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Series 6 > Vocab > Flashcards

Vocab Flashcards

1
Q

________ stock is stock that was issued and repurchased by the issuing corporation.

A

Treasury

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2
Q

True or False: Treasury stock has no voting rights and receives no dividends.

A

True

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3
Q

Issued stock - Treasury Stock= __________

A

Outstanding Stock

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4
Q

The _______ date is the date by which stock must be owned to receive the dividend.

A

record

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5
Q

The ex-dividend date occurs _______ business days ________ the record date.

A

2, before

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6
Q

Who are considered the owners of a corperation

A

common and preferred stockholders (holders of equity)

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7
Q

True or False: all owners have a right to vote.

A

False: only common shareholders may vote

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8
Q

Name Two issues on which common stockholders can vote.

A

Appointments to the Board of directors, stock splits,

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9
Q

What voting method permits one vote for each share owned to be voted for each director?

A

Statutory

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10
Q

This voting method allows stockholders to multiply the number of shares owned by the number of directorships.

A

Cumulative

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11
Q

True or False: Cumulative voting benefits smaller shareholders since they can concentrate votes for a specific director.

A

True, however it does not guarantee them representation on the board.

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12
Q

________ stock fluctuates with the business cycle

A

Cyclical (ex. Auto Makers)

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13
Q

_________ stock pays higher than average dividends.

A

income (Utility Companies)

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14
Q

_____ stock is resistant to recession.

A

defensive (health care, utilities, etc)

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15
Q

What Instruments are used to facilitate trading of foreign securities in the United States?

A

American Depository Receipts (ADR)

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16
Q

Warrants are a ______-term right to buy a stock at a preset price

A

Long

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17
Q

True or False: Warrants are generally attached to the delivery of another security (stock or bond).

A

True: they are usually added as sweeteners to bonds

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18
Q

what is the longest duration for a warrant?

A

perpetual (indefinite)

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19
Q

May a warrant be detached and traded separately?

A

Yes

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20
Q

Rights are a ______-term instrument allowing holders to buy additional shares at a discounted price.

A

short

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21
Q

What is the advantage of existing stockholders receive through tradings rights offerings?

A

The ability to maintain their percentage of ownership (to avoid ownership dilution), and buy additional shares at a discount.

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22
Q

Existing shareholders receive _______right for every one share owned.

A

one

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23
Q

Name two priorities that preferred stock has over common stock.

A

order of liquidation and dividends.

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24
Q

$______is normally the par value for preferred stock.

A

$100

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25
Q

describe cumilative preferred stock.

A

first to receive dividends even if stock has been in arrears.

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26
Q

True or False: Convertible preferred stock may be converted into a bond.

A

False: it may only be converted to common stock.

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27
Q

The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________

A

The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)

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28
Q

What is the proper order order of liquidation for a corporation at bankruptcy?

A

Unpaid workers, IRS, secured creditors, unsecured creditors, preferred, and then common.

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29
Q

Bondholders are also referred to as ____________.

A

Creditors

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30
Q

$____is the par value for bonds

A

$1,000

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31
Q

Calculate the price of a Corporate bond quoted at 98 and 3/4.

A

987.50

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32
Q

A bond trading at a price below par is a __________ bond.

A

discount

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33
Q

A bond trading at a price of $1,000 is a ______ bond.

A

Par

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34
Q

A bond trading at a price above par is a ____________ bond.

A

Premium

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35
Q

What are two synonymous terms for a bond’s interest rate?

A

Coupon Rate; Nominal Yield

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36
Q

A bond with an 8% coupon rate would pay how much interest a year?

A

$80, par X rate (1,000 X 8%)

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37
Q

Bond interest is stated _______ and paid _________.

A

annually, semi-annually

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38
Q

what is the formula for calculating current yield?

A

Annual Interest + Current Market Price

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39
Q

What does yield-to-maturity (YTM) take into account that current yield does not?

A

Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money

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40
Q

When discussing a bond, the YTM may also be referred to as _______.

A

Basis

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41
Q

what is the highest credit rating?

