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CFP EXTENDED > INVESTMENTS > Flashcards

INVESTMENTS Flashcards

1
Q

INVESTMENTS

DURATION

A

**MEASURES THE WEIGHTED AVERAGE MATURITY OF THE BOND’S CASH FLOW ON A PV BASIS. ** THE PV OF THE CASH FLOWS ARE USED AS THE WEIGHTS IN CALCULATING THE WEIGHTED AVG MATURITY.

THE SMALLER THE DURATION - THE MORE VOLATILE THE BOND’S PRICE

IF INTEREST RATES INCREASE - DURATION DECREASES INVERSERSE RELATIONSHIP.

LONG MATURITY (TIME) = HIGH DURATION (POSITIVELY RELATED )

ZERO COUPON MATURITY = DURATION

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2
Q

INVESTMENTS

8 DOMAINS

A
  1. EST & DEFINE CLIENT-PLANNER RELATIONSHIP
  2. GATHER INFO NEC TO FULFILL ENGAGEMENT
  3. ANALYZE & EVALUATE CLIENT’S CURR FINAN STATUS
  4. DEVELP THE RECOMMENDATIONS
  5. COMMUNICATE THE RECOMMENDATIONS
  6. IMPLEMENT THE RECOMMENDATIONS
  7. MONITOR THE RECOMMENDATIONS
  8. PRACTICE W/IN PROF & REGULATORY STANDARDS
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3
Q

INVESTMENTS

A CANADIAN COMPANY WHICH EXPORTS PRODUCTS TO THE U.S. WANTS TO PROTECT ITSELF WHEN THE AMERICAN DOLLAR IS EXPECTED TO BE DEVALUED. THE COMPANY SHOULD:

A

SELL US DOLLARS

BUY CANADIAN CURRENCY

(IF THE US DOLLAR IS BEING DEVALUED - CANADIAN CURRENCY WILL BE WORTH MORE)

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4
Q

INVESTMENTS

BETA

A

MEASURES SYSTEMATIC RISK - NOT TOTAL RISK

MEASURES VOLATILITY OF RETURNS USED IN A DIVERSIFIED PORTFOLIO.

BETA = 1 STOCK’S RETURN MOVES EXACTLY WITH THE MARKET AS A WHOLE

BETA < 1 MEANS THE STOCK’S RETURN FLUTUATES LESS THAN THE MKT AS A WHOLE.

BETA > 1 MEANS THE STOCK’S RETURN FLUCTUATES MORE THAN THE MARKET AS A WHOLE.

A BETA OF 2 IS 100% MORE VOLATILE THAN THE AVERAGE STOCK

A BETA OF .75 MEANS THE STOCK IS ONLY 75% AS VOLATILE AS AN AVERAGE STOCK.

ß = COV IM ÷ σM²

COV IM = CORRELATION COEFF(σ MKT)

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4
Q

INVESTMENTS

BETA COEFFICIENTS

A

CAN BE USED TO STANDARDIZE MUTUAL FUNDS FOR RISK

INDIVIDUAL FUNDS REALIZED RETURN ÷ BETA COEFFICIENT

EX: ANN RETURN = 24% BETA 2 .24÷2 = 12% WHEN COMPARED TO OTHER FUNDS - WHICHEVER % IS HIGHEST.

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5
Q

INVESTMENTS

BLACK-SCHOLES OPTION VALUATION MODEL

A

5 VARIABLES TO VALUE THE OPTION OF A NON-DIVIDEND PAYING STOCK. THINK: CALL UP

  • PRICE OF THE UNDERLYING STOCK
  • EXERCISE PRICE (STRIKE PRICE) OF THE OPTION
  • TIME REMAINING TO EXPIRATION
  • INTEREST RATE
  • VOLATILITY OF THE UNDERLYING STOCK

ALL VARIABLES HAVE A DIRECT (UP) RELATIONSHIP FOR CALLS EXCEPT EXERCISE PRICE

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6
Q

INVESTMENTS

BONDS AND RELATIONSHIPS

A

THE SMALLER THE COUPON, THE GREATER THE RELATIVE PRICE FLUCTUATION

IF INTEREST RATES ARE DECLINING - OWN LONG BONDS

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7
Q

INVESTMENTS

BONDS NOT SUBJECT TO VARIOUS TAX

A

BONDS NOT SUBJECT TO STATE AND LOCAL

  • EEs
  • TREASURIES
  • MUNIS IN SAME STATE

BONDS NOT SUBJECT TO FEDERAL:

