• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/297

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

297 Cards in this Set

  • Front
  • Back
money market
company needs money for one year
capital market
company needs money for more than one year
equity securities
ownership positions in a company
earnings
profit
dividends
quarterly check from company to stockholder based on earnings
underwriting firm
- investment banking firm
- the firm that helps the company do a public offering
- promise to buy all stock the company is issuing & immediatly re-sell to investors
security act of 1933
require company issuing securities to provide disclosure to investors in the form of a prospectus
spread
profit margin
quarterly report
10 - Q
annual report
10 - K
security exchange act of 1934
- People act
- requires issuers of security to file reports so public investors have enough info to decide to invest or stay invested
secondary market
when shares trade back and forth among investors, and issuer does not get proceeds
underwriters work in the ________ market
primary
broker-dealers work in the _____ market
secondary
market makers
- broker-dealers who maintain an inventory of over the counter stocks
- they buy at the lower "bid" price and sell at the higher "ask" price
- act as principles, which means they have money at risk
dealer
- principle
- firm that sells stock from its inventory
broker
firm that simply arranges the trade for a customer
A broker-dealer can be both on an individual trade
False
bonds
company simply borrows money from public investors & pays a rate of interest on loans/bonds until it is paid off
debit securities
bonds
convertable bonds
- slightly lower rate of return
- able to be converted into common stock at any time at a fixed agreed price per share
rate of return
interest rate
bond parity price
number of stock shares the bond holder could buy that is worth exactly what the bond is trading for
dilution of equity
if convertable bond holders decide to convert, the earning pie will be cut into thinner slices
municiple bonds
- issues to cities and states to fund roads, schools, and projects
- tax free interest
- lower interest rates
revenue bonds
- backed by only revenue on sports stadiums, toll roads, issued by same municiplaity
- riskier than general municiple bonds, so they have higher yield
small cap stock
- have relatively few shares outstanding
- have less established histories but potentially brighter futures
- P/E ratios are high sonce much of the percieved value is built on speculation of future profits
money market
- short term debt obligations that get paid back in 1 year
- very low risk
money market examples
- commercial paper
- banker's acceptances
- jumbo CD's
equity options are....
- calls and puts
- high risk
options
derivatives
buy a call
- if stock goes up in a hurry, the value of the call skyrockets
- if stock drops in a hurry, the call expires worthless and you lose
buy a put
- make money when a stock flops
- example: buy @ 70, the stock drops to $10, your put would be worth the $60 difference and you bought it at $5
OCC disclosure document
layout all risks and characterists of options trading
ROP
Registered Options Principle
COP
- Code Of Procedure
- there to make sure you don't violate NASD's member conduct rules
transfer agent
keeps ownership records of companies stock
registrar
audits/oversees the transfer agent
Calculate:
# shares outstanding
# issued shares - # treasury shares
authorized shares
- # of shares a company has authorized itself to issue to the public
- disclosed in company charter
issued shares
# of shares the company isitially offers to public
treasury stock
# of shares the company has bought back
EPS only applies to __________ shares
outstanding
_______ shares are the only ones that get a vote
outstanding
One benefit to cumulative voting
gives an equal (possibly upper) hand to the small/minority shareholder
residual claim on assets
when company is liquidated and there are residuals left for common stock holders
junior security is also known as....
- common stock
- all other securities represent senior claims
why are common shares limited liability?
shareholders are shielded from debts of company and lawsuits
Do common stock holders have a claim on earnings and dividends?
yes
Who decides if a dividend is issued?
Only the board of directors
What three dates are associated with paying a dividend?
- declaration date: date the board decides to pay a dividend
- payable date: date the dividend will be paid
- record date: date the investor has to own the stock to receive dividend
The buyer has _______ when they become the official owner of the stock (with transfer agent)
settled
Stock transactions settle on the ____ business day.
3rd
regular way settlement
- T+3
- the 3rd business day after trade
ex-dividend
- or ex-date
- date starting where investors who buy the stock will not receive next dividend
NASD sets _____ as a function of T+3
ex-date
What are the dividend related dates that the board sets?
- Declaration date
- Record date
- Payable date
What are the dividend related dates that the NASD/NYSE sets?
Ex-date
The dividend comes out of what on the ex-date?
stock price
How can a dividen be paid?
- Cash (taxable)
- Stock (non taxable)
- Shares of a subsidy
- Product
Are cash dividends taxable?
Yes
Are stock dividends taxable?
No
Own 100 shares @ $50, with a 5:4 split what is the new stock price?
Initial investment value
100 * 50 = $5000