A

AAA for Standard and Poors, Aaa for Moodys

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42
Q

True or False: When interest rates go up, bonds prices go up, and when interest rates go down, bond prices go down.

A

False. There is an inverse relationship between interest rates and prices.

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43
Q

Given a yield change, ____________ bonds move more in price.

A

Given a yield change, long-term bonds move more in price (lower coupon or longer duration are also correct.)

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44
Q

Define real interest rate (real rate of return).

A

Interest rate minus the inflation rate (e.g., Bond yielding 8% when inflation is 3% has a real interest rate of 5%).

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45
Q

Which interest rates are generally more volatile?

A

Short-term rates

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46
Q

A type of maturity where all bonds mature on one specific date is called a _______ bond.

A

Term

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47
Q

What is the maturity type where a portion of principal is retired each year?

A

Serial Bond

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48
Q

What does one basis point represent as a percentage?

A

.01% (one one-hundredth of one percent.)

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49
Q

How do investors holding bearer bonds receive interest?

A

By clipping the attached coupons

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50
Q

How do investors receive interest on fully registered bonds?

A

Interest is mailed to the owner of record

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51
Q

The term ____________ refers to the form of issuance where there are no physical certificates delivered.

A

Book Entry

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52
Q

True or False: Investors may exercise a bond’s call privilege any time after issuance.

A

False. Only issuers may exercise the call privilege after the call protection period has passed.

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53
Q

The __________________ represents the amount above par that issuers pay to redeem bonds early.

A

Call Premuim

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54
Q

Describe call protection.

A

The number of years after issuance during which bonds may not be called by the issuer

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55
Q

May bonds be called early due to an event which destroys the source of revenue backing the bond?

A

Yes, when using a catastrophe call. Disasters etc. usually callable at par.

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56
Q

____________ refers to a situation where an issuer sells a new bond to pay off the debt of an old bond.

A

refunding

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57
Q

Refunding would most likely occur when interest rates have _________.

A

fallen

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58
Q

Into what does an issuer periodically set aside money for retiring debt?

A

Sinking Fund

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59
Q

True or False: Bonds with call features have higher yields, while bonds with put features have lower yields.

A

True

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60
Q

The type of bond where bondholders have a lien on real property is called a __________________.

A

mortgage bond

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61
Q

What are some examples of rolling stock (real things) used to back a bond offering?

A

Airplanes, trucks, railroad cars

62
Q

A bond backed by machinery or rolling stock is called a(n) ______________________.

A

Equipment Trust Bond

63
Q

True or False: Collateral Trust Bonds are backed by the stock of the issuing corporation.

A

False. The stock pledged must be that of a separate company.

64
Q

Are debentures considered secured or unsecured?

A

Unsecured. They are backed only by the issuer’s full faith and credit.

65
Q

Is an income bond appropriate for a client who desires income?

A

No. Income (adjustment) bonds will only pay interest if the issuer has sufficient income.

66
Q

If a bond is referred to as trading flat, this means it trades ___________________________.

A

without accrued interest

67
Q

The formula for finding conversion ratio is: ______ ÷ ____________

A

The formula for finding conversion ratio is: Par ÷ Conversion Price (par for a bond is $1,000)

68
Q

What is forced conversion?

A

An issuer calls bonds at a point where the stock is worth more than the bond’s call price.

69
Q

Name some of the advantages of buying convertible bonds.

A

Consistent interest payments, appreciation if stock rises, downside protection if stock falls (since it’s still a bond).

70
Q

A corporation that issues convertible bonds is borrowing money at a _______ rate.

A

A corporation that issues convertible bonds is borrowing money at a lower rate (convertibles pay lower interest rates).

71
Q

Accrued interest on corporate bonds is calculated using _____ days in the month and ______ days in the year.

A

30, 360

72
Q

True or False: Interest paid on corporate bonds is entirely tax-exempt.

A

False. Corporate bond interest is taxed at the federal, state, and local level.

73
Q

What are Eurodollar bonds?

A

Dollar-denominated bonds issued outside the U.S.

