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Bonds Flashcards

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1
Q

how are US treasuries taxed?

A

only at the federal level (nontaxable at the state and local level)

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2
Q

what are the types of non-marketable US treasury issues?

A
  • Series EE
  • Series HH
  • Series I
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3
Q

what is a Series EE bond?

A

non-marketable, non-transferable US treasury issue

sold at face value, $25 minimum purchase price available only through TreasuryDirect

does not pay interest periodically, bond slowly increases in value over 20 years based on fixed rate at the time of purchase

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4
Q

what is a Series HH bond?

A

non-marketable US treasury issue

pays interest semiannually

not been issued since August 2004

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5
Q

what is a Series I bond?

A

inflation-indexed bonds issued by the US gov’t

sold at face value and have no guaranteed rate of return

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6
Q

what are the types of marketable US treasury issues?

A
  • US Treasury Bills
  • US Treasury Notes
  • US Treasury Bonds
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7
Q

what is a US Treasury Bill (T-Bill)?

A

have maturities less than 1 year

sold on a discounted yield basis, does not pay interest

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8
Q

what is a US Treasury Note (T-Note)?

A

have maturities between 2-10 years

pay interest semi-annually

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9
Q

what is a US Treasury Bond (T-Bond)?

A

have maturities greater than 10 years

pay interest semi-annually

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10
Q

what denominations are T-Bills, T-Notes, and T-Bonds sold at?

A

denominations of $100 or more

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11
Q

what is an Original Issue Discount (OID) bond?

A

issued at a discount from par value

example is a zero-coupon bond sold at a deep discount to par value

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12
Q

what does TIPS stand for?

A

Treasury Inflation Protected Securities

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13
Q

what are TIPS?

A

bonds that provide inflation and purchasing power protection

principal/par value adjusts for inflation, and then the coupon rate is applied to the new principal amount

coupon rate does not change

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14
Q

what does STRIPS stand for?

A

Separate Trading of Registered Interest and Principal Securities

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15
Q

what are STRIPS?

A

bonds where periodic coupon payments are separated from the bond and each coupon payment, including the par value, trade separately

create zero-coupon bonds

highly liquid and appropriate for investors looking for a low risk, highly liquid investment with a specific time horizon

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16
Q

what are federal agency securities?

A

moral obligations of the US government but are not backed by the full faith and credit of the US government

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17
Q

what is the one exception of the federal agency securities that IS backed by the full faith and credit of the US goverment?

A

GNMAs

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18
Q

what does GNMA stand for?

A

Government National Mortgage Association (Ginnie-Mae)

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19
Q

what does FHA stand for?

A

Farmers Home Administration

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20
Q

what are the types of on-budget debt federal agency securities?

21
Q

what are the types of off-budget federal agency securities?

Study These Flashcards
A
  • FNMA
  • FHLMC
  • SLMA
  • FFCB
  • FICB
  • FHLB
22
Q

what does FNMA stand for?

Study These Flashcards
A

Federal National Mortgage Association (Fannie Mae)

23
Q

what does FHLMC stand for?

Study These Flashcards
A

Federal Home Loan Mortgage Corporation (Freddie Mac)

24
Q

what does SLMA stand for?

Study These Flashcards
A

Student Loan Marketing Association (Sallie Mae)

25
what are the types of mortgage-backed securities?
- GNMA - FNMA - FHLMC
26
what is the biggest risk associated with mortgage-backed securities?
falling interest rates mortgages could get repaid early
27
what are the types of Corporate Bonds?
- Secured Bonds - Collateralized Mortgage Obligations - Unsecured Bonds
28
what are the types of secured corporate bonds?
- mortgage backed securities (MBS) | - collateral trust bonds
29
what is a mortgage-backed security?
backed by a pool of mortgages payments consist of both interest and principal biggest risk to bond holder is prepayment risk
30
what is a collateral trust bond?
backed by an asset owned by the company issuing the bond asset is held in trust by a third party in the event of a default of the debt payment, the bond holders are entitled to the asset being held in trust
31
what is a collateralized mortgage obligation (CMO)?
investors are divided into tranches, which determines which investors will receive principal repayment tranches A-Z investors in a short-term tranche receive principal repayment before the intermediate and long-term tranche
32
what are the types of unsecured corporate bonds?
- debentures - subordinated debentures - income bonds
33
what is a debenture?
an unsecured corporate bond unsecured debt that is not backed by any asset backed on the belief of the creditworthiness that the issuing company (or government) will repay the debt
34
what is a subordinated debenture?
an unsecured corporate bond have a lower claim on assets than other unsecured debt have more risk because of the lower claim on assets
35
what is an income bond?
an unsecured corporate bond stipulate that interest is only paid when a specific level of income is attained
36
what are the bond rating agencies?
Moody's and Standard and Poor's
37
what is the range of Moody's ratings?
Aaa - C Aaa-Baa are quality, Ba-C are junk
38
what is the range of Standard and Poor's ratings?
AAA-D AAA-BBB are quality BB-D are junk
39
what is a guaranteed investment contract (GIC)?
issued by insurance companies with a guaranteed rate of return insurance company agrees to repay the principal and guaranteed rate of return for a period of time yield is higher than treasury securities
40
what are the types of municipal bonds?
- general obligation bonds - revenue bonds - private activity bonds
41
how are municipal bonds taxed?
nontaxable at the federal, state, and local level if you live in the issuing state
42
what is a general obligation municipal bond?
backed by the full faith, credit, and taxing authority of the municipality that issued the bond
43
what is a revenue municipal bond?
backed by the revenue of a specific project not backed by the full faith, credit, and taxing authority of the entity that issued the bond
44
what is a private activity municipal bond?
used to finance construction of stadiums
45
what will happen if an insured municipal bond is in default?
the insurance company will pay the interest and principal amounts
46
what is the primary difference between corporate bonds and US government bonds in term of risk?
US government bonds are NOT subject to default risk, while corporate bonds are subject to default risk
47
what is the Tax-Equivalent Yield (TEY)?
the yield a taxable corporate bond would need to pay for the yield on a tax-exempt muni to be equivalent to a taxable corporate bond
48
what is the Tax-Exempt Yield?
the after-tax rate of return a taxable corporate bond pays

CFP Exam (24 decks)

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