faith of the municipality

32
Q

Special Revenue Bond:

IDR - Industrial Development Revenue Bond

A

used to purchase equipment and then leased to a corporations

Typically TAXABLE at the FEDERAL LEVEL

33
Q

Conversion Parity Price of COMMON STOCK Calculation

A

Market Price of the Bond
————————————————-
Conversion Ration (# of shares)

Example:
Market Value = 1400
Par Value = 1,000 / conversion price (50)

= 20 shares conversion

1400 / 20 conversion shares = 70 conversion price.

34
Q

Negotiable CD (Jumbo CDs)

A

Minimum face of 100k

35
Q

Federal Funds Rate

A

interest rate charged on reserves traded among member banks for overnight use - MOST VOLATILE RATE. - Calculated DAILY.

36
Q

Prime Rate

A

BEST rate on corporate loans

37
Q

Discount Rate

A

Charge on loans to depository institutions

38
Q

Broker Dealer Rate

A

Charge on loans to margin accounts for broker dealer customers

39
Q

London InterBank Offered Rate (LIBOR)

A

average interest rate charged when banks in the London interbank market borrow loans from each other. Internationally recognized benchmark or short-term loans.

40
Q

Balance of Payment

A

The flow of money between the US and other countries

41
Q

Investment Company

A

Corporation or trust that pools investor’s money and then invests that money in securities on their behalf

42
Q

Investment Company of 1940

A

Act that governs investment companies

43
Q

Diversified Investment Company

A

States that a DIVERSIFIED company meets the requirements of the 75-5-10 rule test, where:

  • 75% of the funds total assets MUST be invested in securities by companies other than the investment company itself.

OF THAT 75%, it should be invested such that……

  • No more than 5% of the funds total assets are invested in the securities of any one issuer
  • No more than 10% or the outstanding voting securities of any one issues may be owns

Example: If a company has $7M in assets, a MAXIMUM of only 700k can be invested in this company.

44
Q

Exchange Traded Funds (ETFs)

A

Equity index fund, like the S&P 500, but it traded on the floor of the exchange

45
Q

Open-End Company

A
  • Issues no more than 1 class of security

- maintains a minimum debt -to-asset ratio of 3:1.

46
Q

Bankers Acceptances (MM)

A

Finances imports and exports. Like post dated check and is payable in 1 to 270 days

47
Q

Commercial Paper (MM)

A

Finances seasonal shortages. Matures up to 270 days but most mature in 90.

48
Q

Negotiable CDs (MM)

A

Min 100k contribution. Traded in secondary market BEFORE maturity

49
Q

Ex-Date

A

SRO - Closed market

BOD - open market

50
Q

Best Efforts Offering

A

An offering of newly issued securities in which the investment banker acts as an agent of the corporation, promising only his best efforts n making the issue a success, but not guaranteeing the corporation that all shares will be sold or its money for an unsold share

51
Q

Tendering

A

Practice of a bond issuers buying back their bonds in the open marker because the bonds were not callable

52
Q

Secondary Offering

A

When one or more major STOCKHOLDERS sells control stock to the public for the first time, and the proceeds of the offering belong to the STOCKHOLDER - NOT the ISSUER

53
Q

Revenue Bond

A

Bonds to finance municipal facilities such as utilities, housing, transportation, education, etc.

Based on FULL FAITH! - not back by the municipality

Usually pay less interest than corporate bonds

54
Q

Legal Opinion

A

Attached to every bond certificate that states the issue conforms with applicable laws, the state constitution, and is tax free at the federal level.

written and signed by the bond counsel who specializes in tax-exempt bond offerings

55
Q

Securities Exchange Act of 1933

A

Federal legislation requiring full and fair disclosure of all material information about the issuance of new securities.

Helps prevent fraud in the sale of new securities

The company must provide a registration statement with includes the prospectus filed with the SEC

56
Q

Securities Exchange Act of 1934

A

Federal legislation that established the SEC. Aimed to protect investors by regulating the exchanges, the OTC market, the extension of credit by FRB, broker/dealers, insider transactions, trading activities, client accounts, and net capital

57
Q

Securities Investor Protection Corporation

A

Non-profit membership corp created by an act of congress to protect clients of brokerage firms forced into bankruptcy. Composed of all brokers and dealers and dealers registered under the Securities Exchange Act of 1934, and members of national security exchanges, and most FINRA Members

Series 6 Exam (1 decks)

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