74
Q

T-Bills are issued in maturities of: ____ week, ____ week, ____ week, and ____ week

A

T-Bills are issued in maturities of: 4 week, 13 week, 26 week, and 52 week

75
Q

The minimum face value of a T-Bill, T-Note or T-Bond is $______.

A

$100

76
Q

True or False: T-Bills are quoted on a dollar basis.

A

False. T-Bills are quoted on a discount yield basis.

77
Q

The following would be a quote for what security? Bid 4.26 Asked 4.22

A

Treasury Bill

78
Q

What is the maturity range of a T-Note?

A

2 to 10 years

79
Q

What is the maturity range of a T-Bond?

A

More than 10 years

80
Q

Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in ______.

A

32nds

81
Q

What does ownership of a GNMA pass-through certificate represent?

A

An undivided interest in a pool of residential mortgages

82
Q

How often do GNMA pass-throughs make payments?

A

GNMA pass-throughs make payments monthly.

83
Q

Each payment from GNMA will represent both ____________ and ____________.

A

Principle, Interest

84
Q

______ is the mortgage-backed agency that is fully backed by the U.S. Government.

A

Government National Mortgage Association (GNMA, “Ginnie May”)

85
Q

With Collateralized Mortgage Obligations (CMOs), the term ____________ represents separate bond classes.

A

tranche

86
Q

what are T-STRIPS?

A

Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons

87
Q

Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?

A

The discount must be accreted each year.

88
Q

What are TIPS?

A

Treasury Inflation-Protected Securities

89
Q

The principal value of TIPS may be adjusted based on changes to the __________________________.

A

Consumer Price Index (CPI)

90
Q

Money-market securities have a maturity of __________________.

A

one year or less

91
Q

Name some of the different types of money-market instruments.

A

T-Bills, Bankers’ Acceptances (BAs), Commercial Paper, Negotiable CDs

92
Q

Negotiable CDs (also called Jumbo CDs) have a minimum denomination of $__________.

A

$100,000

93
Q

General Obligation (GO) bonds are backed by the issuer’s ________________________ and their ability to levy _______.

A

Full faith and credit, taxes

94
Q

By what types of taxes are state general obligation bonds backed?

A

Income, sales, or gasoline tax, but also licensing fees and fines.

95
Q

Local general obligation bonds are backed by what type of tax?

A

Property tax (e.g., school district bonds)

96
Q

When analyzing GO bonds, what are some important considerations?

A

Property values, per capita income and debt, population, current debt, tax collection, unfunded pension liabilities

97
Q

Revenue bonds are backed by ___________________ generated by ________________________.

A

specific Revenue (user fees), Project or facility

98
Q

A __________________ is a revenue bond backed by one specific tax.

A

A special tax bond is a revenue bond backed by a specific tax (e.g., bonds issued for highway repair backed by gas tax)

99
Q

A bond backed by a charge to benefiting property owners is called a __________________________.

A

special assessment bond (e.g., water/sewer system).

100
Q

What bond would be issued to build a facility for a private company?

A

Industrial Development Revenue (IDR) bond

101
Q

True or False: The credit rating of an IDR is based on the credit of the municipality.

A

False. The rating is based on the corporation making the lease payments.

102
Q

What are some examples of tax-free money-market instruments?

A

Municipal notes and tax-exempt commercial paper

103
Q

The maximum maturity of commercial paper is ____ days.

A

270

104
Q

Municipal bond interest is exempt from __________ tax.

A

federal

105
Q

What condition must exist for a municipal bond’s interest to be exempt at the state and local level?

A

Investors must buy the bond from the state in which they reside.

106
Q

Who may issue bonds that offer interest that is triple tax-exempt?

A

Commonwealths, territories, and possessions (e.g., Puerto Rico)

107
Q

The formula for taxable equivalent yield is: __________ ÷ (________ - ________)

A

The formula for taxable equivalent yield is: Tax-Free Yield ÷ (100% - Tax Bracket %)

108
Q

The formula for net (after-tax) yield is: __________ x (________- ________)

A

The formula for net (after-tax) yield is: Taxable Yield x (100% - Tax Bracket %)

109
Q

Accrued interest on municipal bonds is calculated using ____ days in the month and _____ days in the year.

