Investment Vehicles - Fixed Income Flashcards
CD’s
Covered by FDIC 250,000 per titling (indiv, Jt, trust)
Trust - Revocable
$250,000 per bene
benes must be:
1. qualified family member (spouse, child, parent,
sibling, grandchild)
2.must be specifically named
3. must have intention of passing account to bene
at death
IRA - separate from individual registration
Self directed Keogh, 457, Self Directed DC aggregated.
Negotiable CD
marketable (dealer makes market) traded on open market Interest Rate Risk low default risk high liquidity Large institutional Investors Insured up to $250 by FDIC
Non-Negotiable CD
3mo-5yrs Low default risk Highly Liquid No marketability Good for laddering
Taxation CD’s
Interest Income - Ordinary rates
Early Withdrawal penalty non negotiable
Negotiable- taxed similar to T-Bills
Money Market Deposit Account
Offered by Banks Non-negotiable Non-transferable FDIC insured Six transfers per mo (3 by check) Interest taxed in yr earned - Ordinary rates
Money Market Funds
Open end investment company
NOT insured
taxable or tax exempt
Average maturity of investments 90 days
Treasury bills
Maturities 1yr or less (3,6,12)
Issued at discount from face
$100-$1,000,000
Weekly Auctions
No Risk
Safest investment
Subject to federal tax
Exempt state and local tax
Commercial paper
Short term loans between corporations Unsecured promissory note (default risk) Issued by well know strong financially stable Co's Start at $100k Maturity 270 days or less Sold at a discount Not registered with SEC
Bankers Acceptance
Used to finance imports and exports Serves as assurance of payment (like line of credit) Negotiable Can be held or traded Maturity 9mo or less Trades at a discount to face Held to maturity or traded
Eurodollars
Deposit in ANY foreign bank denominated in US dollars
In millions
Maturity under 6 months
Yankee Bonds
Dollar denominated bonds issued in US by foreign banks and companies
Registered with the SEC
Issued when US markets more favorable
Individual Bonds Yields
Discount Bonds Yield to Call Yield to maturity Current Yield Nominal Yield (Coupon)
Premium Bonds Nominal Yield (Coupon) Current Yield Yield to Maturity Yield to Call
Bonds are likely to be called when selling at a premium
Accrued Interest
Interest is earned daily.
Purchaser of bond must compensate seller for accrued interest
Calculated last interest payment to regular way settlement
1099-INT Semi annual interest- accrued interest =taxable interest
Basis cost - accrued interest
Original Issue Discount - OID
Discount from Par at time issued
commonly zero coupon bonds (no accretion)
Discount is accreted over bonds life if more than 1yr
accreted portion included in taxable interest for the year
Reported as interest income
No reinvestment risk
Treasury Notes
1-10 year maturities
$1,000-$100,000
Issued at Par
RIP RISK (Reinvestment, Interest rate, Purchasing power)
Non-callable Semiannual interest Monthly Auctions Subject to Federal Tax Exempt State and local tax
Uses High Quality can be used as collateral certainty of income required marketable investment diversification