  • MUNIS
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8
Q

INVESTMENTS

CALLS VS WARRANTS

A

CALL OPTIONS AE SOLD AND BOUGHT BY INDIVIDUALS VS WARRANTS ARE ISSUED BY CORPORATIONS

CALL OPTIONS HAVE A LIMIT OF 9 MONTHS VS WARRANTS CAN HAVE LONGER MATURITIES

OPTIONS DO NOT CREATE NEW STOCK VS WARRANTS CREATE NEW STOCK WHEN EXERCISED

CALL OPTIONS ARE STANDARDIZED VS WARRANTS ARE NOT STANDARDIZED.

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9
Q

INVESTMENTS

CLOSED-END INVESTMENT COMPANIES

A

PUBLICILY TRADED.

ONE-TIME STOCK ISSUANCE - FUNDS BOOKS ARE THEN CLOSED. NO NEW SHARES.

TRADES ON AN EXCHANGE

VALUED LIKE ANY OTHER NEGOTIABLE SECURITY (SUPPLY/DEMAND)

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10
Q

INVESTMENTS

COEFFICIENT OF VARIATION(CV)

A

A MEASURE OF RELATIVE VARIABLITY USED TO COMPARE INVESTMENTS WITH WIDELY VARYING RATES OF RETURN AND STANDARD DEVIATION. RISK PER UNIT OF EXPECTED RETURN.

**STANDARD DEVIATION ÷ AVERAGE/MEAN AND COMPARE TO ANOTHER STOCK(S) TO DECIDE WHICH IS GREATER. **

THE SECURITY WITH THE HIGHER % IS MORE RISKY. (COEFFICIENT OF VARIATION IS GREATER)

**TEST: ** IF A STOCK IS MORE RISKY - COEFFICIENT OF VARIATION IS GREATER.

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11
Q

INVESTMENTS

COLLAR

A

A HEDGING STRATEGY WHEN THE INVESTOR OWNS A STOCK AND WANTS TO HEDGE AGAINST A DOWNTURN IN THE STOCK.

SELL AN OUT-OF-THE-MONEY CALL AT ONE STRIKE PRICE

BUY AN OUT-OF-THE-MONEY PUT AT A LOWER STRIKE PRICE

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12
Q

INVESTMENTS

CONSERVATIVE INVESTMENTS

A

ANYTHING WITH < 1 YEAR TO MATURITY

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13
Q

INVESTMENTS

CONVERTIBLE DEBT (IV-11)

A

GENERALLY ISSUED AT A SLIGHT DISCOUNT

PAY INTEREST BUT MAY BE CONVERTED INTO A SPECIF NUMBER OF SHARES OF THE ISSUER’S COMMON STOCK.

NORMALLY ISSUED AT LOWER YIELDS BECAUSE OF THEIR CONVERSION PRIVILEGE.

MARKET PRICE DEPENDS ON BOTH THE VALUE OF THE STOCK AND THE INTEREST THAT THE BOND PAYS.

INTRINSIC VALUE: PRESENT VALUE OF ITS EXPECTED CASH FLOWS. PAYMENT IS A POSITIVE INPUT.

EXAMPLE: COVERTIBLE BOND (PAR = $1000) CPN: 3%. MATURES IN 10 YEARS. BOND IS CONVERTIBLE AT $44. CURRENT MKT PRICE OF STOCK IS $34. BOND SELLS FOR $1200 (MARKET VALUE) COMPARABLE DEBT IS 2.2043%. INTRINSIC VALUE = $1,071.06 (PV) (USE CPN AS PMT AND COMPARABLE YIELD AS I/PY

CONVERSION VALUE IS $772.73 (FORMULA)

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14
Q

INVESTMENTS

CORRELATION COEFFICIENT

A

RANGE FROM -1 TO +1

PERFECTLY POSITIVELY CORRELATED SECURITIES HAVE A VALUE OF +1. SECURITIE MOVE EXACTLY TOGETHER. NO DIVERSIFICATION. σ OF PORTFOLIO = WTD AVG OF THE σ OF THE TWO ASSETS.