A

Accrued interest on municipal bonds is calculated using 30 days in the month and 360 days in the year

110
Q

______________________ bonds would most likely require voter approval.

A

General Obligation (GO)

111
Q

When warrants are attached to bonds, will the issuers pay a higher or lower rate of interest?

A

Lower, due to the added opportunity

112
Q

___________ is the settlement for cash transactions (also referred to as cash trades or cash settlement).

A

Same day

113
Q

What does selling short mean?

A

Selling securities that are not owned, but are borrowed from a BD

114
Q

An investor’s strategy is __________ when effecting a short sale.

A

An investor’s strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).

115
Q

What type of order gives discretion as to price and time of execution?

A

Not Held

116
Q

Which market is the decentralized, negotiated market?

A

The over-the-counter market (OTC)

117
Q

The _________________________ regulates margin requirements.

A

Federal Reserve Board (FRB)

118
Q

True or False: Nasdaq is a securities exchange registered with the SEC.

A

True

119
Q

How is a firm acting if it is trading for, or from, its own inventory?

A

As a principal / dealer

120
Q

To what is a firm entitled when acting in the capacity of a principal or dealer?

A

Markup when selling to a customer and markdown when buying from a customer

121
Q

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

A

Agent or broker

122
Q

Firms acting in the capacity of a broker will collect a ____________.

A

commission.

123
Q

The _____________________ has the authority to regulate margin requirements.

A

Federal Reserve Board (FRB)

124
Q

Equity options have a contract size of _____ shares.

A

100

125
Q

Calls and puts are the two ________ of options.

A

types

126
Q

The maximum loss for an option buyer is the ____________.

A

Premium

127
Q

The maximum gain for an option seller is the ____________.

A

premium

128
Q

What funds are similar to an index fund, but trade in the secondary market like stock?

A

Exchange-Traded Funds (ETFs)

129
Q

True or False: ETFs are marginable and may be sold short.

A

True

130
Q

What is a REIT?

A

Real Estate Investment Trust

131
Q

How is interest on municipal bonds treated for tax purposes?

A

Federally tax-exempt, but may be subject to state and local tax

132
Q

Interest paid on bonds issued by U.S. territories or possessions is ___________________.

A

triple-tax-exempt

133
Q

What is a major advantage to investing in a bond issued by the Commonwealth of Puerto Rico?

A

Triple-tax-exempt interest

134
Q

______ is the measure of an asset’s volatility compared to the market as a whole.

A

Beta

135
Q

What is the beta of the market (S&P 500)?

A

1

136
Q

To find a stock’s current yield, the formula is: ____________ ÷ ____________

A

To find a stock’s current yield, the formula is: Annual Dividend ÷ Current Market Price

137
Q

Does the FRB control monetary or fiscal policy?

A

Monetary

138
Q

What elements are influenced when implementing fiscal policy?

A

Taxes and expenditures

139
Q

True or False: Government intervention is believed to assist in implementing monetary policy.

A

False. Fiscal (Keynesian) policy requires government intervention.

140
Q

The FRB will ______ securities to increase the money supply and ease credit.

A

buy

141
Q

The FRB will ______ securities to decrease the money supply and tighten credit.

A

sell

142
Q

The __________ rate is the only rate directly controlled by the FRB.

A

discount

143
Q

If a member bank needs to borrow funds from the FRB, what rate will it be charged?

A

Discount rate

144
Q

There would be an easing of the money supply if the discount rate is __________.

A

lowered

145
Q

There would be a tightening of the money supply if the discount rate is __________.

A

raised.

146
Q

__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.

A

Reserve

147
Q

What is the effect of lowering the minimum reserve requirement?

A

It increases the money supply and eases credit.

148
Q

What is the effect of raising the minimum reserve requirement?

A

t decreases the money supply and tightens credit.

149
Q

What is the least effective tool available to the FRB?

A

Margin requirements (Reg T)

150
Q

The __________________ is the rate of interest banks charge each other on overnight loans.

A

fed funds rate

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