Find total # of shares after split
(100 * 5) / 4 = 125

Find new stock value after split
$5000 / 125 = $40
You own 200 @ $40. Company offers 20% stock dividend. How many shares do you own, and at what price after the dividend?
Initial investment value
200 * $40 = $8000

Find additional shares added
20% * 200 = 40

Total shares you now own
40 + 200 = 240

Value of stock after dividend
8000 / 240 = $33.33
Why does a company do a split or dividend?
To push share price down
forward split
means you end up with more shares than you had, at a lower price
the purpose of a reverse stock split
replace stock to increase price
1:10, 1:5, etc etc
Compare how much larger the stock price is, to the earnings associated with each share. What is that?
P/E or price to earnings ratio
Shareholders can vote on which type of stock split(s)?
Both forward and reverse
What is common stock?
% of company ownership
Preemptive right
common stockholder right to maintain their proportionate ownership in company
dilution of equity
the reduction in the percentage of a company represented by each share for an existing stockholder who has not increased his or her holding in the issue of new common stock
standby underwriting
when the company does a rights offering, there is an underwriter standing by willing to use the rights that no one else wants
warrant
- long term equity security
- there are no dividends attached to a warrant
Warrants are often attached to a _________.
bond offering
preferred stock
- equity security that gets preferential treatment durning liquidation, and always receives dividends before owners of common stock
- preferred dividiend is printed on a certificate
Par value of perferred stock
$100
The stated dividend of a stock is a % of ___________ .
par value
convertible stock
lets investors exchange one share of preferred stock for X number of common shares
preferred parity price
the # of common shares you could convert to, times the common stock price
If the preferred stock (at par) is convertable @ $10, how many common shares would that be? Express that as a ratio.
Divide par value by 10
$100 / $10 = 10 shares

That is a 10:1 ratio
If the preferred stock (at par) is convertable @ $20, how many common shares would that be? Express that as a ratio.
Divide par value by 20
$100 / $20 = 5 shares

That is a 5:1 ratio
Equasion to find preferred parity price
common stock price * first # in ratio = preferred parity price
Equasion to find parity price of common stock
preferred market price / first # in ratio = parity price of common
4% preferred stock is convertable @ 25. Currently it is trading @ 28. What is the ratio, preferred share price, and parity price of the preferred stock?
Preferred par value = $100

Find the ratio
$100 / 25 = 4

Find preferred price
$100 * 40% = $4
$4 + $100 = $104

Find the parity price
4 * $28 = $112

Parity value is $112, with a 4:1 ratio
When interest rates go up, _______ prices usually go ______ .
stock prices usually go down
When interest rates go down, _______ prices usually go ______ .
stock prices usually go up
Does preferred stock have a maturity date?
Nope
Preferred stock usually gives an investor voting rights.
False
ADR
- American Depository Receipt
- foreign stock in a domestic market
- owners are suject to currency risk, as there is a conversion being done
A holder of ADR's right is.....
They have receipts tha represent 1 to 10 shares of the foreign stock, and have the right to exchange the ADR for actual foreign stock shares
sponsored ADR
corporation sponsors creation of ADR
ADS
- American Depository Shares
- Another name for a sponsored ADR
REIT
- Real Estate Investment Trust
- company that owns a portfolio of properties and sells shares to investors
What is the main intention of a growth investor?
looking for a share price to go up
What is the main intention of a income investor?
interested in dividend payouts
dividend yield
how much an investor has to pay to receive some amount of dividends
Calculate dividend yield
annual dividend / market price = dividend yield
Calculate quarterly dividend
Multiply dividend yield by 4
The stock with the lowest P\E is the cheapest stock.
True
Calculate total return on a dividend
dividend received + capital growth / appreciation = total return
If you buy@10 it the stock rises to 12, what is the capital appreciation? If the stock also pays a $1 dividend, what is your total return? Express that as a percentage also.
$12 - $10 = $2

