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SIE Flashcards

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SIE Exam flashcards
1
Q

Current Yield

A

Annual interest / Current market value

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2
Q

9’s of 2025

A

9% interest on a bond that matures in 2025

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3
Q

YTM

A

Yield To Maturity - overall return if bond is held until maturity

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4
Q

YTC

A

Yield To Call - same as YTM, but assumes bond is called (paid off early)

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5
Q

Bond Quotes

A

state the price of a bond as a percentage of its par value (112=112%1000=1120; 90=90%1000=900)

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6
Q

Nominal Yield

A

Coupon % - never changes

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7
Q

Common Stock

A

equity; represents ownership of a company

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8
Q

Dividends

A

Distribution of company’s earnings, paid to shareholders

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9
Q

Capital gains

A

share appreciation, increases value of ownership stake

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10
Q

Limited Liability

A

Most you lost is how much you invest

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11
Q

Treasury Stock

A

Shares that company repurchases (ie. it believes its stock is undervalued and decides to repurchase in the open market). Can be reissued to the public. Does not receive dividends and do not have voting rights.

Only outstanding shares have voting rights.

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12
Q

Common stockholders vote on the following:

A

BOD, corporate events (mergers)

Not on management (C-suite) or dividend distributions

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13
Q

Cumulative Voting

A

Combine total votes and allocate as they wish (3 seats = 300 total votes)

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14
Q

Statutory Voting

A

Set # votes for each seat (3 seats = 100 per seat) not combined

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15
Q

Income Stock

A

Mature industries, consistent dividends, utility stocks (objective: income=dividends)

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16
Q

Defensive Stock

A

stable across economic cycles, serve basic needs
food, hygiene, medicine
objective: stability

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17
Q

Growth Stock

A

Reinvest earnings back into business, higher volatility
Tech, biotech
Obj: capital gain (realized on sale)

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18
Q

Cyclical Stock

A

Performance mirrors economic cycle, capture discretionary spending
Retail, auto, restaurants, entertainment
Obj: outperform market

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19
Q

Systematic Risk (market risk)

A

risk that an individual security is impacted by overall market performance
protection: hedge

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20
Q

Non-systematic Risk (business risk/ specific risk)

A

risk of a specific business doing poorly
protection: diversify

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21
Q

In a bankruptcy, common stockholders are repaid ______

A

last

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22
Q

ADRs

A

American Depository Receipts
Exposure to foreign stock without having to buy foreign shares

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23
Q

ADR risks

A

political, currency, inflation
NOT call risk

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24
Q

Preferred stock

A

equity security providing regular, steady income (receive same amount regardless of company’s performance) - fixed quarterly payments

dividends paid before common stock dividends

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25
Q

Investor owns XYZ 5% preferred with $100 par value - what dividend payments should the investor expect to receive each quarter

A

$1.25

5% of par/year = $5/year = $1.25/quarter

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26
Q

If a dividend is skipped, does it get repaid next quarter?

A

no, but yes if specified cumulative preferred

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27
Q

Do preferred stock have voting rights?

A

no, but common stock does

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28
Q

Penny stocks

A

<$5/share AND quoted over-the counter (unlisted, not traded on any exchange)
typically have voting rights

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29
Q

Pre-emptive Rights

A

grant shareholders the ability to participate in an issuer’s future offerings to avoid dilution.
short-term opportunity to buy additional shares of a slight discount to current market price

can (1) exercise rights, buy new shares, and avoid dilution, (2) sells the rights in the market, generating a capital gain, or (3) client allows the rights to expire

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30
Q

Warrents

A

entitle the holder to buy the issuer’s stock at a specified exercise price; can be liquidated (sell instead of exercising)

long-term instruments, often 5+ years
often issued in connection with other securities, sweetening a deal
freely tradable in the secondary model

the value is tied to the price of the underlying share

31
Q

Declaration Date (dividends & settlement)

A

the date the board announces a dividend

32
Q

Ex-date (dividends & settlement)

A

the first date a security trades without the dividend included in the contract price (ie. a buyer on or after the ex-date will not receive the dividend)

33
Q

Record date (dividends & settlement)

A

the date a shareholder must legally own the stock ( be an owner of record) to receive the dividend

34
Q

Payment date (dividends & settlement)

A

The date the dividend is paid

35
Q

Settlement (dividends & settlement)

A

the date a transaction is completed.
regular way settlement is T+2 (2 days after T, trade date)
cash settlement is same day

On settlement: (1) ownership transfers to buyer, (2) payment is delivered to seller

Trade executed on Monday, 5/1 - settles on Wed, 5/3
Sell order executed on Fri, 5/12 - settles Tues, 5/16
Record date established as Thurs, 5/25 - need to have bought by Tues 5/23

36
Q

What happens to the price of the stock on the morning of the ex-date?

