Vocab Flashcards
________ stock is stock that was issued and repurchased by the issuing corporation.
Treasury
True or False: Treasury stock has no voting rights and receives no dividends.
True
Issued stock - Treasury Stock= __________
Outstanding Stock
The _______ date is the date by which stock must be owned to receive the dividend.
record
The ex-dividend date occurs _______ business days ________ the record date.
2, before
Who are considered the owners of a corperation
common and preferred stockholders (holders of equity)
True or False: all owners have a right to vote.
False: only common shareholders may vote
Name Two issues on which common stockholders can vote.
Appointments to the Board of directors, stock splits,
What voting method permits one vote for each share owned to be voted for each director?
Statutory
This voting method allows stockholders to multiply the number of shares owned by the number of directorships.
Cumulative
True or False: Cumulative voting benefits smaller shareholders since they can concentrate votes for a specific director.
True, however it does not guarantee them representation on the board.
________ stock fluctuates with the business cycle
Cyclical (ex. Auto Makers)
_________ stock pays higher than average dividends.
income (Utility Companies)
_____ stock is resistant to recession.
defensive (health care, utilities, etc)
What Instruments are used to facilitate trading of foreign securities in the United States?
American Depository Receipts (ADR)
Warrants are a ______-term right to buy a stock at a preset price
Long
True or False: Warrants are generally attached to the delivery of another security (stock or bond).
True: they are usually added as sweeteners to bonds
what is the longest duration for a warrant?
perpetual (indefinite)
May a warrant be detached and traded separately?
Yes
Rights are a ______-term instrument allowing holders to buy additional shares at a discounted price.
short
What is the advantage of existing stockholders receive through tradings rights offerings?
The ability to maintain their percentage of ownership (to avoid ownership dilution), and buy additional shares at a discount.
Existing shareholders receive _______right for every one share owned.
one
Name two priorities that preferred stock has over common stock.
order of liquidation and dividends.
$______is normally the par value for preferred stock.
$100
describe cumilative preferred stock.
first to receive dividends even if stock has been in arrears.
True or False: Convertible preferred stock may be converted into a bond.
False: it may only be converted to common stock.
The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________
The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)
What is the proper order order of liquidation for a corporation at bankruptcy?
Unpaid workers, IRS, secured creditors, unsecured creditors, preferred, and then common.
Bondholders are also referred to as ____________.
Creditors
$____is the par value for bonds
$1,000
Calculate the price of a Corporate bond quoted at 98 and 3/4.
987.50
A bond trading at a price below par is a __________ bond.
discount
A bond trading at a price of $1,000 is a ______ bond.
Par
A bond trading at a price above par is a ____________ bond.
Premium
What are two synonymous terms for a bond’s interest rate?
Coupon Rate; Nominal Yield
A bond with an 8% coupon rate would pay how much interest a year?
$80, par X rate (1,000 X 8%)
Bond interest is stated _______ and paid _________.
annually, semi-annually
what is the formula for calculating current yield?
Annual Interest + Current Market Price
What does yield-to-maturity (YTM) take into account that current yield does not?
Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money
When discussing a bond, the YTM may also be referred to as _______.
Basis
what is the highest credit rating?
AAA for Standard and Poors, Aaa for Moodys
True or False: When interest rates go up, bonds prices go up, and when interest rates go down, bond prices go down.
False. There is an inverse relationship between interest rates and prices.
Given a yield change, ____________ bonds move more in price.
Given a yield change, long-term bonds move more in price (lower coupon or longer duration are also correct.)
Define real interest rate (real rate of return).
Interest rate minus the inflation rate (e.g., Bond yielding 8% when inflation is 3% has a real interest rate of 5%).
Which interest rates are generally more volatile?
Short-term rates
A type of maturity where all bonds mature on one specific date is called a _______ bond.
Term
What is the maturity type where a portion of principal is retired each year?
Serial Bond
What does one basis point represent as a percentage?
.01% (one one-hundredth of one percent.)
How do investors holding bearer bonds receive interest?
By clipping the attached coupons
How do investors receive interest on fully registered bonds?
Interest is mailed to the owner of record
The term ____________ refers to the form of issuance where there are no physical certificates delivered.
Book Entry
True or False: Investors may exercise a bond’s call privilege any time after issuance.
False. Only issuers may exercise the call privilege after the call protection period has passed.
The __________________ represents the amount above par that issuers pay to redeem bonds early.
Call Premuim
Describe call protection.
