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SIE > Understanding Products & Their Risks > Flashcards

Understanding Products & Their Risks Flashcards

1
Q

Equities

A

shares represent ownership of the corporation

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2
Q

common stock rights

A
  1. voting rights, cooperate directors
  2. Limited access to corporate books
  3. Preemptive right to maintain share ownership
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3
Q

Growth (capital gains)

A

increase in market price of securities

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4
Q

Limited Liability

A

equity ownership is limited liability- meaning the investor cannot be forced to pay out more monies to take care of additional debts

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5
Q

Market Risk

A

chance stock will decline in price

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6
Q

Decreased or no dividend income

A

risk of owner ship if company looses money. up to board to directors to issue dividends but it is not gaurenteed

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7
Q

Low Priority at dissoltuin

A

if a company enters bankruptcy the holders of its bonds and preferred stock have high priority over common stock holders

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8
Q

Bankrupcy

A

general term, allows individuals and businesses to get relief from their debt or make a plan to repay the money to creditors.

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9
Q

Two chapters of Bankrupcy

A

Reorganization & liquidations

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10
Q

Preferred Stock

A

an equity security- represents a class of ownership in the issuing cooperation. They have no voting rights or preemptive rights.

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11
Q

Control Securities

A

those owned by directors, officers or persons who control 10% or more of the issuer’s voting stock

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12
Q

Restricted Securities

A

those acquired through some other means than a registered public offering- cannot be sold unless held for more than 6 mths

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13
Q

Penny Stock

A

unlisted in US stock exchange- it is a security that trades for less than 5 dollars per share

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14
Q

Debt Securities/Bonds

A

represents borrowed money by corporations, fed gov’t or local govt’s from investors

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15
Q

Maturities

A

Each bond has its own maturity date-

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16
Q

Term bond

A

structured so principal of whole issue matures at once

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17
Q

Serial Bond

A

Schedules portion of principal to mature at intervals over a period of years until repaid

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18
Q

Balloon

A

both serial and term matruties

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19
Q

Coupon

A

Interest rate the issuer has agreed to pay an investor- fixed percentage

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20
Q

Yields

A

cash interest payments in relation to the bonds value

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21
Q

Nominal Yield

A

coupon, nominal or stated yield is set at the time of issue-

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22
Q

Current Yield

A

Measures a bonds annual coupon payment (interest) relative to the market price
Annual Coupon Payment / market price = current yeild

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23
Q

Yield to Maturity

A

reflects annualized return of the bond if hels to maturity

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24
Q

Yeild to Call

A

may be redeemed before the issuers maturity - they do this when interestrates are falling

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25
Q

Put Feature

A

opposite of a call feature=investor can put back to the issuer calling in a bond before it matures

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26
Q

Convertible

A

Can convert bond into shares of common stock

27
Q

Treasury Bills

A

direct short term debt obligations of the US govt. Typical 4, 13 or 26 weeks can be up to a year but no more- they pay no interest

28
Q

Treasury Notes

A

Debt obligation to US Gov’t - pay semi annual interest -as a % of the stated par vlaue and they mature at par value (maturities 2-10 years)

29
Q

Treasury Bonds

A

Debt to US gov’t- pay semi annual interest a stated par value and mature at par value. 10-30 year mature

30
Q

Treasury Receipt

A

not fully backed by us GOV-separates coupon interest payments from the original

31
Q

Treasury STRIPS

A

Fully backed by US Gov’t

32
Q

Gov’t National Mortgage Association GNMA

A

gov’t owned supports dept of housing and urban development. Only agency securities backed by the full faith and credit of the govt

33
Q

Freddie Mac

A

nation wide secondary market in mortgages- buys residential mortgages from financial institutions and packaging them into mortgage backed securities for sale to investors

34
Q

Fannie Mae

A

Publicly held corp that provides mortgage capital - purchases to loans such as FHA and the VA

35
Q

Mortgage Bonds

A

corporation borrows money backed in real estate and physical assets of a corporation

36
Q

Equipment Trust Certificates

A

Example, rail roads rent equipment and are expected to pay it back

37
Q

Collateral Trust Bonds

A

deposits securities into its own trust and uses that as collateral

38
Q

Debentures

A

sold in good faith- unsecured- written promise

39
Q

Guaranteed Bonds

A

backed by a company other than issuing corporation- such as a parent company. Value is only as good as the strength of the company making - these are unsecured debt securities! Dont let the name fool

40
Q

Income Bonds

A

AKA adjustment bonds used when a company is reorganizing and coming out of bankruptcy- not a good recommendation for someone who is seeking income.

