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148 Cards in this Set

  • Front
  • Back
What is treasury stock?
Issued - outstanding
Formula for outstanding shares?
Issued - treasury
What is the purpose of a primary offering?
Raises money
What is the purpose of preemptive rights?
ownership interest
Shareholders vote on?
- issuance of convertible bonds or preferred stock
- board of directors
- voting rights
Max tax rate for qualified dividends?
15%
List four characteristics of Preferred stock:
- Equity security
- no voting/preemptive rights
- trades like a debt sec.
- interest rates go up, pref. stock goes down
What are rights?
- short-term
- only available to existing shareholders
- price below market
What are ADRs?
- Allow American investors to buy stock in foreign companies.
- Quoted in US dollars, in US markets
What are REITS?
Invest in portfolios of operating real estate, provide liquidity.
- 75% of assets are in real estate mortgage paper
What is the formula for current yield?
Current yield = annual dividend / current market price
What are warrants?
Warrants allow investors to buy at a fixed price.
What are bonds?
Money borrowed from investors
What is leveraged financing?
Raising money by issuing bonds
Are US gov't bonds the safest or riskiest?
US gov't bonds are the safest.
Are corporate bonds the safest or riskiest?
Corporate bonds are the riskiest.
What is term maturity?
Bonds mature one day in the future.
What is serial maturity?
Bonds mature over years.
What is balloon maturity?
large lump sum payment at the end.
Bonds may be called when interest rates are _______
falling
What is call protection?
Call protection is the specific length of time that the issuer is prevented from calling the bonds.
What is YTM?
Annualized rate of return
What pays higher interest rates, callable or non-callable bonds?
Callable bonds.
What is the nominal/coupon rate?
Stated/fixed interest rate a bond pays.
What is an inverted/negative yield curve?
Reflects long term rates that are lower than short term rates.
What is funded debt?
Bonds issued by corporations.
What are mortgage bonds backed by?
Real estate
What are collateral trust bonds?
Bonds backed by company securities that the issuer owns.
What is an Equipment Trust Certificate?
Bonds backed by equipment purchased by the issuer
Corporate liquidation order is:
1. Secured bond holders.
2. Debentures.
3. Sub-debentures.
4. Pref-stock
5. Common stock
What is the conversion ratio?
Conversion ratio = # of shares a bond can be converted into.
par / conv. price
What are the maturities of T-bills?
1, 3, 6 months
How are t-bills quoted?
T-bills are quoted at a discount and mature to face value
What is the max maturity of a t-note?
Max maturity is 10yrs.
How often are interest payments paid on T-notes?
Semi-annually
What are zero-coupon bonds?
- do not pay current interest
- no reinvestment risk
Treasury strips are backed by:
The US gov't
Four characteristics of Ginnie Mae's:
- backed by the US gov't
- monthly pass through certificates that pay interest
- interest is taxable as ordinary income.
- min. investment amount of 25k
What is the nick name for the Federal Home Loan Mortgage Corp?
Freddie Mac
Four characteristics of the Federal National Mortgage Association:
- "Fannie Mae"
- Gov't agency issues not backed by the US gov't
- Interest is taxable at federal and local levels
- Greatest risk is refinancing
What is a CMO "Collateralized Mortgage Obligation"?
Corporate mortgage backed securities that pay taxable monthly interest
What are tranches?
Different maturity classes of CMO's.
What are PACs?
Planned amortization CMO's that have targeted maturity dates and are the first tranches retired.
They offer investors reduced pre-payment and extension risk.
What are TACs?
CMO's that pay higher interest than PAC's
Benefits of Money Market securities:
- long-term
- safe
- liquid debt investments
- commercial paper, CDs, BAs, muni notes
Commercial paper is issued at a _________
discount
What is the max. maturity for commercial paper?
270 days
Who issues negotiable CD's?
Banks.
What is the min. face amount for negotiable CD's?
100k
What are BA's, Banker Acceptances?
- Time drafts or letters of credit.
- used in foreign trade
- 270 day max. maturity
Municipal notes pay tax _____ interest
tax exempt
What is the prime rate?
Prime rate is the rate banks charge their best corporate customers.
What is the fed funds rate?
Fed funds rate is the rate backs charge when borrowing money btw. banks to meet their reserve requirements (most volatile)
What is the broker call rate?
The broker call rate is the rate banks charge brokerage firms for margin accounts.
What is LIBOR?
Benchmark for Euro banks
What are Euro-bonds?
Long-term debt instruments that are sold outside the US.
How are Euro-bonds denominated? sold?
Denominated in the currency in which they are sold. They are sold in US dollars.
How are muni-bonds taxed? capital gains?
Muni bonds are tax exempt at the federal level, tax exempt at the state and local level if owner resides in that state. Capital gains on muni-sec. are fully taxable.
What are GO bonds backed by?
Sales, income, and property taxes (ad valorem)
Is voter approval required for GO's?
yes, voter approval is required for GO bonds.
How are GO bonds written, negotiated or competitive?
GO bonds are written competitive.
Type of maturities for GO's?
Serial maturities
How are GO's quoted?
GO's are quoted on the basis of their yields to maturities in basis quotes.
What is a double barraled GO?
Interest and principal are paid from a specific revenue source, backed by the taxing authority of the issuer.
What are Revenue Bonds backed by?
Revenue bonds are backed by user fees, tolls, and payment for facility use. (self-supporting debt, no voter approval req)
What does the trust indenture for a Revenue Bond state?
- Rate and maintenance covenance
- add. bonds test
- catastrophe call provisions
What are Special Tax Bonds?
Bonds backed by excise taxes on tobacco, alcohol, and hotel rates.
What are NHA's and PHA's?
NHA's = New Housing Authority
PHA's = Public Housing Authority