$2 capital appreciation

With $1 dividend, you made $3

Total return is "3 out of 10", thats a 30% return.
If you are long 100 shares @50 and a 5:4 split is declared, How many shares and at what price would you now have?
Total investment value
100 * $50 = $5000 (after split, you must still have this value)

(100 * 5) / 4 = 125 shares
You will have 125 shares after split

$5000 / 125 = $40
Each share would be worth $40
Another way to express bonds
debit securities
corporate bonds
represent loans from investors to the corporation, where the corporation pays the loan back with some stated interest amount
To use alot of borrowed money... is to
leverage
highly leveraged
finanaced operations by issuing a lot of debt because of borrowing a lot of money
why is it a junk bond
moeny borrowed at high rates of interest
bond face amount
the par value printed on the face of the bond certificate
bonds usually have a par value of .....
$1000
bond coupon rate
- also known as nominal yield
- interest rate the bond will pay each year
Bonds usually pay __ times a _____, or _______ .
2 times a year, or semiannually
The interest rate a bond will yield is unknown.
False, it is a stated known thing.
How much will a 5% bond pay annually?
At par value
$1000 * 5% = $50

$50 per year
Interest rates go up,
bond price goes ___,
yields go ____
bond price goes down
yields go up
Interest rates go down,
bond price goes ___,
yields go ____
bond price goes up
yields go down
Bond prices go up,
interest rates have gone ____,
and yields go ______
interest rates have gone down yields go down
calculate current bond yield
take the annual interest rate paid by the bond to an investor (coupon rate), divide it by what an investor would have to pay for the bond

annual interest / market price = current yield
express a bond yield
how much do I get every year compared to what I pay to get it
If the current bond yield is higher than the coupon rate, it is a __________ bond.
discount

ie: an 8% bond with a 10% current yield
yield to maturity
(YTM) the theoretical return an investor gets if they hold the bond all the way to the maturity date
If you see a YTM that is higher than the coupon rate, you are looking at a __________ .
discount bond
The YTM would have to higher than the _________ to be a discount bond.
current yield
callable bond
after a certain period of time the issuer can buy the bonds back at a stated price
On a discount callable bond, what will get the highest yield?
yield to call the bond
premium bond
bond purchased at a higher rate than par value
If a bond pays $80 annual interest and has a price is $1200, what type of bond is it?
the bonds yield is
80 / 1200 = 6.7%

@ par it would have been
80 / 1000 = 8%

therefore it is a premium bond
If you want to get a bond at premium you have to _______. But the yield will be ______ .
pay more than par

the yield will be lower than what it would have been at par
If the bond has a lower YTC than its YTM, it is a __________ .
premium bond

YTC - yield to call
YTM - yield to maturity
On a discount bond the worst yield is....
YTM
On a premium bond the worst yield is ....
YTC
When someone purchases a bond, the confirmation must be sent no later than _______ .
T + 3, which is also the settlement date
On a bond confirmation you have to disclose the ___________ .
worst yield, given what type of bond it is
bond redemption date
- or maturity date
- date at which the bond pays no more
bond tender offer
offer from the issuer to buy back the bond before maturity
bearer bonds
- issued long time ago
- bond with no name of who had possession, just a generic "pay to bearer"
registered as to principle only bond
bond that has a name of who gets principle, but no name on interest coupons
fully registered bond
bond that has name of owner on both principle certificate and coupons
bonds are quoted by ________ or by ________ .
price or by their yield
bond interpolation
figuring out bond yield from price or bond price from yield
Another way to say bond price
bond points
One bond point is equal to....
$10
A bond selling at 98 means it is trading for how much?
98 * $10 = $980

it is trading for $980
A bonds basis points, is also....
the bonds YTM

(yield to maturity)
trading at a basis of, really means.....
the bond price pushed the YTM to a particular %, or number of basis points
What do you know about a bond with an 8% coupon rate that just traded on a 7.92 basis?
the price of the bond has gone up above par, pushing the YTM down to 7.92%
Express 50 basis points as a percent
1/2 of 1%

