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195 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What security is an example of a collateralized time draft |
Bankers' acceptances |
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The max loss when purchasing an option is |
The premium |
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Industrial development revenue bonds are backed by |
The corporate guarantor |
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The SRO minimum maintenance requirement for a short position is |
30% of the market value |
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The formula for intrinsic value equals |
Strike price-the market value
SP-MK= IV |
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The formula for time value is |
Premium- intrinsic value= time value
P-IV=TV |
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The Dow jones composite index is comprised of |
30 industrial stocks 20 transportation stocks 15 utility stocks |
U T I |
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A brokers broker is a primary source for a quote in |
The secondary market |
It's a publication |
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When purchasing a straddle, an investors max profit is |
Unlimited
A long straddle is when you purchase both a call and a put with the same expiration and strike price... Since it involves purchasing a call there is an unlimited profit potential |
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TRACE |
Corporate bonds! |
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Knowing a clients tax bracket is particularly useful when evaluating the suitability of which type of investment |
Municipal bonds |
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Under the "know your customer rule" when a rep opens an account they should find out what about the client |
Objectives Financial condition and needs Ability to assume risk |
OFA |
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Young people should want to invest in ____ and older people should want to invest in_____ |
Stocks, bonds.... Young people fear a rise in inflation which could directly impact bonds.
When interest rates rise---the value of bonds go down. |
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What is a moral obligation bond? |
Muni revenue bonds that are payable by the state from revenues of the project
do not satisfy debt service payments |
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Two characteristics of long term CDs are.. |
They may be callable Investors may be subject to interest rate risk |
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Purchasing a call (or put) and the sale of a call (or put) of the same security with different strike prices is called a |
Vertical spread |
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Purchasing a call (or put) and the sale of a call (or put) of the same security with different strike prices is called a |
Vertical spread |
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The purchase of a call or put and the sale of a call or put with the same strikes but different expirations is called a...
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Horizontal spread |
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The minimum denomination for negotiable CDs is... |
100,000 |
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What type of risk do zero coupon bonds eliminate ?? |
Reinvestment risk |
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If the yield to maturity (basis) is greater than the nominal yield (coupon rate) the bond is selling .. |
At a discount |
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When interest rate fall, existing bond prices... |
Rise |
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When a bond is called, the bond holder receives the... |
Call price plus accrued interest |
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Defensive stocks are stocks that |
Is not drastically affected by a downturn in the economy
Ex: food companies, tobacco, clothing
An ex. That is not a defensive stock would be a construction company |
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457 plans |
Local government workers |
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457 plans |
Local government workers |
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403(b) plans |
People who work in not for profit organizations |
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457 plans |
Local government workers |
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403(b) plans |
People who work in not for profit organizations |
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401(k) |
People who work in for profit organizations |
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An accumulation unit in a variable annuity contract is |
An accounting measure used to determine the contract owners interest in the separate account |
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When looking at an option spread, the strike prices relate to |
Intrinsic value |
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When looking at an options spread, to determine which premium is larger you have to look at... |
The expiration months... Whichever one has a longer time until expiration, that one will have the higher premium.
Ex: Buy 1 ABC dec 60 call Sell 1 ABC Nov 60 call
Since the buy expires later than the sell, the buy would have a higher premium. Therefore, if you pay more than you receive you have engaged in a debit spread. Widen goes with debit. |
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When looking at a put spread, whichever strike price is higher would mean what? |
It would mean that the premium is therefore higher. Which will lead you to determine if it is a credit or debit spread.
Ex: buy 1 GHI Nov 65 put Sell 1 GHI Nov 55 put
Since the buy has a higher strike price, the premium is going to be higher, resulting in a debit spread since you'd be paying more than you are receiving |
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A short straddle consists of |
Short call and a short put, with the same strikes and expiration months |
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A bearish spread always involves... |
Buying the higher strike price and selling the lower strike price
Ex: Sell 1 ABC July 50 put Buy 1 abc July 60 put
Because we are buying the put with the higher strike price, it is a bearish spread |
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A short straddle consists of |
Short call and a short put, with the same strikes and expiration months |
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A bearish spread always involves... |
Buying the higher strike price and selling the lower strike price
Ex: Sell 1 ABC July 50 put Buy 1 abc July 60 put
Because we are buying the put with the higher strike price, it is a bearish spread |
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A bull spread always involves |
Buying the lower strike price and selling the higher strike price.
