Characteristics, uses, and taxation of Investment Vehicles

Question 1

Large Cap Stocks

Answer 1

market value exceeding 10 billion

Question 2

Mid Cap stocks

Answer 2

range between 2 and 10 billion

Question 3

Small Cap Stocks

Answer 3

anything less than 2 billion

Question 4

Micro Cap Stocks

Answer 4

market value less than 300 million

Question 5

10Qs

Answer 5

quarterly reports from corporate management to SEC

Question 6

10Ks

Answer 6

annual reports from corporate management to SEC

Question 7

Annual Report

Answer 7

written by corporate management for its shareholders

Question 8

ADRs

Answer 8

American Depositary Receipts

entitle shareholder to all dividends

Question 9

GIC

Answer 9

Guaranteed Investment Contracts

Similar to CDs but issued by insurance companies

terms range from 2-5 years

often used by defined benefit plans

no interest rate risk

Question 10

NOI

Answer 10

Net Operating Income

Gross rental receipts + Non-rental income = Potential gross income (PGI) - Vacancy and collection losses = Effective gross income - Operating expenses (excluded interest and depreciation) = Net operating income (NOI) Property’s Cash Flow

Question 11

Equity REITS

Answer 11

• Invest mainly in income-producing properties
• typically use a modest leverage to finance property investments

Question 12

Mortgage REITS

Answer 12

• Make loans to develop property or finance construction
• particularly vulnerable to purchasing power risk

Question 13

RELPs

Answer 13

Real Estate Limited Partnership

non-publicly traded

last about 10-20 years

Question 14

Derivatives

Answer 14

financial instrument who value is based on an underlying assets or group of assets

Question 15

Intrinsic Value

Answer 15

• minimum price an option will command
• the difference between the market price of the underlying asset and the exercise price of the option

Question 16

Time Premium

Answer 16

amount the market price of an option exceeds its intrinsic value

Question 17

Exercise Price

Answer 17

(strike price) is the price at which the stock can be purchased or sold on exercise of the option

Question 18

Premium

Answer 18

market price (cost) of an option

As the option approaches its expiration date, the market price of an option (the premium) approach its intrinsic value.

Question 19

Put

Answer 19

contract that gives the holder the right to sell a specific number of shares of common stock at a set price for a given period of time until the contract expires.

Question 20

Call

Answer 20

• contract that gives the holder the right to purchase a specific number of shares of common stock set at a price for a given period of time
• premium is nondeductible capital expenditure, when exercised the premium oil included in the basis of the stock, if not exercised, premium is short term gain to writer, if exercised it is added to the gain of sold security

Question 21

LEAPs

Answer 21

Long-Term Equity Anticipation Securities

maturities of 2 years or more

allow options buyers to assume positions for anticipated long-term movements

Question 22

Futures contract

Answer 22

agreement between buyer and seller, through a commodity exchange for the future delivery of a commodity at a specified date and price

Question 23

Spot Price

Answer 23

The current market price of a commodity in the cash market

Question 24

Open Interest

Answer 24

The number of futures contracts trading for a particular commodity on any given day

Question 25

Daily Limit

Answer 25

maximum permissible price increase or decrease relative to settlement price of previous day

Question 26

Warrant

Answer 26

• issued by corporation
• maturities of several years
• not standardized
• warrants are issued with no intrinsic value