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CFP Exam > Securities > Flashcards

Securities Flashcards

1
Q

T Bills vs bonds?

A

T bills are sold at discount and mature at face value) they do not pay a particular fixed interest rate)

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1
Q

What signal would a T.A. issue for a stock with a big increase in trading volume?

A

Buy

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2
Q

What is a spot price?

A

current price which an investor can buy/sell an instrument

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3
Q

What is a European option?

A

An option that con only be exercised on expiry date

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4
Q

when do call options expiry?

A

3rd Friday of the month

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5
Q

If you buy a put, are you long or short?

A

Long

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6
Q

Characteristic of closed end mutual funds?

A

Given laws of supply and demand, and since no new shares are issued, they can trade above NAVPS

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7
Q

Are front end charges included or excluded from ACB?

A

Included.

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8
Q

What is the ask risk rule?

A

On real estate investments, losses that can be claimed are limited to the capital deemed to be at risk.

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9
Q

Limited partnership in real estate advanatges?

A

Ideal vehicle for tax shelters with real estate:
* Losses can flow through to partners
* limits liability
* can require less capital relative to property value

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10
Q

Min holding period for LSIF?

A

8 years

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11
Q

What is yield to call?

A

Bonds yield if held to specific call date

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12
Q

current yield vs yield to maturity?

A

CY: Annual income / current price

YTM: total return if held to maturity (more comprehensive)

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13
Q

What are sinking fund bond ? Risk?

A

A fund set aside to ensure debt obligation is paid in full by maturity. (essentially, they call X% of a bond issue each year)

Lower the risk of default for investors

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14
Q

What is immunization strategy?

A

Matching bond duration to investors holding period to minimize/eliminate effect of interest rate changes on investor.

Basically, you can simply hold the bond to maturity

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15
Q

How do real return bonds work?

A

Adjusts the face value based on inflation. Because payments are based on face value, payments, too, are indexed to inflation.

E.g.

10K bond at 6%, inflation of 1.5% last year, this years face value is 10150.

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16
Q

What is the most senior debt?

A

First mortgage bonds

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17
Q

What is a debenture?

A

Bond secured only by creditworthiness of issuer

18
Q

What is an income bond?

A

Bond that pays interest only if the company is profitable.

19
Q

What is a put/retractable bond?

A

Bond that the holder can call of specific dates (lower risk)

20
Q

Extendable bond?

A

Allows holder to extend term to maturity

21
Q

Who gets accrued interest on a bond if it is sold?

A

The buyer (though this will be reflected in the price of the bond)

22
Q

What is riding the yield curve?

A

Purchasing long duration bonds for short periods (to work, we need a positively sloped curve)

23
Q

main factor in whether rental income is property or business income?

A

and kinds of services provided.

24
Q

Maturity amount on a real return bond/

A

Original face value x total inflation since issue (crazy).

25
Q

What is expectations theory?

A

Current long term bond rates forecast future short term rates

26
Q

What is market segmentation theory/

A

Yield curve just represents supply and demand of bonds of various terms by bigger players (i.e., life insurance companies, banks).

27
Q

What is bond duration?

A

the approximate % change in bond price for a 1% change in rates

28
Q

How would a bond with duration of 10 respond to an increase in interest rates of 1% down?

A

+10% price.

29
Q

What costs are deductible by a rental prop owner?`

A

Ins. premiums
rent collection fees
legal fees
prop tax
mortgage interest
utilities
lawn maintenance
regular maintenance charged

30
Q

What is the capital cost allowance?

A

deduction for depreciating assets, and costs to maintain those assets are factors in (e.g. reno materials and labour) but not short term maintenance

31
Q

How is the deduction for a split (owner occupied & rental) unit calculated?

A

Based on square footage OR # of rooms occupied by tenant and all costs that benefit the tenant as well are split on that basis (e.g., if 50/50 then half, e.g., prop tax is deductible)

32
Q

How does CAA factor into a property sale?

A

Capital gains (sale price -original cost- cap expenditure) + CCA = taxable income

33
Q

Max capital cost allowance?

A

Lesser of net rental income or maximum undepreciated capita cost allowance rate

34
Q

Can losses on a rental offset cap gains or employment income?

A

Yes and Yes

35
Q

What is the ex dividend date?

A

When a trade needs to be settled to receive dividends
* 2 business days before the date of record.

36
Q

Are dividends always taxed higher than cap gains?

A

NO, depends on the province

37
Q

How is intrinisc value calc. by the dividend valuation growth model?

A

(Dividend X (1+ expect growth)) / (Required %return - expected div gwt)

38
Q

What is a board lot? Odd lot?

A

Depending on value of share:
Under 10C: 1000
10C to 99C: 500
$1+: 100

An odd lot is any other number of shares

39
Q

How can one outperform the market under Efficient Market Hyp?

A

You cannot consistently outperform

40
Q

3 forms of EMH?

A

Weak: all past info is priced in
Semi-Strong: all public info
Strong: all info

41
Q

What are rights issued to shareholders?

A

They can be traded, usually the exercise price is set below market price at time of issue. Expiration is very short, usually a couple of weeks. Often, mutliple rights are need per new share (e.g., 3:1)

42
Q

If you purchase stock with rights during the ex rights period, are you entitled to the rights?

A

no

CFP Exam (12 decks)

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