The number of years after issuance during which bonds may not be called by the issuer
May bonds be called early due to an event which destroys the source of revenue backing the bond?
Yes, when using a catastrophe call. Disasters etc. usually callable at par.
____________ refers to a situation where an issuer sells a new bond to pay off the debt of an old bond.
refunding
Refunding would most likely occur when interest rates have _________.
fallen
Into what does an issuer periodically set aside money for retiring debt?
Sinking Fund
True or False: Bonds with call features have higher yields, while bonds with put features have lower yields.
True
The type of bond where bondholders have a lien on real property is called a __________________.
mortgage bond
What are some examples of rolling stock (real things) used to back a bond offering?
Airplanes, trucks, railroad cars
A bond backed by machinery or rolling stock is called a(n) ______________________.
Equipment Trust Bond
True or False: Collateral Trust Bonds are backed by the stock of the issuing corporation.
False. The stock pledged must be that of a separate company.
Are debentures considered secured or unsecured?
Unsecured. They are backed only by the issuer’s full faith and credit.
Is an income bond appropriate for a client who desires income?
No. Income (adjustment) bonds will only pay interest if the issuer has sufficient income.
If a bond is referred to as trading flat, this means it trades ___________________________.
without accrued interest
The formula for finding conversion ratio is: ______ ÷ ____________
The formula for finding conversion ratio is: Par ÷ Conversion Price (par for a bond is $1,000)
What is forced conversion?
An issuer calls bonds at a point where the stock is worth more than the bond’s call price.
Name some of the advantages of buying convertible bonds.
Consistent interest payments, appreciation if stock rises, downside protection if stock falls (since it’s still a bond).
A corporation that issues convertible bonds is borrowing money at a _______ rate.
A corporation that issues convertible bonds is borrowing money at a lower rate (convertibles pay lower interest rates).
Accrued interest on corporate bonds is calculated using _____ days in the month and ______ days in the year.
30, 360
True or False: Interest paid on corporate bonds is entirely tax-exempt.
False. Corporate bond interest is taxed at the federal, state, and local level.
What are Eurodollar bonds?
Dollar-denominated bonds issued outside the U.S.
T-Bills are issued in maturities of: ____ week, ____ week, ____ week, and ____ week
T-Bills are issued in maturities of: 4 week, 13 week, 26 week, and 52 week
The minimum face value of a T-Bill, T-Note or T-Bond is $______.
$100
True or False: T-Bills are quoted on a dollar basis.
False. T-Bills are quoted on a discount yield basis.
The following would be a quote for what security? Bid 4.26 Asked 4.22
Treasury Bill
What is the maturity range of a T-Note?
2 to 10 years
What is the maturity range of a T-Bond?
More than 10 years
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in ______.
32nds
What does ownership of a GNMA pass-through certificate represent?
An undivided interest in a pool of residential mortgages
How often do GNMA pass-throughs make payments?
GNMA pass-throughs make payments monthly.
Each payment from GNMA will represent both ____________ and ____________.
Principle, Interest
______ is the mortgage-backed agency that is fully backed by the U.S. Government.
Government National Mortgage Association (GNMA, “Ginnie May”)
With Collateralized Mortgage Obligations (CMOs), the term ____________ represents separate bond classes.
tranche
what are T-STRIPS?
Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons
Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?
The discount must be accreted each year.
What are TIPS?
Treasury Inflation-Protected Securities
The principal value of TIPS may be adjusted based on changes to the __________________________.
Consumer Price Index (CPI)
Money-market securities have a maturity of __________________.
one year or less
Name some of the different types of money-market instruments.
T-Bills, Bankers’ Acceptances (BAs), Commercial Paper, Negotiable CDs
Negotiable CDs (also called Jumbo CDs) have a minimum denomination of $__________.
$100,000
General Obligation (GO) bonds are backed by the issuer’s ________________________ and their ability to levy _______.
Full faith and credit, taxes
By what types of taxes are state general obligation bonds backed?
Income, sales, or gasoline tax, but also licensing fees and fines.
Local general obligation bonds are backed by what type of tax?
Property tax (e.g., school district bonds)
When analyzing GO bonds, what are some important considerations?
Property values, per capita income and debt, population, current debt, tax collection, unfunded pension liabilities
Revenue bonds are backed by ___________________ generated by ________________________.
specific Revenue (user fees), Project or facility
A __________________ is a revenue bond backed by one specific tax.