BETWEEN0.0 AND 1.0 - RISK OF PORT AS A WHOLE IS < THE RISK OF THE INDIVIDUAL ASSETS.

PERFECTLY NEGATIVELY CORRELATED SECURITIES HAVE A VALUE = -1.0. SECURITIES MOVE EXACTLY OPPOSITE EACH OTHER. RISK IS ELIMINATED. σ=0.

TEST: IF CORRELATION COEFFICIENT IS 1 - AVERAGE THE RISKS. IF NOT- AVG THE RISKS, THEN BASED ON THE CORRELATION COEFFICIENT, PICK ANSWER LESS THAN THE AVG OR MORE THAN THE AVG DEPENDING ON WHETHER CORRELATION COEFFICIENT IS OVER OR UNDER 1.

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15
Q

INVESTMENTS

COVARIANCE (COV)

A

MEASURES THE EXTENT TO WHICH STOCKS ARE RELATED TO EACH OTHER OR HOW THE PRICE MOVEMENTS OF ONE OF THE SECURITIES IS RELATED TO THE PRICE MOVEMENTS OF THE 2ND SECURITY. (WILL PROBABLY HAVE TO USE IT TO CALCULATE THE CORRELATION COEFFICIENT-IV-27

Þ¡¡ = COVij / σiσj or COVij = Þ¡¡ σiσj

SHORTCUT FOR TEST: WHEN CORRELATION COEFFICIENT IS 1.0 - YOU CAN AVERAGE THE RISK. THE MAXIMUM RISK AND PICK AN ANSWER BELOW BASED ON THE CORELATION. (IV-28) IF THE CORELATION IS NEG - PICK A NUMBER NEAR 0.

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16
Q

INVESTMENTS

CURRENT TAX EQUIVALENT YIELD

INFO FOR TEST QUESTIONS

A

DON’T USE COUPON RATE FOR THE YIELD.

CURRENT TAX EQUIVALENT YIELD USES CURRENT MARKET VALUE TO GET CURRENT TAX EXEMPT YIELD =

= _COUPON PAYMENT ($) _

** MARKET VALUE**

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17
Q

INVESTMENTS

CURRENT YIELD

A

INCOME\MARKET VALUE

FOR A PORTFOLIO: TOTAL INCOME FOR PORTFOLIO

                                TOTAL MARKET VALUEFOR ALL FDS
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17
Q

INVESTMENTS

DEVALUATION VS REVALUATION

A

DEVALUATION - THE LOWERING O THE VALUE OF A CURRENCY RELATIVE TO OTHER CURRENCIES.

CAN ALSO RESULT FROM A RISE IN VALUE OF OTHER CURRENCIES RELATIVE TO THE CURRENCY OF A PARTICULAR COUNTRY.

REVALUATION - REFERS TO AN INCREASE IN THE CURRENCY’S VALUE

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18
Q

INVESTMENTS

EMPLOYMENT CATEGORIES NOT COVERED BY SOCIAL SECURITY

A

A SOME AMERICANS WORKING ABROAD

B FED EMPLOYEES CONT EMPLOYED SINCE BEFORE 1984

C STUDENT NURSES/STUDENTS WORKING FOR A COLLEGE/CLUB

D DEPENDENT UNDER 18, EMP BY A PARENT IN UNINCORP BUSINESS

E EMPLOYEES OF RAILROAD

F. MINISTERS/MEMBERS OF RELIGIOUS ORDER/CHRISTIAN SCIENCE IF CLAIM EXEMPTION

G MEMBERS OF TRIBAL COUNCILS.

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19
Q

INVESTMENTS

EXPECTED RETURN OF A STOCK

A

r = D1 + g

  P
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20
Q

INVESTMENTS

FUTURES

A

IF YOU’RE LONG - YOU WANT TO GO SHORT

IF YOU’RE SHORT - YOU WANT TO GO LONG.