A

automatically lower - reduced by the amount of dividend

37
Q

2-for-1 split ($20)

A

2x$10/share

38
Q

4-for-1 split ($60)

A

4x$15/share

39
Q

1-for-10 split ($30)

A

reverse split
$30/10 = $3/share

40
Q

Post split…

A

number of shares owned, number of votes, price per share all changes
economic ownership does not change

41
Q

Short Sale

A

a sale of stock that the client does not own
hope that the stock goes down in value - to sell stock at a higher price and return at a lower price (will lose money if it increases in price)

42
Q

Bond

A

loan from an investor to an issuer
pays (1) semiannual interest -coupons and (2) return par value at maturity

most bonds have a par value of $1000 or a multiple
bond prices fluctuate above or below par due to market forces

43
Q

Coupon

A

annual interest rate paid of the face amount

quote as a percentage of par, typically paid out semiannually

44
Q

An investor buy a 10-year, $1000 par value bond with a 6% coupon -
(1) how much interest should the investor expect to receive each payment?
(2) how much interest will the investor receive if the bond is held until maturity

A

(1) $60/year = $30/payment
(2) $60/year*10 years = $600

45
Q

Relationship between interest rates and bond prices

A

negative relationship

interest rates rise, bond prices fall
interest rates fall, bond prices rise

46
Q

What features make a bond more sensitive to interest rate risk

A

longer duration (low coupon+long maturity)
longer duration bond = high interest rate risk

47
Q

Which would appreciate most in a time of falling interest rates

A

Long duration

48
Q

If prevailing market rate < coupon rate, pay premium or discount?

A

premium (everyone wants to buy coupon bc it pays more than interest)
vice versa

49
Q

AT&T 9’s of ‘25

A

AT&T issued a bond with a 9% coupon rate maturing in 2025

50
Q

Bond Quotes

A

state the price of a bond as a percentage of its par value

51
Q

Quote = 112

A

price = $1120 (112%*$1000)
YTM = < coupon (losing $120)
paid a premium on bond

52
Q

Quote = 83

A

price = $830 (83%*$1000)
YTM = >coupon (gaining $170)
paid a discount on bond

53
Q

On a 8% bond, what is current yield for bond quote =
90
100
132

A

90 = 8.9% ($80/$900)
100 = 8% ($80/$1000)
132 = 6.1% ($80/$1320)

54
Q

zero coupon bond

A

no annual payments (no coupons)
usually priced at a deep discount from par
owner receives par at maturity
investment obj: retirement, college/education
risks: (1) higher interest rate risk (2) phantom income - avoid by putting in tax deferred accounts

55
Q

Call

A

issuer can buy back the bond at a set price before maturity
call protection period could be instated
typically high coupon for investor

56
Q

Put

A

investor can sell bond back @ par
can also convert into a fixed number of common shares
typically lower coupon rate

57
Q

Municipal Bonds

A

tax-free interest income

58
Q

Secured Bonds

A

backed by collateral (mortgage bond, collateral trust bond, equipment trust obligation)

59
Q

Unsecured Bonds

A

DEBENTURE

corporate bond unsecured by any specific piece of collateral; backed by good faith and credit of the issuing corporation

60
Q

Legal obligation to make regular payments

A

Secured bond, unsecured bond (debenture), subordinated debt

61
Q

Eurodollar bonds

A

bonds issued and traded outside the US, but denominated in USD

coupon payments made in USD and used by companies to make their securities more marketable; not registered with SEC

62
Q

Conversion Price

A

the price paid per share on conversion
set at the time the bond is issued

63
Q

Conversion Ratio

A

the number of shares received on conversion

=Par value / CP

64
Q

Parity Price

A

the point at which the price of a convertible bond = market value of stock received on conversion

65
Q

Convertible bond yield < or > than non-convertible?

A

lower

66
Q

Hedge funds must register with SEC if they have more than ____ in assets

A

$150M

67
Q

How are LGIPs different from mutual funds?

A

Not subject to SEC registration/regulation;

do not require issuers to prepare a prospectus and statement of additional information, calculate NAV on daily basis, or est. a BOD with independent directors

68
Q

MLP

A

A master limited partnership (MLP) is a pass-through taxation entity, but has ownership divided into shares that can be publicly traded.

A business structure that offers limited liability and pass through benefits but is publicly traded

69
Q

Which of the following investment opportunities offer a flow through of losses to investors?

I. Closed end funds
II. Direct participation programs
III. Hedge funds
IV. ETFs

A

II. Direct participation programs
III. Hedge funds

70
Q

Blind Pool Fund

A

A hedge fund in which the fund manager is given complete authority to decide on the assets in which to invest

71
Q

DDP

A

A direct participation program (DPP) is characterized by the flow-through of tax consequences to investors. It may participate in oil & gas, real estate, agriculture and other types of activities.

72
Q

American Style Option Contract

A

may be exercised any time the buyer chooses prior to exp date
single stock option often

73
Q

European Style Option Contract

A

may be exercised only on the expiration date
stock index option often

SIE (1 decks)

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