A special tax bond is a revenue bond backed by a specific tax (e.g., bonds issued for highway repair backed by gas tax)
A bond backed by a charge to benefiting property owners is called a __________________________.
special assessment bond (e.g., water/sewer system).
What bond would be issued to build a facility for a private company?
Industrial Development Revenue (IDR) bond
True or False: The credit rating of an IDR is based on the credit of the municipality.
False. The rating is based on the corporation making the lease payments.
What are some examples of tax-free money-market instruments?
Municipal notes and tax-exempt commercial paper
The maximum maturity of commercial paper is ____ days.
270
Municipal bond interest is exempt from __________ tax.
federal
What condition must exist for a municipal bond’s interest to be exempt at the state and local level?
Investors must buy the bond from the state in which they reside.
Who may issue bonds that offer interest that is triple tax-exempt?
Commonwealths, territories, and possessions (e.g., Puerto Rico)
The formula for taxable equivalent yield is: __________ ÷ (________ - ________)
The formula for taxable equivalent yield is: Tax-Free Yield ÷ (100% - Tax Bracket %)
The formula for net (after-tax) yield is: __________ x (________- ________)
The formula for net (after-tax) yield is: Taxable Yield x (100% - Tax Bracket %)
Accrued interest on municipal bonds is calculated using ____ days in the month and _____ days in the year.
Accrued interest on municipal bonds is calculated using 30 days in the month and 360 days in the year
______________________ bonds would most likely require voter approval.
General Obligation (GO)
When warrants are attached to bonds, will the issuers pay a higher or lower rate of interest?
Lower, due to the added opportunity
___________ is the settlement for cash transactions (also referred to as cash trades or cash settlement).
Same day
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD
An investor’s strategy is __________ when effecting a short sale.
An investor’s strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).
What type of order gives discretion as to price and time of execution?
Not Held
Which market is the decentralized, negotiated market?
The over-the-counter market (OTC)
The _________________________ regulates margin requirements.
Federal Reserve Board (FRB)
True or False: Nasdaq is a securities exchange registered with the SEC.
True
How is a firm acting if it is trading for, or from, its own inventory?
As a principal / dealer
To what is a firm entitled when acting in the capacity of a principal or dealer?
Markup when selling to a customer and markdown when buying from a customer
How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?
Agent or broker
Firms acting in the capacity of a broker will collect a ____________.
commission.
The _____________________ has the authority to regulate margin requirements.
Federal Reserve Board (FRB)
Equity options have a contract size of _____ shares.
100
Calls and puts are the two ________ of options.
types
The maximum loss for an option buyer is the ____________.
Premium
The maximum gain for an option seller is the ____________.
premium
What funds are similar to an index fund, but trade in the secondary market like stock?
Exchange-Traded Funds (ETFs)
True or False: ETFs are marginable and may be sold short.
True
What is a REIT?
Real Estate Investment Trust
How is interest on municipal bonds treated for tax purposes?
Federally tax-exempt, but may be subject to state and local tax
Interest paid on bonds issued by U.S. territories or possessions is ___________________.
triple-tax-exempt
What is a major advantage to investing in a bond issued by the Commonwealth of Puerto Rico?
Triple-tax-exempt interest
______ is the measure of an asset’s volatility compared to the market as a whole.
Beta
What is the beta of the market (S&P 500)?
1
To find a stock’s current yield, the formula is: ____________ ÷ ____________
To find a stock’s current yield, the formula is: Annual Dividend ÷ Current Market Price
Does the FRB control monetary or fiscal policy?
Monetary
What elements are influenced when implementing fiscal policy?
Taxes and expenditures
True or False: Government intervention is believed to assist in implementing monetary policy.
False. Fiscal (Keynesian) policy requires government intervention.
The FRB will ______ securities to increase the money supply and ease credit.
buy
The FRB will ______ securities to decrease the money supply and tighten credit.
sell
The __________ rate is the only rate directly controlled by the FRB.
discount
If a member bank needs to borrow funds from the FRB, what rate will it be charged?
Discount rate
There would be an easing of the money supply if the discount rate is __________.
lowered
There would be a tightening of the money supply if the discount rate is __________.
raised.
__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
Reserve
What is the effect of lowering the minimum reserve requirement?
It increases the money supply and eases credit.
What is the effect of raising the minimum reserve requirement?
t decreases the money supply and tightens credit.
What is the least effective tool available to the FRB?
Margin requirements (Reg T)
The __________________ is the rate of interest banks charge each other on overnight loans.
fed funds rate
