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35 Cards in this Set
- Front
- Back
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What is a secured corporate bond? What are some types? |
A secured bondholder has a lien on a specific asset of the company - such as equipment (an equipment trust certificate), real property (a mortgage bond) or securities given as collateral (a collateral trust certificate). |
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What is a debenture? |
A promise to pay without any liens on corporate assets |
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Nominal Yield formula |
NY = annual interest/par (the stated rate of interest on the bond based on par value) |
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What is a principal only (PO) tranche? |
A tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranche that only receives the interest payments from that mortgage. |
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What is true of PO tranches? When interest rates rise, price of the tranche____. When interest rates fall, price of the tranche ____. |
Falls. Rises. |
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What is a first mortgage bond? |
A secured corporate bond that is backed by specific real estate the company owns. The bondholder basically has a lien on the company's real estate. |
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Conversion Price Formula |
CP = Par Value of Bond/Conversion Ratio Do not use the CMV of the bond! |
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What does "firm for one-half hour with a 5 min recall" mean? |
The selling dealer cannot change the price for one-half hour, but has the right to contact the other dealer during the half hour to change the quote if a transaction does not take place within 5 mins. |
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Is common stock negotiable and non-callable? |
Yes |
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Bonds and preferred stock have fixed payout rates and can be converted into shares of common stock. True or false? |
True |
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Someone purchases a municipal bond. The interest income is subject to which taxes? |
Federal tax only. They are currently state and local tax exempt. |
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Regulation ATS specifies that an ECN must... |
Alternative Trading System (ATS) Electronic Communications Network (ECN) Register with the SEC as a broker-dealer. Display its quotes and make them electronically accessible if the ECN is responsible for 5% or more of the trading volume in that stock. |
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Convertible preferred stock will have a (lower/higher) yield than non-convertible preferred stock. Convertible preferred stockholders benefit as the market price of the common stock (rises/falls). |
Lower. Rises |
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How may dividend on a preferred stock be paid? |
Cash or preferred stock of the same issuer |
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A Treasury STRIP will pay interest _____ whereas a Treasury Note will pay interest_____. |
At maturity. Semi annually. |
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When may a member firm use a third party to execute OTC agency transactions? |
If the resultant price is better than the best available market at the time. |
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In a period of falling interest rates.... CMO prices will rise (slower/faster) than similar maturity regular bond prices. The expected maturity of the CMO will shorten due to a (slower/faster) prepayment rate than expected |
Slower. Faster. |
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Does the FRB issue bonds? |
The Federal Reserve Bank does not issue bonds. |
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Which debt issues would most likely be found in a pension plan? |
Corporate Bonds and Government Bonds. Munis are exempt from federal income tax. Because a pension plan is "tax qualified" meaning taxes are deferred and munis have a lower interest rate due to the tax exemption, it would not make sense to invest in munis. |
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Order these bonds from highest to lowest yield: -GO Bond -Public Purpose Revenue Bond -Non-essential Use Private Purpose Revenue Bond -Puerto Rico Bond |
-Private purpose revenue bond - income is Federally taxable via the AMT - Alternative Min Tax. --Public purpose revenue bond (interest income is exempt from Federal tax. -GO bond - greater safety; Federal tax exempt. -Puerto Rico bond - exempt from Federal, State, and Local taxes for all investors, no matter where they live |
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When a recession is expected... Investors will sell (corporate/govt) bonds. Yields on (corporate/govt) bonds would increase. |
Corporate. Corporate. |
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What position would generate additional income against a short stock position? |
Short put. |
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How many shares equal 1 right? |
1 share = 1 right |
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An NMS stock can only be sold short on an up bid if its price falls by at least: |
10% If an NMS (National Market System stock - NYSE, NYSE-MKT (AMEX), or NASDAQ listed) falls by 10% or more, it can only be sold short on an "up bid" for the remainder of that trading day and the entire next trading day. Thus, it can only be sold short into a rising market. This stops the relentless short selling of stocks with the intent of driving market prices down - a market manipulation. |
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Who issues listed options contracts? |
the OCC (Options Clearing Corp) |
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Negotiable certificates of deposit are issued in minimum units of... |
$100,000 |
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Arbitrage Transaction |
A security is bought on one market and simultaneously sold on another market |
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Where are reports of corporate bond trades made? |
TRACE (Trade Reporting and Compliance Engine) It reports trades of corporate bonds and non-asset backed agency bonds. |
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Where are reports of corporate bond trades made? |
TRACE (Trade Reporting and Compliance Engine)It reports trades of corporate bonds and non-asset backed agency bonds. |
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What is a straddle? |
Buying (long) or selling (short) a call and a put with the same strike price and expirations. |
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What is the max gain on a long straddle? Max loss? |
Max gain = UNL Max Loss = total premiums paid |
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What is the max gain/loss on a short straddle? |
Max gain = Premiums received Max Loss = UNL |
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What is a combination? |
Buy (long) or sell (short) same stock with different expirations and strike prices. |
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What is the max gain/loss on a long combination? |
Max Gain = UNL Max Loss = Premiums paid |
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What is the max gain/loss on a short combination? |
Max Gain = Premiums Received Max Loss = UNL |