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21
Q

INVESTMENTS

EE BONDS

HH BONDS

I BONDS

A

**♦EE BONDS: ** ISSUED AT FACE VALUE. TERM: 20 YEARS. IF NOT REDEEMED AT MATURITY WILL ACCRUE FOR ADDITIONAL 10 YEARS. INT RATE BASED ON 10 YEAR TREASURY NOTE YIELDS. NOT SUBJECT TO FED INCOME TAXATION UNTIL REDEEMED OR MATURITY,

INTEREST NOT SUBJECT TO STATE OR LOCAL TAXES.

♦HH BONDS: AVAILABLE ONLY THROUGH AN EXCHANGE OF AT LEAST $500 IN SERIES EE BONDS. PAY INTEREST SEMI-ANNUALLY (BY CHECK).

♦I BONDS - INFLATION IN. INDEXED ACCRUAL SECURITIES OF US GOVT. SOLD AT FACE VALUE.

INTEREST COMPUNDED EVERY SIX MONTHS ON SEMI-ANNUAL ANNIVERSARY OF BONDF’S ISSUE DATE. NO GUARANTEE OF EARNINGS. INTEREST RATE = FIXED BASE RATE AND AN INFLATION ADJUSTMENT - (PERFORMED EVERY SIX MONTHS TO TRACK INFLATION AS MEASURED BY CPI). TAXED THE SAME AS EE BONDS.

21
Q

INVESTMENTS

GEOMETRIC MEAN

A

TIME WEIGHTED RETURN - EVALUATES THE PERFORMANCE OF THE PORTFOLIO MANAGER. MEASURES INVESTMENT PERFORMANCE (INCOME AND PRICE CHANGES) AS A % OF CAPITAL AT WORK. (ELIMINATES THE EFFECTS OF ADDITIONS AND WITHDRAWALS)

EXAMPLE: IF ANN RETURNS WERE 30%, 40%, -40% -20%

(1+.30) (1+.40) (1+-.40) (1+-.20)

THEN(♦YX )4 (THE NUMBER OF YEARS) ♦1/X =) -1

22
Q

INVESTMENTS

IF R2 IS HIGH

A

DON’T USE SHARPE RATIO

PICK THE HIGHEST TREYNOR NUMBER

23
Q

INVESTMENTS

INCREASE CURRENT INCOME TAX

AND

DECREASE CAPITAL GAINS TAX

A

INC CURR INC TAX DECREASES CAP GAINS TAX

FINE ART NONE CAP GAINS @ 28%

COINS NONE CAP GAINS @ 28%

GR STOCK NONE CAP GAINS @ 15%

ZERO-CPN PHANTOM INCOME NONE (IV-25)

24
Q

INVESTMENTS

INTRINSIC VALUE (OPTIONS)

A

DIFFERENCE BETWEEN THE MAKRET PRICE OF THE STOCK AND THE EXERCISE OF THE OPTION.

INTRINSIC VALUE CANNOT GO BELOW 0

CALL OPTIONS: IV = MP - EP

PUT OPTIONS: IV = EP - MP

A LARGE MARKET PRICE SPREAD INDICATES VOLATILITY

25
Q

INVESTMENTS

INTRINSIC VALUE OF A STOCK FORMULA

A

D1 = D0(1+g)

r-g

26
Q

INVESTMENTS

LIQUIDITY

A

THE ABILITY TO TURN ASSETS INTO CASH WITHOUT A SIGNIFICANT LOSS OF PRINCIPAL

27
Q

INVESTMENTS

MARKOWITZ MODEL VARIABLES

A

USES STANDARD DEVIATION

COVARIANCE

CORRELATION COEFFICIENT

RETURN

(NOT BETA)

28
Q

INVESTMENTS

MUTUAL FUNDS

(OPEN-END INVESTMENT COMPANY)

A

SELL SHARES AFTER INITIAL OFFERING.

CAPITALIZATION CONTINUALLY CHANGING AS NEW INVESTORS BUY ADDITIONAL SHARES AND SOME EXISTING SHAREHOLDERS REDEEM THEIR SHARES BACK TO THE COMPANY.

