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148 Cards in this Set
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- Back
- 3rd side (hint)
What is treasury stock?
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Issued - outstanding
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Formula for outstanding shares?
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Issued - treasury
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What is the purpose of a primary offering?
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Raises money
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What is the purpose of preemptive rights?
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ownership interest
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Shareholders vote on?
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- issuance of convertible bonds or preferred stock
- board of directors - voting rights |
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Max tax rate for qualified dividends?
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15%
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List four characteristics of Preferred stock:
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- Equity security
- no voting/preemptive rights - trades like a debt sec. - interest rates go up, pref. stock goes down |
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What are rights?
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- short-term
- only available to existing shareholders - price below market |
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What are ADRs?
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- Allow American investors to buy stock in foreign companies.
- Quoted in US dollars, in US markets |
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What are REITS?
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Invest in portfolios of operating real estate, provide liquidity.
- 75% of assets are in real estate mortgage paper |
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What is the formula for current yield?
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Current yield = annual dividend / current market price
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What are warrants?
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Warrants allow investors to buy at a fixed price.
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What are bonds?
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Money borrowed from investors
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What is leveraged financing?
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Raising money by issuing bonds
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Are US gov't bonds the safest or riskiest?
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US gov't bonds are the safest.
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Are corporate bonds the safest or riskiest?
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Corporate bonds are the riskiest.
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What is term maturity?
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Bonds mature one day in the future.
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What is serial maturity?
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Bonds mature over years.
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What is balloon maturity?
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large lump sum payment at the end.
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Bonds may be called when interest rates are _______
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falling
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What is call protection?
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Call protection is the specific length of time that the issuer is prevented from calling the bonds.
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What is YTM?
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Annualized rate of return
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What pays higher interest rates, callable or non-callable bonds?
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Callable bonds.
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What is the nominal/coupon rate?
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Stated/fixed interest rate a bond pays.
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What is an inverted/negative yield curve?
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Reflects long term rates that are lower than short term rates.
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What is funded debt?
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Bonds issued by corporations.
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What are mortgage bonds backed by?
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Real estate
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What are collateral trust bonds?
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Bonds backed by company securities that the issuer owns.
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What is an Equipment Trust Certificate?
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Bonds backed by equipment purchased by the issuer
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Corporate liquidation order is:
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1. Secured bond holders.
2. Debentures. 3. Sub-debentures. 4. Pref-stock 5. Common stock |
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What is the conversion ratio?
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Conversion ratio = # of shares a bond can be converted into.
par / conv. price |
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What are the maturities of T-bills?
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1, 3, 6 months
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How are t-bills quoted?
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T-bills are quoted at a discount and mature to face value
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What is the max maturity of a t-note?
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Max maturity is 10yrs.
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How often are interest payments paid on T-notes?
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Semi-annually
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What are zero-coupon bonds?
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- do not pay current interest
- no reinvestment risk |
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Treasury strips are backed by:
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The US gov't
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Four characteristics of Ginnie Mae's:
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- backed by the US gov't
- monthly pass through certificates that pay interest - interest is taxable as ordinary income. - min. investment amount of 25k |
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What is the nick name for the Federal Home Loan Mortgage Corp?
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Freddie Mac
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Four characteristics of the Federal National Mortgage Association:
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- "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 |
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What is a CMO "Collateralized Mortgage Obligation"?
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Corporate mortgage backed securities that pay taxable monthly interest
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What are tranches?
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Different maturity classes of CMO's.
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What are PACs?
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Planned amortization CMO's that have targeted maturity dates and are the first tranches retired.
They offer investors reduced pre-payment and extension risk. |
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What are TACs?
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CMO's that pay higher interest than PAC's
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Benefits of Money Market securities: |
- Short-term - safe - liquid debt investments - commercial paper, CDs, BAs, muni notes |
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Commercial paper is issued at a _________
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discount
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What is the max. maturity for commercial paper?
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270 days
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Who issues negotiable CD's?
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Banks.
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What is the min. face amount for negotiable CD's?
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100k
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What are BA's, Banker Acceptances?
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- Time drafts or letters of credit.
