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My Series 7 > Weak Spots > Flashcards

Weak Spots Flashcards

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Series 7 Top-off Exam flashcards
1
Q

What are the features of a CMO?

A

Available in $1,000 denominations
Quoted in 32nds
Contain tranches with different levels of risk and maturities.
Portfolio of gnma fnma or fhlmc mortgage backed pass throughs.

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2
Q

Inverted yield curve

A

Long term prices are more volatile than short term prices. Long term bond prices always move faster than short term.

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3
Q

Zero coupon bond

A

Pays all dividends and interest at maturity.
If called prior to maturity it’s called at the current accreted value plus any call premium specified in the bond contract.

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4
Q

Reinvestment risk

A

Risk that dividends interest and principal revives from securities can only be invested at lower rate of return than previously earned. Basically interest rate risk

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5
Q

Interest rate risk

A

The risk of interest rates will increase resulting in lower bond prices

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6
Q

Credit risk

A

The risk that the issuer of a bond will default in interest and principal payments

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7
Q

Market risk/ systematic risk

A

The risk that a decline in the overall market will adversely affect the value of a portfolio.

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8
Q

Call risk

A

The risk an issuer will call outstanding bond or preferred stock in periods of falling interest rates.

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9
Q

Capital risk

A

The risk that an investment depreciates and the investment can only be sold at a loss

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10
Q

Legislative risk

A

The risk that new laws/ tax laws will result in the decline in value of a security.
Aka regulatory risk
Considered for tax advantaged investments like municipals and dpp’s.
Cannot be diversified away whereas all other risks can

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11
Q

Level debt service

A

The issuer pays the same amount each year with the funds being used to pay interest and principal on the issue.
Principal repayments increase as the years progress and interest amounts decrease.

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12
Q

Parity price

A

Take the stocks market price and multiply by the conversion ratio.

Stock selling at $30 is convertible at a 32:1 ratio would be at parity=$960

30x32=960

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13
Q

Nominal yield

A

Annual interest /par

Will remain unchanged as bond prices rise and fall

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14
Q

Current yield

A

Annual dividend/ mkt price

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15
Q

Revenue bond

A

Issued by municipality to build revenue producing facility; toll roads, bridges, sport arenas or hospitals.

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16
Q

GO Bond

A

Municipalities issue backed by their full faith and credit and taxing power. For cities and towns interest and principal paid from ad valorem taxes

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17
Q

Trust indenture act of 1939

A

Protects holders of non-exempt bond issues from issuer misconduct

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18
Q

What affects the marketability of corporate bonds?

A

Bond rating
Maturity
Block size

19
Q

What is treasury stock?

A

Issued stock - outstanding stock

20
Q

Reg NMS

A

Requires all market centers to electronically link and provide automated execution at the best price of all markets within 1 second for executable orders.
Requires markets have procedures in place to prevent trade throughs

21
Q

Life annuity

A

Shorter expected period offers higher payout

Will provide the largest amount of annuity payment options

22
Q

If TIPS are adjusted upwards due to inflation then:

A

The adjustment amount is taxable in that year as interest income received

23
Q

What does SLD mean if shown on the network tape?

A

The shares were traded at that price but out of sequence or late

24
Q

What is the effect of a stock dividend being paid?

A

The investor gets more shares with each share worth proportionately less. Number of shares is increased while the cost is reduced accordingly.

25
Q

Which trade “and interest”

A

Treasury notes
Treasury bonds
Municipal bonds

26
Q

Outstanding stock is:

A

Issued stock - treasury stock

27
Q

The effective fed funds rate is:

A

Averaged rate of member banks throughout the United States

28
Q

What is an annuity unit?

A

An accounting measure upon which the amount of pay is determined

29
Q

Where are futures contracts traded?

A

CBOT

30
Q

Which tool of the federal reserve has the biggest impact on money supply levels?

A 
Reserve requirements.
Remember:
D
O
R
M

Discount rate, open market operations, reserve requirements, and margin requirements

31
Q

Who bears the risk in a variable annuity?

A

The contract holder

32
Q

The collateral backing of CMOS consist of:

A

Mortgage backed securities created by a bank issuer

33
Q

Term bonds

A

Quoted on a dollar basis - may have a bid/ask price

Serial bonds and short term notes are quoted on a yield basis.

34
Q

Dual listed stock

A

Listed on more than one exchange and any exchange is a first market.
Dual listed in third and fourth markets doesn’t exist

35
Q

A saucer formation is

A

A bullish strategy since the market has bottomed out and is now moving back up

36
Q

Which bonds trade flat?

A

Defaulted bonds
Adjustment bonds
Income bonds

Reset bonds do not trade flat they make regular semi annual interest payments

37
Q

Under reg crowdfunding what are the terms?

A

Maximum investment of $100,000

Maximum offering of 1MM

38
Q

How to tell when an account will be at margin maintenance

A

Divide the debit by 75% since 25% is minimum margin in a long margin account

39
Q

FINRA is required to be notified when:

A

A written customer complaint is received about a rep misappropriating funds
A RR is arrested for assault and battery
A RR is indicted under the acot of 1934 for insider trading

40
Q

Nasdaq level 1 shows

A

Lowest offer and highest bid

41
Q

What is supple side theory?

A

Belief that the economy will be stimulated by tax rate reductions.
If individuals are given the incentive to produce they will grow the economy by reducing government spending and tax collections to make this possible

42
Q

How are foreign government bonds taxed?

A

Interest is tAxable in the year received

Capital gains are taxable in the year realized

43
Q

What is passive portfolio management?

A

Managing a portfolio to meet the performance of a benchmark portfolio

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