1% = 0.0100
or 100 basis points, so 50 basis points would be half that
Bond basis points use a __ digit system. Express 1% in terms of basis points.
4 digit system

1% = 0.0100

It would be 100 basis points.
Bond trading at 7.92 basis means the YTM is _______ and that is expressed as ________ basis points.
7.92% YTM

7.92% = 0.0792

792 basis points
Explain the following statement:
10m XYZ 8s debentures of '13, callable @ 103 in '08
10m = $10,000 par value or 10 bonds
XYZ = issuing company
8s = XYZ pays 8% annual interest, but the payments are made [s]emiannually
callable @ 103..... = if interest rates drop in 2008, the company can by back the bond @ $1,030
Given the bond, 10m XYZ 8s what would an investor receive at maturity?
receive the last (semiannual) interest payment of $40, they owned 10 so $400

get the initial principle of the bond $1000 back, they own 10 so it would be $10,000.

10,000 + 400 = $10,400 as a final payment
A corporate bond has a settlement date of
T + 3
A miniciple bond has a settlement date of
T + 3
A treasury bond has a settlement date of
T + 1
On both corporate and miniciple bonds how is the annual interest expressed daily?
Divide by 360 days
On treasury bond how is the annual interest expressed daily?
Divide by actualy days in a year
On both corporate and miniciple bonds how is the monthly interest expressed daily?
divide by 30 days
If a corporate bond pays $80 annual interest, how much is that per day?
$80 / 360 = $0.222 per day
For a semiannual bond that pays on M & S, what day and months would you receive payment?
the first of March and September
For a semiannual bond that pays on J & J, what day and months would you receive payment?
the first of January and July
For a semiannual bond that pays on A & O15, what day and months would you receive payment?
The 15th of August and October
For a semiannual bond that pays on M & N3, what day and months would you receive payment?
The 3rd of May and November
A bond holder earns interest only on business days.
False. Bond earn interest everyday, including weekend and holidays.
bond accrued interest
the buyer has to pay the seller the price of the bond, plus the interest that belongs to the seller, who hasn't gotten a check since the last payment date
Dale sells Jim XYZ 8% A&O bond on wednesday Jun 19. How much accrued interest must be paid, and who pays it?
Jim pays interest @ $18.44 per bond
another name for treasury bonds
government securities
A J & D 5% government bonds trades on Wednesday August 14. How much accrued interest will the buyer pay the seller?
$10.27 per bond
long coupon
if bond pays J & J as is issued in march but doesn't make first payment until January
Debbie sells her 6% J & J bond on thursday March 14. How many days of accrued interest will she pay for this transaction?
Zero. Its the buyer who pays the seller.
What is true about a bond with an 8% coupon trading at a 10% YTM?
It is trading at a discount. Whenever yield trades higher than the coupon, it is a discount.
One reason that a bond is considered a premium bond?
Yield is trading lower than the coupon
serial maturity
a little bit of the principle will be returned each year until it is paid off
Do long term bonds typically yield more than short term bonds?
Yup
yield curve
the graphed curve of % yield vs term to maturity
When the yield spread narrows, what is that an indicator of?
the economy is doing good, becuase there is higher demand for higher-rated bonds than low-rated bonds
a wide yield spread means....
the low-rated bonds are at a higher yield than high-rated bonds
credit risk
- the risk of default
- measured by moody's and standard & poor's
treasury debt carries some risk
false. no risk.
corporate bonds carry default risk
true. they carry major default risk
one characteristic of junk bonds
- high yield
- big default risk
event risk (for the bondholder)
the chance that the corp whose bonds you own, is aquired by another who is highly leveraged
interest rate risk
- risk that rates will suddenly shoot up, sending your bond market price down
- the longer the term on the bond, the more volatile its price
when interest rates go up bond prices ___________ .
fall
purchasing power risk
(has to do with inflation) if inflation erode the value of money, an investor's return supply isn't what it originally was
when inflation is rising you are better off with ________ .
equities (stock)
bond call risk
risk that interest rates will drop and bondholders will have their bonds called
reinvestment risk
is a bond is called, you have to reinvest. but this time (unfortunatly) at a lower rate.
If bond prices are low, interest rates are _______ .
high
secured bonds
the issuer pledges title of the assets to trustee, who might end up selling them off if the issuer gets behind on its interest payments
secured creditors
- investors who buy secured bonds
- they are the first to get paid if the company defaults
mortgage bond
if the collateral used for the bond is real estate
collateral trust certificate bond
the collateral for the bond is securities
equipment trust certificate bond
the collateral for the bond is equipment
Most corporate bonds are backed by __________ .
full faith and credit of issuer
Bonds are rated by ______ .
S&P and Moody's
AAA rating will usually offer a big coupon payment
false
what is true of BBB rated bonds?
should offer higher pay-off in exchange for buying bonds that are on notch about "junk"
debenture bond
bond backed only by "full faith" of creditor
debenture bond holders get paid after ____________ ,
secured bond holders
subordinated debentures
- below debentures on payout "ladder"
- carry higher coupon rate than debenture
income bond
- only pays if company has income
- usually offered by company coming out of bankrupcy
3 organizations that offer bond ratings to gauge default likelihood
- S&P
- Moody's
- Fitch
S&P can use __ or __ signs along with the AAA or BBB rating
+ (plus)
- (minus)
Moody's can use __ or __ signs along with the Aa or Bb rating
1, 2, or 3
Lowest rated bond for Moody's
Baa3
Lowest rated bond for S&P
BBB-
sinking fund
fund company sets up to escrow funds used to ultimatly pay the principle back on matured bonds
refunding bond
- replacing one bond issue with another
- usually happens when interest rates drop
callable bond yield more than non-callable
true
if a bond has a warrant, what do you know about the yield?
you will get a lower yield
convertable bonds
bond that can be converted into common stock
bond par value
$1,000
if bond has convertable price of $40, how many shares will you get at par?
25 shares
who sets a convertable bonds conversion price?
issuing company
how can you know a convertable bond's worth at any given time?
the amount of shares it will buy in common stock
parity (in terms of convertable bonds)
when the bond trades for exactly what the conversion price is
If a bond is convertable at $40, what is its relationship to the common stock?
25:1