NON-NEGOTIABLE

REDEEMABLE

29
Q

INVESTMENTS

NAKED CALL OPTIONS

A

LOSES $100 FOR EVERY $1 INCREASE IN THE PRICE OF STOCK ABOVE THE CALL’S EXERCISE PRICE

30
Q

INVESTMENTS

NET OPERATING INCOME

(NOI)

A

INTRINSIC VALUE OF A REAL ESTATE PROPERTY = NOI ÷ CAPITALIZATION RATE

GROSS RENTAL RECEIPTS

+ NONRENTAL INC (LAUNDROMAT EQUIP ETC)

= POTENTIAL GROSS INCOME (PGI)

  • VACANCY AND COLLECTION LOSSES

- OPERATING EXPENSES (EXC DEBT & DEP)

NET OPERATING INCOME (NOI)

_- DEBT (MORTGAGE) _

ANNUAL CASH FLOW

31
Q

INVESTMENTS

ORIGINAL ISSUE DISCOUNT BOND

OID

A

BOND DISCOUNTED FROM PAR VALUE AT ISSUE.

MOST OID’S ARE 0-COUPON BONDS,

DISCOUNT ON BOND ACCRETED OVER THE BOND’S LIFE. EACH YEAR THE PORTION OF THE DISCOUNT THAT HAS BEEN “EARNED” IS INCLUDED AS TAXABLE INTEREST INCOME AND THE BOND’S BASIS IS INCREASED.

33
Q

INVESTMENTS

PHANTOM INTEREST

A

ADDS TO COST BASIS AT THE END. CAPITAL GAIN = $0

  • ZERO COUPON BONDS
  • EE BONDS
  • OID BONDS
  • TIPS
  • STRIPS, CATS AND TIGRS
  • T-BILLS (TREASURY INFLATION PROTECTED SEC)
34
Q

INVESTMENTS

PRACTICE STANDARDS

A
  • 100:** *ER - ESTABLISH AND DEFINE THE RELATIONSHIP
  • 200** *GNP - DETERMINE GOALS NEEDS AND PRIORITIES
  • 200-1** *QQ - OBTAIN QUANTITATIVE & QUALITATIVE DATA
  • 300**: *AE -ANALYZE AND EVALUATE FINANCIAL PLANNING ALTERNATIVES ♦USE CLIENT SPEFICIED ASSUMPTIONS. ♦REASONABLE ASSUMPTIONS/MUTUALLY AGREED UPON ASSUMPTIONS

400-1 CONDUCT RESEARCH ♦CONSULT WITH OTHER INDIVIDUALS ♦ IDENTIFY ALTERNATIVES

400-2 ♦DEVELOP THE PLAN ANALYSIS/EVAL INCORP INTO THE PLAN ♦PERSONAL ASSUMPTIONS ADDED

400-3 ♦PRESENT RECOMMENDATIONS ♦ RISK
♦ADVANTAGES/DISADVANTAGES ♦TIME SENSITIVITY

500-1 ♦ IMPLEMENTING RECOMMENDATIONS
♦REFER/COORDINATE TO/WITH OTHER PROS♦ SHARE INFO AS AUTHORIZED♦ SELECT AND SECURE PRODUCT

500-2 ♦SUITABILITY, CLIENT’S BEST INTEREST ♦DISCLOSURES ♦SELECTED PRODUCTS AND SERVICES

600 ♦DEFINING & MONITORING RESPONSIBILITIES
♦FREQUENCY AND WHAT IS TO BE MONITORED

35
Q

INVESTMENTS

REIT

A
  • IF THE REIT DISTRIBUTES 90% OF ALL NET INVEST INC, IT ONLY PAYS TAX ON THE UNDISTRIBUTED PORTION. IF NOT - ALL NET INV INCOME IS TAXABLE TO THE REIT AS AN ENTITY.
  • ARE LISTED AND TRADE ON STOCK EXCHANGES
  • MUST INVEST AT LEAT 75% OF THEIR ASSETS IN REAL ESTATE ACTIVITIES TO QUALIFY FOR CONDUIT TREATMENT. 15% CAN COME FROM SECURITIES, LIKE GNMA’S.
36
Q

INVESTMENTS

RELATIVE MEASURE OF VARIABILITY

A

FOR EACH STOCK TAKE:

STANDARD DEVIATION ÷ MEAN

WHICHEVER STOCK HAS THE HIGHER % IS THE RISKIER STOCK.