Ex: Sell 1 ABC July 60 put Buy 1 ABC July 50 put
Because we are buying the lower strike and selling the higher strike it's is a bull spread.
This applies to calls and puts |
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A bearish spread always involves... |
Buying the higher strike price and selling the lower strike price
Ex: Sell 1 ABC July 50 put Buy 1 abc July 60 put
Because we are buying the put with the higher strike price, it is a bearish spread
This applies to both calls and puts |
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A bearish spread always involves... |
Buying the higher strike price and selling the lower strike price
Ex: Sell 1 ABC July 50 put Buy 1 abc July 60 put
Because we are buying the put with the higher strike price, it is a bearish spread
This applies to both calls and puts |
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Long straddle consist of |
Buying a put and call at the same exercise price and same expiration |
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A short combination involves.. |
Selling a call and a put on the same security with different strikes or different expiration dates. |
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A buyer of a combination expects |
The market of the security of be volatile |
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A buyer of a combination expects |
The market of the security of be volatile |
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The seller of a combination expects |
The security to remain stable (the price of the security to remain stable) |
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The max loss for a debit spread is |
The net premium |
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When purchasing a straddle, the investors max profit is |
Unlimited, long straddle consists of buying both a call and put with the same expiration and strike, since it involves purchasing a call, the max profit is unlimited |
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The buyer of a straddle expects |
That market price of the stock to be volatile (fluctuate) |
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The buyer of a straddle expects |
That market price of the stock to be volatile (fluctuate) |
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The seller of a straddle expects |
The stocks price to remain stable |
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Stock splits are approved by |
A corporations shareholders |
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Formula for outstanding stock |
Issued stock-treasury stock |
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To calculate dividend yield |
Divide the annual dividend by the current market price
Annual dividend/current market price |
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Variable annuities |
Give the investor a variable return based on the value of the securities in the separate account |
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The federal intermediate credit bank (FICB) makes |
Agricultural loans to farmers |
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Securities act of 1934 created |
The SEC and provided for the regulation of credit and exchanges. |
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Securities act of 1934 created |
The SEC and provided for the regulation of credit and exchanges. |
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Securities act of 1933 |
Provided for the regulation of new issues |
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Yield to maturity is the same as |
Basis |
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Treasury bonds are quoted in |
32nds of a point |
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Corporate bonds are issued in |
1/8th of a point |
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Treasury notes have the least |
Credit risk |
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Current yield = |
Annual interest divided by the current market price |
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Nominal yield = |
Coupon rate |
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What method would be used to call term bonds? |
Random selection |
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Term bonds are also known as |
Dollar bonds |
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When a bond is registered as to principal only... |
The bond has been issued in the name of the owner with bearer coupons attached |
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Securities with the longest maturities will most likely have the greatest price increase when |
Interest rates decline |
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Lower grade bonds are______ compared to higher grade bonds |
Riskier |
L&R |
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Lower grade bonds are______ compared to higher grade bonds |
Riskier |
L&R |
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Lower grade bonds have |
Higher yields and lower market prices |
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Long term bonds generally have |
Higher yields than short term bonds |
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The notice of offering for a rule 144 sale is valid for |
90 days |
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Examples of regressive taxes are |
Sales taxes and gasoline taxes |
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The OCC assigns exercise notices on a |
Random selection basis only |
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Distributions from a pension plan are |
Taxable |
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The bond buyer revenue bond index is
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30 year index
25 bond index |
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Utility companies usually have |
A high dividend payout and low percentage of retained earnings |
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CMOs have what type of risk? |
Prepayment risk |
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Inverse exchange traded funds (ETFs) |
Are designed to deliver the opposite of the performance of an index or other benchmark |
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The 5% markup policy applies to |
Non exempt securities |
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Reinstating a position within 30 days of realizing a loss is a violation of what rule? |
Wash sale rule |
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What type of shareholders are permitted to participate in a rights offering? Which are not? |
Common stock shareholders are allowed, preferred stock holders are not allowed |
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Market momentum is used to describe a situation in which prices of stock are moving |
In a certain direction (up or down) with a high level of trading volume |
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Interest payments for CMOs are usually given out_____ and are___ |
Monthly, taxable |
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Treasury notes are subject to____ taxes but exempt from ____ taxes |
Federal, exempt from state |
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Treasury bills and bankers acceptances generally sell at a |
Discount |
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T bills are also known as |
Discount securities and non-interest bearing securities |
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CMOs with the higher interest rate will have a higher... |