par / conversion price
1000 / 40 = 25
If a bond is convertable at $25, what is its relationship to the common stock?
40:1

1000 / 25 = 40
bond price goes up, rates go ____.
down
What types of debts can you buy from US Treasury?
- bill
- note
- bond
T-bills pay back _______
face value
describe bid
discount the buyers are trying to get
describe ask
discount the sellers are willing to give up
What time frame does a T-Bill mature
one year or less
Do T-Bills have coupon payments?
nope
zero coupon bond
pays difference between the discounted pruchase price and face amount
T-Bills are offered in what incraments?
$1,000's
When are T Bills auctioned off by Fed?
Every monday
When a T Bill is auctioned off, when is the discount rate determined?
at auction time
T Notes are offer in what increment maturities?
2 year and 10 year
T Bonds are offered in what intrement maturities?
10 year and 30 year
When is the interest payment for a T Bill?
Semiannually
T Bonds are quoted in what fraction?
32nds
Express the T Note 98.16 in dollars
98.16 = $980 + 16/32
16 * .3125 = 5

980 + 5 = $985
Express the T Bond 98.24 in dollars
98.24 = $980 + 24/32
24 * .3125 = 7.5

980 + 7.5 = $987.50
A 30 year T Bond is callable when?
Last 5 years
STRIPS
- Seperate Trading of Regulated Interest and Principle of Securities
- Pay a known amount now and receive a known amount later
Treasury receipt is almost the same thing as a _________ . Difference is a treasury receipt ________ by the government.
STRIP