- used in foreign trade - 270 day max. maturity |
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Municipal notes pay tax _____ interest
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tax exempt
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What is the prime rate?
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Prime rate is the rate banks charge their best corporate customers.
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What is the fed funds rate?
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Fed funds rate is the rate backs charge when borrowing money btw. banks to meet their reserve requirements (most volatile)
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What is the broker call rate?
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The broker call rate is the rate banks charge brokerage firms for margin accounts.
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What is LIBOR?
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Benchmark for Euro banks
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What are Euro-bonds?
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Long-term debt instruments that are sold outside the US.
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How are Euro-bonds denominated? sold?
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Denominated in the currency in which they are sold. They are sold in US dollars.
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How are muni-bonds taxed? capital gains?
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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.
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What are GO bonds backed by?
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Sales, income, and property taxes (ad valorem)
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Is voter approval required for GO's?
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yes, voter approval is required for GO bonds.
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How are GO bonds written, negotiated or competitive?
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GO bonds are written competitive.
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Type of maturities for GO's?
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Serial maturities
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How are GO's quoted?
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GO's are quoted on the basis of their yields to maturities in basis quotes.
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What is a double barraled GO?
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Interest and principal are paid from a specific revenue source, backed by the taxing authority of the issuer.
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What are Revenue Bonds backed by?
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Revenue bonds are backed by user fees, tolls, and payment for facility use. (self-supporting debt, no voter approval req)
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What does the trust indenture for a Revenue Bond state?
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- Rate and maintenance covenance
- add. bonds test - catastrophe call provisions |
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What are Special Tax Bonds?
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Bonds backed by excise taxes on tobacco, alcohol, and hotel rates.
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What are NHA's and PHA's?
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NHA's = New Housing Authority
PHA's = Public Housing Authority Backed by the full faith and credit of the US gov't |
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What are IDR's?
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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.
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What are short term municipal instruments?
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Maturities of 3months to 3 yrs.
BANs, RANs, TANs, TRANs |
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What are Variable Rate demand notes?
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"reset bonds" issued w/ a fluctuating interest rate, remains near par at all times.
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What is issued after a feasibility study?
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Revenue Bonds
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What is ex-legal?
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bonds that trade w/o a legal opinion
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What is the bond buyer?
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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. |
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What is the role of the investment banker in an underwriting?
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The investment bankers form syndicates to share the risk of underwriting new issues.
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What is the role of the Syndicate Manager in an underwriting?
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The Syndicate Manager collects signatures from all participating firms on the syndicate letter (includes participation amount)
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What is a western/divided account?
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The underwriter is responsible for their own underwriting allocation.
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What is a eastern/undivided account?
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Unsold bonds are allocated to the syndicate members based on their initial contribution.
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What is a Competitive bid underwriting?
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The issuer chooses the bid that is a combination of the lowest rate and highest price per bond.
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What is the official bid form?
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The official bid form is used by underwriters to submit bids.
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What is the Net Interest Cost formula used for?
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NIC formula is used by the issuer to compare all bids.
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True Interest Cost formula?
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Includes the time value calculation.
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What is the underwriting spread?
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price paid to issuer - reoffering price to the public
Compensation to underwriters |
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What are the 3 components of the underwriting spread?
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- Managers fee (smallest component)
- Additional takedown - Concession |
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What is the total takedown?
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Total takedown = Additional takedown + Concession
Syndicate members receive the total takedown |
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What must the syndicate letter contain?
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A priority for order allocation according to the MSRB
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What is the priority of orders? |
PGDM 1. Presale orders 2. Group net orders 3. Designated orders 4. Member orders |
Pink Gorillas Drink Martinis
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Who rates municipal bonds?
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Standard and Poors
Moodys Fitchs |
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What is NBIA?
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A municipal bond insurer
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What are muni bonds bought and sold, exchange?
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OTC
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When must a bond purchaser receive a copy of the official statement?
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At or prior to purchase.
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What is the MSRB
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- An SRO.
- Makes rules but cannot enforce them - enforced under the NASD |
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What are some of the responsibilities of Municipal Principals?
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- Supervise firms representatives.
- Must approvve new customer accts, every muni transaction, and correspondenceregarding muni securities trades. - must take action on customer complaints |
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What must be sent to a customer after filing a complaint?