41
Q

Municipal Bonds

A

securities issued by state or local governments lends money for public works - roads, hospitals, civic centers etc.

42
Q

General Obligation Bonds (GO)

A

issued for capital improvements that benefit the entire community -typically don’t produce revenue

43
Q

Revenue Bonds

A

used to finance any municipal facility that generates sufficient income ( utilities, housing, transpiration etc)

44
Q

Short-term municipal obligations (anticipation notes)

A

short term securities that generate funds for a municipality that expects other revenues soon- usually they have a less than 12 month maturity- repaid when municipality receives the funds

45
Q

TANS - Tax anticipation notes

A

tax anticipation notes- finance current operations in anticipation of future tax receipts- helps municipalities even out cash flow between tax periods

46
Q

RANS -Revenue anticipation notes-

A

offered periodically to finance current operations in anticipation of future revenues form revenue producing projects of facilities

47
Q

TRANS - Tax and Revenue

A

combo of TAN and RANS

48
Q

BANS

A

Bond anticipation - sold as an interim financing that will eventually be converted to long term funding through the sale of bonds

49
Q

CLN

A

Construction loan notes - used to finance construction or housing projects

50
Q

GANS

A

Grant anticipation notes

51
Q

BABS

A

Build America Bonds- created under economic recovery and reinvestment act of 2009 to assist in reducing cost to issuing municipalities and stimulating the economy. BABS ARE TAXABLE

52
Q

Tax Credit Babs

A

provide the bondholder with a federal income tax credit to equal 35% of the interest paid on the bond in each year- excess credit can be carried forward

53
Q

Direct Payment BABS

A

provide no credit to the bond holder but instead provide the municipal issuer with payments from the US treasury equal to 35% of the interest paid by the issuer

54
Q

LGIPS

A

Local government investment pools - short term vehicle to investment funds (states establish these)
-not required to register with the SEC- rules vary from state to state

55
Q

ABLE

A

Achieving a better life experience- for people with disabilities and their families. Created in 2014 non-taxable - age of onset for the disability occurred before turning 26. Not tax deductible for federal taxes - some states allow income tax deductions

56
Q

Capital Market

A

source for intermediate to long term financing- usually in the form of equity or debt securities with maturities of more than one year

57
Q

Money Market

A

provide short term funds to corporations banks, broker dealers- government municipalities & federal Gov’t - fixed income (debt) securities with short term maturities- less than one year -

58
Q

CD’s

A

Certificate of Deposit- bank issue with fixed interest rates and min. most mature in one year or less- some can be traded on a secondary market AKA negotiable CD’s

59
Q

BA- Bankers Acceptance

A

short term draft with a specified payment date drawn in a bank- essentially it its a post dated check or a line of credit ( acceptance 1 day to 9 mths) used extensively to finance international trade

60
Q

Commercial Paper/Promissory Notes

A

Prime Paper/Promissory Notes - short term unsecured commercial paper to raise cash to finance accounts receivable and seasonal inventory gluts- range from 1-270 daYS - most mature within 90 days

61
Q

US Treasury BIlls

A

direct short term debt obligations of the US government - issued weekly with maturities of 4, 13, 26, and 52 weeks

62
Q

REPO’s Repurchase Agreements

A

in this a bank or broker dealer raises cash by temporally selling some of the securities it holds with an agreement to by back at a later date and a slightly higher price.

63
Q

Reverse Repo

A

dealer agrees to buy securities from an investor and sell them back at a higher price

64
Q

Options

A

Derivative of securities - they derive their value from that of an underlying instrument such as a stock, stock index, interest rate or foreign currency

SIE (2 decks)

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