not guaranteed by government
TIPS
Treasury Inflation Protected Security
When inflation goes up, a TIP is worth ______
more
When inflation goes down, a TIP is worth ______
less
I Bond
- saving bond issued by the US treasury
- pays guaranteed rate by government but also pays more interest when inflation rises
An I Bond is exempt for both state and local taxes
true
GNMA
- Ginnie Mae
- mortgaged backed security
- backed by full faith of US government
- only one that pays out check monthly
FNMA
Fannie
mortgaged backed security
public company
FHLMC
Freddie Mac
mortgaged backed security
public company
federal farm credit system FFCS
- is not guaranteed by US Treasury
- sells debt securities to raise funds for farmers
- pay semiannually
CMO
- collateralized mortgage obligation
- sold by companies that sell mortgage backed securities
- usually AAA rated
- not very liquid
what is a "tranche"
another work for "slice" of opportunity
What are the 2 types of CMO?
PAC - planned amortization class
TAC - targeted amortization class
PAC protects against what?
prepayment and extension
TAC protects against what?
prepayment only
one characteristic of money market security
- very liquid
- mature one year or less
- low interest rate
- no inflation protection
Examples of short tem municiple notes
TAN (most common)
BAN
RAN
Characteristics of negotiable cd's
- $100,000 min
- excess insured by FDIC
What is a repurchase agreement?
we'll buy it right back for more money
bankers acceptance
facilitates foreign trade, and matures in 270 days max
commercial paper
- unsecured note
- issued by corporations
- 270 days max maturity
general obligation bond
legal obligationof a local government to pay back the bond holders out of the "general fund" (usually property taxes)
revenue bonds
project will end up generating revenue to pay for itself
spread
buy bonds from issue and then re-sell them to the public for profit
normal yield curve bond
bond with long er maturity will yield more than those with shorted maturity
net interest cost (NIC)
represents total cost of borrowing
true interest cost (TIC)
represents total cost of borrowing
bond points are worth $___
10 bux
GO bond
general obligation bond
GO bond characterists
- backed of full faith of municipality
- require voter approval
- ad valorem = property taxes
- millage is associated with
- mill=thousand 7mills=7 to the thousandth
- limited tax bond
revenue bond characterists
- does not have full faith of municipality
- specific source of revenue
- property tax can not be used
- does not need voter approval
- special tax bond
What two bond are considered some of the safest?
PHA - public housing authority
NHA - new housing authority
industrial development revenue bond
backed by the occupying corpoation's full fiath and credit
indenture-bond resolution
issuer makes promises know as protective covenants
double barrel bond
anything backed by two sources of debt service; this is considered a GO bond
moral obligation bond
provides for the possiblity of the issuer going to the legislature and convince to honor the "moral obligation" to pay off debt
anticipation notes
meaning the notes will be paid off by some money thay anticipate receiving soon
tax anticipation note TAN
borrow money backed by anticipation of collecting taxes in near future
revenue anticipation note RAN
borrow money backed by anticipation of collecting revenue soon
bond anticipation note BAN
"we'd like to borrow some money becuase we are about to borrow some money"
federal government to a municiple bond
T-bill
refunding
replacing expensive debt with cheaper
once a bond is advanced funded is has what rating?
AAA
bond counsel
law firm specializing in public finanace and complexity of bond issues
two types of opnion from bond counsel
- qualified: means that something is in doubt and need to be "qualified"
- unqualified: everything checked out
bond underwriters
buy muni-bonds then resell to capital markets, keeping the spread
how do munciplaities find bond underwriters?
The bond buyer
NIC
- net interest cost
- lowest cost municipality has to pay to underwriter to borrow money
TIC
- true interest cost
- factors in time value of money
bond syndicate
group of bond buyers from municipality
what order does the spread get distributed in the syndicate?
1. underwriter acting as manager
2. underwriter expenses
3. syndicate members: additional takedown
4. concession: whoever actually sells bond
bond selling group
group of sellers outside the syndicate, helling to sell bonds
if a bond is worth $10, 1/2 a point is worth...
5 bux
if a bond is worth $10, 1/8 of a point is worth...
$1.25
western syndicate account
member only has to worry about selling their share of bonds

- Western walks -
eastern syndicate account
members are responsible for selling their bonds, as well as their share of any unsold bonds

- Eastern eats -
oversold bond
when there are more buyers than bonds to be sold
another word for oversold
oversubscribed
the order for allocating oversold municiple securities
1. Pre-sale
2. Syndicate
3. Designated
4. Member

Please Sell Da Muni's
official bond statement
detailed info about bond issuers financial condition