37
Q

INVESTMENTS

REQUIRED RATE OF RETURN FORMULA

AKA: CAPITAL ASSET PRICING MODEL

CAPM - AND SML

A

r=rf + (rm-rf)B

37
Q

INVESTMENTS

RISK TOLERANT VS RISK CAPACITY

A

RISK TOLERANT - THE AMOUNT OF RISK THE INVESTOR IS COMFORTABLE TO TAKE

RISK CAPACITY - THE AMOUNT OF RISK THE INVESTOR MUST TAKE TO REACH FINANCIAL GOALS.

THE RETURN DOESN’T MATTER AS MUCH AS THE AMOUNT OF RISK YOU TAKE TO GET THAT RETURN.

39
Q

INVESTMENTS

RISK-ADJUSTED RETURN USING BETA

A

CAN BE USED TO STANDARDIZE MUTUAL FUNDS FOR RISK

DIVIDE AN INDIVIDUAL FUND’S REALIZED RETURN BY ITS BETA COEFFICIENT.

FUND’S REALIZED SML & JENSEN/ALPHA

40
Q

INVESTMENTS

SECURITIES MARKET LINE

A

OVERVALUED INVESTMENTS ARE UNDER THE SML LINE

UNDERVALUED INVESTMENS ARE OVER SML LINE

42
Q

INVESTMENTS

STANDARD DEVIATION

A

AN ABSOLUTE MEASURE OF THE VARIABLITY OF RETURNS AROUND THE AVG OR MEAN OF THOSE RESULTS. USED IN A NONDIVERSIFIED PORTFOLIO. MEASURE OF TOTAL RISK.

IN A NORMAL (BELL SHAPED) DISTRIBUTION, 68% OF ALL RESULTS FALL WITHIN +/- ONE STANDARD DEVIATION OF THE AVG OR MEAN.

95% FALL WITHIN +/- TWO STANDARD DEVIATION.

USE Σ WITH AVG OR MEAN ANNUAL RETURNS.THEN ♦7♦8 ON CALCULATOR TO COMPUTE

SHORTCUT: ADD THE RISKS AND TAKE THE AVERAGE. PICK AN ANSWER LESS THAN THIS BASED ON THE CORRELATION NUMBER.

43
Q

INVESTMENTS

STRADDLE

A

BUYER DOESN’T OWN THE STOCK

THINKS THERE WILL BE MOVEMENT IN PRICE OF STOCK BUT DOESN’T KNOW WHICH DIRECTION. VOLATILITY IS KEY TO MAKING THIS WORK.

BUYS A PUT AND BUYS A CALL.

PROFITS AS LONG AS EITHER SIDE GOES IN-THE-MONEY AN AMOUNT GREATER THAN THE COMBINED PREMIUM.

44
Q

INVESTMENTS

TREASURIES

A

MATURITIES: BILLS - 3-12 MONTHS. QUOTED IN TERMS OF DISCOUNTED YHIELD. ($100 - $1 MILLION). DIFFERENCE BETWEENIISSUE PRICE & MATURITY IS TAXED AS INTEREST.

  • NOTES: 1-10 YEARS ($1,000 - $100,000)
  • BONDS - 10 - 30 YEARS ($1,000 TO $1 MILLION)

RISK: DUE TO LENGTH OF MATURITY T-BILLS LESS RISK

  • T-BILLS BOT BY CORP WITH EXCESS SHT TERM CASH/MMF. INDIVIDUAL INVESTORS BUY THEM INDIRECTLY THRU M.MF

CALLABLE: BONDS

  • INTEREST PAID: BILLS SOLD AT A DISCOUNT . MATURE AT FACE VALUE.
  • **T- BONDS & T-NOTES **PAY INTEREST SEMI-ANNUALLY

OID ON TAX EXEMPT OBLIGATIONS IS NOT TAXABLE AND ON A SALE OR REDEMPTION GAIN ATTRIBUTED TO OID IS TAX EXEMPT.