Backed by the full faith and credit of the US gov't
What are IDR's?
Industrial Development Revenue Bonds, issued by municipalities, the facilities they build are leased to corp., the lease backed payments by the corp. pay interest/principal to the bond holder.
What are short term municipal instruments?
Maturities of 3months to 3 yrs.
BANs, RANs, TANs, TRANs
What are Variable Rate demand notes?
"reset bonds" issued w/ a fluctuating interest rate, remains near par at all times.
What is issued after a feasibility study?
Revenue Bonds
What is ex-legal?
bonds that trade w/o a legal opinion
What is the bond buyer?
The bond buyer publishes the 30-day visible supply.

Provides the total dollar volume of all municipal offerings scheduled in the upcoming month and placement ratio.
What is the role of the investment banker in an underwriting?
The investment bankers form syndicates to share the risk of underwriting new issues.
What is the role of the Syndicate Manager in an underwriting?
The Syndicate Manager collects signatures from all participating firms on the syndicate letter (includes participation amount)
What is a western/divided account?
The underwriter is responsible for their own underwriting allocation.
What is a eastern/undivided account?
Unsold bonds are allocated to the syndicate members based on their initial contribution.
What is a Competitive bid underwriting?
The issuer chooses the bid that is a combination of the lowest rate and highest price per bond.
What is the official bid form?
The official bid form is used by underwriters to submit bids.
What is the Net Interest Cost formula used for?
NIC formula is used by the issuer to compare all bids.
True Interest Cost formula?
Includes the time value calculation.
What is the underwriting spread?
price paid to issuer - reoffering price to the public

Compensation to underwriters
What are the 3 components of the underwriting spread?
- Managers fee (smallest component)
- Additional takedown
- Concession
What is the total takedown?
Total takedown = Additional takedown + Concession