Prepayment risk |
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A treasury STRIP is a type of ____ bond |
Zero coupon bond |
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Sinking fund |
Redeem bonds |
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Regulation AC does not apply to |
Issuers |
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When interest rates go up existing bond prices |
Go down |
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New issues can become marginable after how long? |
30 days from the effective date |
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Institutional communications do not need |
Does not need to be filed with finra Does not need to be reviewed by anyone |
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The SRO minimum maintenance requirement for a long position is |
25% of market value |
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Moody's highest rating is ____ and lowest rating is ____ |
1 and 3 |
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Yankee bonds |
Foreign bonds that trade in US markets |
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Stock split |
Creates more shares and makes the price of the stock decrease, making it more marketable |
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Stock split |
Creates more shares and makes the price of the stock decrease, making it more marketable |
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Reverse stock split |
Creates smaller number of shares and the stock prices goes up
Less shares higher price |
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Income stocks |
Stocks of companies that pay higher than average returns |
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Income stocks |
Stocks of companies that pay higher than average returns |
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Cyclical stocks |
Stocks of companies who's earnings fluctuate with the business cycle |
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A "No-Load" fund is when |
The bid and the ask prices are the same |
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Accelerated depreciation is when earnings are |
Understated in the early years and over stated in the later years |
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Repos and reverse repos are typically |
Short term |
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If the dealer is borrowing funds and the customer is lending funds it is a________ |
Repo |
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If the customer is borrowing funds and the dealer is lending the funds it is a ________ |
Reverse repo |
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Name 3 activities that take place during the cooling off period |
Blue sky Due diligence Red herring |
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An inverse ETN (exchange traded note) would be suitable for a person interested in what type of trading? |
Short term trading |
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Closing spot prices for foreign currencies are disseminated daily by the |
Federal reserve board (FRB) |
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Stock issued by a foreign company that earns income in the US will most likely be subject to |
Foreign tax withholding |
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Major provisions oF ERISA provide protection for |
Private sector employees against improper investments by their employer |
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The breakeven point for a short seller who writes a put is the |
Market price of the short sale plus the premium |
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Transportation stocks are what type of stocks |
Cyclical |
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OIDs (original issue discount) securities are subject to ______ tax but exempt from _____ tax |
Subject to federal, exempt from state |
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The auction process for 4week treasury bills are |
Auctioned each week on a Tuesday |
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Limited partner lends money to a partnership, the limited partner will |
Become a general creditor... Limited partners are allowed to lend money to the partnership |
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Through municipal bond purchases investors receive |
Tax free income |
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Depletion relates to |
Oil and gas.. Natural resources only |
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Both restricted and control stock are subject to |
The volume limitations under rule 144 |
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Both restricted and control stock are subject to |
The volume limitations under rule 144 |
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Control stock is stock |
That is registered and purchases by insiders |
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Treasury stock is treated as |
A deduction from outstanding shares |
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ETNs typically do not make _____ payments to investors |
Interest payments |
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In an underwriting of a new issue, the underwriting spread is _____ than the selling concession |
Larger |
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With respect to limited partnerships and DPPs, tax credits will _______ a customers taxes directly and tax deductions will _______ a customers taxable income |
Reduce |
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Interest on an out of state municipal security Is subject to _______ and ______ tax and exempt from ______ tax |
State and local..... Exempt from federal |
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When the proceeds from the sale of one stock are used to purchase another stock from the same broker dealer.... The transaction is called a ______ |
Proceeds transaction |
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The maximum loss an investor may write off against ordinary income in one tax year is ______ |
$3,000 |
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I municipal bearer bond does not require _______ by the owner |
Signature (endorsement) |
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For mutual fund purchases, a letter of intent can be back dated up to _____ days |
90 days |
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The sale of securities in the open market by the FRB results in a ______ in the money supply |
Decrease |
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Under a floating rate system, currency values are established by |
Supply and demand for the currency |
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Under a fixed rate system, currency values ______ fluctuate |
Will not |
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On a muni bond confirmation, whether or not the bond was subject to ______ income tax would not be found. |
State |
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On a muni bond confirmation, whether or not the bond was subject to ______ income tax would not be found. |
State |
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Corporations may exclude a portion of dividends received from ______ investments |
Equity |
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In order for a 1035 exchange to be considered appropriate, the individual must_____ from the new contract. |