46
Q

INVESTMENTS

TAX EXEMPT YIELD

VS

TAXABLE YIELD

A

TAX EXEMPT YIELD =

TAX EQUIV YLD (TEY) - (1 - MARGINAL TAX RATE)

47
Q

INVESTMENTS

TAXATION OF CALL OPTIONS

A

TO HOLDER: IF OPTION IS EXERCISED - THEN OPTION IS CONSIDERED SOLD (EXPIRES) - ST GAIN/LOSS

IF OPTION IS SOLD BEFORE IT EXPIRES - ST GAIN/LOSS

TAXABLILITY TO THE WRITER DUE TO EXERCISE: PREMIUM RECEIVED IS ADDED TO SALE PRICE. CAN BE A LT GAIN IF THE UNDERLYING SECURITY WAS HELD MORE THAN 1 YR. OTHERWISE ST GAIN.

TAXABILITY TO THE WRITER DUE TO LAPSE - PREMIUM RECEIVED IS ST GAIN

48
Q

INVESTMENTS

TAXATION OF PUT OPTIONS

A

IF OPTION IS SOLD BEFORE IT EXPIRES - ST GAIN/LOSS

49
Q

INVESTMENTS

UNIT INVESTMENT TRUSTS (UIT)

A

UNMANAGED SECURITY PORTFOLIO OFFERED BY A SPONSOR AND HANDLED BY AN INDEPENDENT TRUSTEE.

PASSIVE INVESTMENT. ASSETS ARE FROZEN- NOT TRADED

NO NEW SECURITIES PURCHASED AND SECURITIES ORIGINALLY PURCHASED ARE RARELY SOLD.

TRUST COLLECTS INCOME AND EVENTUALLY THE REPAYMENT OF PRINCIPAL.

SELF LIQUIDATING - AS FUNDS ARE RECEIVED THEY ARE NOT REINVESTED BUTARE DISTRIBUTED TO UNIT HOLDERS.

THE SPONSOR MAKES THE MARKET FOR THOSE WHO WANT TO SELL THEIR UNITS.

GENERALLY REDEEMED AT NAV.

MAY BE A SECONDARY MARKET FOR UITS AMONG BROKERS/DEALERS.

50
Q

INVESTMENTS

WHAT INVESTMENT COULD PROVIDE BOTH LEVERAGE AND A HEDGE AGAINST INFLATION

A

EQUITY REIT

CAN BE LEVERAGED

OWN THE PROPERTIES - PROVIDING THE INVESTOR WITH A HEDGE AGAINST INFLATION

51
Q

INVESTMENTS

WHEN WOULD A COMPANY ISSUE NEW BONDS?

A
  • WHEN EXITING BONDS ARE SELLING AT A PREMIUM
  • WHEN INTEREST EXPECTED TO RISE
  • WHEN INTEREST RATES HAVE FALLEN
52
Q

INVESTMENTS

ZERO COUPON BONDS

TREASURY SECURITIES

A

STRIPS, CATS AND TIGRS

DIRECT OBLIGATION OF THE FEDERAL GOVERNMENT

DISCOUNT ON STRIPS TREATED AS TAXABLE INCOME, EARNED ANNUALLY.

CATS AND TIGRS CREATED BY BROKERAGES BUYING A BLOCK OF TREASURY BONDS. (TREASURY INVESTOR GROWTH RECEIPT).

NOMALLY PURCHASED BY TAX-DEFERRED ENTITIES.

53
Q
A
54
Q

INVESTMENTS

INCOME TAX DEDUCTION FOR LIFE INSURANCE POLICIES

A

THE CHARITABLE CONTRIBUTION IS THE VALUE OF THE POLICY (CASH VALUE) OR BASIS - WHICHEVER IS LESS. THIS IS THEN LIMITED TO 50% OF AGI.

LIFE INSURANCE IS AN ORDINARY INCOME TYPE ASSET. IT IS NOT LTCGs TYPE ASSET WHERE YOU CAN USE FMV. (APPRECIATION)

55
Q

INVESTMENTS

SCHEDULE A ITEMIZED DEDUCTIONS

A

CHIMPS ARE CHARITABLE

C CASUALTY AND THEFT LOSSES

H HOME MORTGAGE INTEREST

**I ** INVESTMENT EXPENSE

M MEDICAL,DENTAL LTC (10% AGI 7.5% IFOVER 65)

P PERSONAL PROPERTY TAX

S STATE AND LOCAL TAXES

R REAL ESTATE TAXES

C CHAITABLE GIFTS

CFP EXTENDED (3 decks)

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