Syndicate members receive the total takedown
What must the syndicate letter contain?
A priority for order allocation according to the MSRB
What is the priority of orders?
PGDM
1. Presale orders
2. Group net orders
3. Designated orders
4. Member orders
Who rates municipal bonds?
Standard and Poors
Moodys
Fitchs
What is NBIA?
A municipal bond insurer
What are muni bonds bought and sold, exchange?
OTC
When must a bond purchaser receive a copy of the official statement?
At or prior to purchase.
What is the MSRB
- An SRO.
- Makes rules but cannot enforce them
- enforced under the NASD
What are some of the responsibilities of Municipal Principals?
- Supervise firms representatives.
- Must approvve new customer accts, every muni transaction, and correspondenceregarding muni securities trades.
- must take action on customer complaints
What must be sent to a customer after filing a complaint?
A copy of the MSRB investors brochure
What are fidelity bonds?
Fidelity bonds must be offered to customers to protect them from loss or theft from employees.
Books and records must be kept for?
2 years
Advertising records must be kept for?
3 years
Records of customer complaints must be kept for?
6 years
What is regular way settlement for muni transactions?
T + 3
What denomination is considered good delivery for bearer bonds?
Denominations of 1k or 5k
Registered bonds must be delivered in ?
Multiples of $1000 up to a max of 100k
Investors who want the market to go up are considered?
Bullish (LC, SP)
Investors who want the market to go down?
Bearish (LP, SC)
What is the purpose of a short call?
Increase income.
Protects a long stock position.
What is the purpose of a short put?
Increase income.
Protect a short stock position
What is a price/vertical spread?
A price/vertical spread has different strick prices and same expiration date
What is a time, calendar, horizontal spread?
same strike prices, different exp. dates
What is a diagonal spread?
different strike prices, different expiration dates.
What is the profit for a debit spread?
Widen
What is the profit for a credit spread?
narrow
What is a straddle?
Consists of a call and put w/ the same strike price and expiration month.
What are index options?
Index options settle in chas, the next business day. They are used to protect against market failure.
What is the responsibility of a CROP (Compliance Registered Options Principal)?
- Approves all written communications.
- Advertising
- Sales literature before distribution to the public.
What are foreign currency options?
Allow for speculation on currency or protection from fluctuation on foreign exchange rates.
What is European style settlement?
Can only be exercised at expiration
What is American style settlement?
Can be exercised anytime before expiration.
What is the CBOE?
Chicage Board Options Exchange
- options contracts are sold heavily here.
- settle next business day.
When do listed option contract contracts expire?
Saturday following 3rd friday @ 11:59pm
When must the disclosure document be delivered to the customer?
At or before account approval, customer must sign and return within 15 days.
Who signs account opening forms?
Rep and principal.
Features of Margins:
- Credit agreement and hypothecation form is required.
- Loan consent form is optional
- All securities in margin accounts must be held in street name
What is hedging?
Hedging is a strategy where an investor who is long or short stock can buy or sell an option that will reduct the risk of a seperate stock position.
What is listed in the pink sheets?
OTC stocks and market makers (weekly)
What is included in a Revenue Bond indenture?
- Legal opinion
- Rate covenant
- Maturity feature
What is the other name for a catastrophe call?
Condemnation
Who insures muni's?
MBIAC and AMBAC
What is commercial paper?
Commercial paper is used to issue short term funds.
What are Bond Anticipation Notes?
used to finance a short term capital project
What are Tax Anticipation Notes?
Used to meet operation expenditures.
What is the accrued interest for gov't bonds?
Actual days/365 day year
what is the accrued interest for muni's?
30 day month / 360 day year
What is a mill?
Mill = .001
What is the formula for property tax?
Assessed value X mill rate
What are GO's?
Backed by full faith and credit, taxing power of municipality.

Income derived from:
- License fees
- Uncollected taxes
- Fines
- Property taxes
- Income taxes
- Sales taxes
- School taxes
What is a limited tax bond?
Limited to a specific maximum rate.
What is a special tax bond?
Revenue bond backed by a specific source.
What is used in the credit analysis of GO's?
Tax collection record of municipality

Evaluation of the debt to real estate values
What is used in the credit analysis of Revenue Bonds?
- Feasibility study
- Debt service coverage ratio
What are GNMA's?
US gov't agency, backed by the US gov't
What are Industrial Development Revenue Bonds?
Bonds secured by lease agreements w/ a corporation
What is an Equipment Trust bond?
Lien on the equipment that secures the issue
Muni bonds are exempt from?
Federal taxes
What is the Renewal and Replacement Fund?
Holds monies put aside for the improvement of the facility.
Features of Revenue Bonds:
- do not have maturity schedules
- do not have debt limitations
- can be ussed by states, political subdivisions, intrastate authorities.
- Interest/principal are paid from revenue received from the facility.
Pension funds:
Do not pay taxes on their investments
The federal tax exemption on muni's was established by:
Supreme court decisions
Features of the Bond Resolution/indenture:
- contract btw. the issuer and bondholder.
- specifies the rights of the bond holder.
- provisions to protect the bondholders interest.
- rate covenant
- additional bonds test
- method of funding and operation of the sinking fund
- flow of funds
What is the debt service coverage ratio?
Number of times the earnings of a Revenue Bond of a municipal facility exceeds the interest charges and principal payments for a period of time.