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A copy of the MSRB investors brochure
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What are fidelity bonds?
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Fidelity bonds must be offered to customers to protect them from loss or theft from employees.
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Books and records must be kept for?
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2 years
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Advertising records must be kept for?
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3 years
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Records of customer complaints must be kept for?
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6 years
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What is regular way settlement for muni transactions?
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T + 3
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What denomination is considered good delivery for bearer bonds?
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Denominations of 1k or 5k
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Registered bonds must be delivered in ?
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Multiples of $1000 up to a max of 100k
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Investors who want the market to go up are considered?
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Bullish (LC, SP)
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Investors who want the market to go down?
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Bearish (LP, SC)
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What is the purpose of a short call?
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Increase income.
Protects a long stock position. |
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What is the purpose of a short put?
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Increase income.
Protect a short stock position |
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What is a price/vertical spread?
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A price/vertical spread has different strick prices and same expiration date
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What is a time, calendar, horizontal spread?
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same strike prices, different exp. dates
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What is a diagonal spread?
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different strike prices, different expiration dates.
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What is the profit for a debit spread?
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Widen
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What is the profit for a credit spread?
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narrow
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What is a straddle?
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Consists of a call and put w/ the same strike price and expiration month.
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What are index options?
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Index options settle in chas, the next business day. They are used to protect against market failure.
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What is the responsibility of a CROP (Compliance Registered Options Principal)?
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- Approves all written communications.
- Advertising - Sales literature before distribution to the public. |
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What are foreign currency options?
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Allow for speculation on currency or protection from fluctuation on foreign exchange rates.
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What is European style settlement?
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Can only be exercised at expiration
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What is American style settlement?
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Can be exercised anytime before expiration.
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What is the CBOE?
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Chicage Board Options Exchange
- options contracts are sold heavily here. - settle next business day. |
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When do listed option contract contracts expire?
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Saturday following 3rd friday @ 11:59pm
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When must the disclosure document be delivered to the customer?
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At or before account approval, customer must sign and return within 15 days.
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Who signs account opening forms?
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Rep and principal.
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Features of Margins:
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- Credit agreement and hypothecation form is required.
- Loan consent form is optional - All securities in margin accounts must be held in street name |
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What is hedging?
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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.
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What is listed in the pink sheets?
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OTC stocks and market makers (weekly)
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What is included in a Revenue Bond indenture?
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- Legal opinion
- Rate covenant - Maturity feature |
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What is the other name for a catastrophe call?
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Condemnation
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Who insures muni's?
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MBIAC and AMBAC
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What is commercial paper?
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Commercial paper is used to issue short term funds.
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What are Bond Anticipation Notes?
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used to finance a short term capital project
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What are Tax Anticipation Notes?
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Used to meet operation expenditures.
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What is the accrued interest for gov't bonds?
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Actual days/365 day year
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what is the accrued interest for muni's?
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30 day month / 360 day year
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What is a mill?
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Mill = .001
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What is the formula for property tax?
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Assessed value X mill rate
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What are GO's?
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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 |
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What is a limited tax bond?
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Limited to a specific maximum rate.
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What is a special tax bond?
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Revenue bond backed by a specific source.
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What is used in the credit analysis of GO's?
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Tax collection record of municipality
Evaluation of the debt to real estate values |
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What is used in the credit analysis of Revenue Bonds?
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- Feasibility study
- Debt service coverage ratio |
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What are GNMA's?
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US gov't agency, backed by the US gov't
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What are Industrial Development Revenue Bonds?
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Bonds secured by lease agreements w/ a corporation
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What is an Equipment Trust bond?
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Lien on the equipment that secures the issue
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Muni bonds are exempt from?
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Federal taxes
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What is the Renewal and Replacement Fund?
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Holds monies put aside for the improvement of the facility.
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Features of Revenue Bonds:
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- 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. |
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Pension funds:
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Do not pay taxes on their investments
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The federal tax exemption on muni's was established by:
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Supreme court decisions
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Features of the Bond Resolution/indenture:
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- 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 |
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What is the debt service coverage ratio?
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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.
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