Benefit |
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In order for a 1035 exchange to be considered appropriate, the individual must_____ from the new contract. |
Benefit |
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1035 exchanges made within ____ months of a previous exchange are considered _____ |
36 months, inappropriate |
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The largest portion of the underwriting spread in a new municipal securities issue is the |
Total takedown |
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What is standard and poor's (S&P) best rating for a municipal note? For bonds? |
Municipal notes--- SP-1 Bonds- AAA |
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A major disadvantage to a limited partner in a DPP is lack of _______ |
Lack of liquidity |
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In a non-discretionary account, the rep can decide the ____ and _____ of the execution. Nothing else |
Time and price |
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Short interest and trading volume are ______ indicators |
Technical |
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Short interest and trading volume are ______ indicators |
Technical |
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EPS and the P/E ratio are _______ indicators |
Fundamental |
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All retail communication concerning options must be _____ by a ROP |
Approved |
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Fast market refers to |
Volatile prices and imbalance of orders |
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According to MSRB rules, a municipal securities rep is NOT permitted to |
Supervise a branch office |
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REITs allow flow through of ______
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Losses
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When an account is frozen, the customer must have in the account______ |
The required monies or securities to complete a transaction |
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Bond buyers 30 day visible supply includes |
Competitive and negotiated muni bond issues |
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What is the maximum amount a customer may withdraw from an SMA account? |
100% |
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Hedge funds |
Leverage |
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Warrants are _____ term |
Long term |
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Capital asset pricing model
CAPM |
Theory that concludes that investors are rewarded for taking systematic risk... Risk that the market will decline
Higher the risk higher the reward |
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A municipal bond is expected to be delivered with legal opinion unless the bond is identified as ___________. At the time of purchase |
Ex legal |
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The modified accelerated cost recovery system is used when |
Depreciating machinery |
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SEP IRAs do not allow the employee to do what? |
Make contributions |
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Foreign currency spot transactions usually settle in |
Two business days |
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The underwriting syndicate makes a ________ commitment in the distribution of a new issue |
Financial |
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Eurodollars are |
U.S. Dollars on deposit in foreign banks |
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A private activity bond is a type of muni bond in which the funds being raised will be used to _________ a _______company |
Benefit, private |
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A discount bond should always be priced to |
Maturity |
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FOMC buys and sells which security the most? |
T bills |
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Rising inflation ______ effects the bond and stock market |
Negatively |
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BABs are _____ taxable |
Federally |
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Income, estate, and gift taxes are |
Progressive and graduated |
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Generally an annuity should only be considered after a client does what? |
Contributed max amount to 401k or any other employee sponsored program |
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The FRB does NOT ______ securities |
Issue |
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An underwriter can stabilize a new issue _____ or _______ the offering price |
At or below |
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Municipality's official statement include |
Project feasibility and financial statements |
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A gain or loss on a short sale is typically treated as a______ capital gain or loss |
Short term |
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Revenue bonds are considered _______ than GO bonds |
Riskier |
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Municipal notes are used for _______ financing |
Interim |
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Investment banking department does not make a ______ market for new issues |
Seccondary |
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Equity indexes annuities are not suitable for ______ citizens |
Senior |
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Brokered CDs are _______ by the FDIC and ______ by SIPC |
Insured and covered |
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CMOs and options are what types of securities |
Derivative |
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FNMA bonds are _____ backed by the U.S. Government |
Not backed |
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Equity for short account is credit balance -???? |
SMV |
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Group order |
All members benefit |
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Two main functions of investment banking department |
Working with issuers to raise capital
Assuring companies with mergers and acquisitions |
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Minimum equity requirement for a pattern day trader is |
$25,000 |
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Equity in combined margin account can be found by |
LMV+ CR -DR -SMV |
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If a client is long and short an equal number of shares of the same security the maintenance requirement is equal to |
5% of the LMV |
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Equity for short account is credit balance -???? |
SMV |
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Position limit means what when referring to options |
Prohibits an investor from being on the same side of the market with the same security
Example: buy abc put Sell abc call
Same security and both want the stock to go down |
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Debt to equity ratio and current ratio |
Balance sheet |
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Operating profit margin and bond coverage |
Income statement |
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Equity indexed annuity is not considered a _____ |
Security |
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