Equities and Fixed Income

Question 1

Are stocks and shares the same?

Answer 1

Yes, for all intents and purposes, stocks and shares refer to the same thing.

Question 2

What is a stock/equity?

Answer 2

A form of security that indicates the holder has proportionate ownership in the issuing corporation.

Question 3

What are the two main types of stock?

Answer 3

Common stock and preferred stock.

Question 4

What are the characteristics of common stock?

Answer 4

With voting rights, reason for buying is tradability.

Question 5

What are the characteristics of preferred stock?

Answer 5

Without voting rights, reason for buying is dividends.

Question 6

What are the different sectors in the stock market?

Answer 6

Financials, Industrial, Holding Firms, Property, Services, Mining and Oil.

Question 7

What are blue-chip stocks?

Answer 7

Well-established companies with a proven track record and high trading volume.

Question 8

What are income stocks?

Answer 8

Stocks that pay regular dividends and offer a high yield.

Question 9

What are growth stocks?

Answer 9

Companies growing earnings and/or revenue faster than their industry or the overall market.

Question 10

What are cyclical stocks?

Answer 10

Stocks sensitive to business conditions and strongly tied to the economy’s performance.

Question 11

What are defensive stocks?

Answer 11

Stocks that remain stable during the various stages of the business cycle.

Question 12

What are speculative stocks?

Answer 12

Stocks with high risk relative to any potential positive returns.

Question 13

Who are the market participants in the stock market?

Answer 13

Stock market investors, trading participants, listed companies, clearing house.

Question 14

What is the Securities Clearing Corporation of the Philippines (SCCP)?

Answer 14

A subsidiary of the PSE that acts as a clearing and settlement agency for all exchange trades.

Question 15

What is the equities settlement cycle?

Answer 15

T+3 (Transaction date + 3 business days).

Question 16

What are the types of order validity?

Answer 16

Day order (DAY), good till cancelled (GTC), good till date (GTD), good till week (GTW), sliding validity (SLIDING), fill-and-kill (FAK), fill-or-kill (FOK).

Question 17

What is a fill-and-kill order (FAK)?

Answer 17

An order where partial matching is allowed.

Question 18

What is a fill-or-kill order (FOK)?

Answer 18

An order where no partial matching is allowed, it needs an exact match.

Question 19

What is a national stock exchange?

Answer 19

A securities exchange registered with the SEC, e.g., Philippine Stock Exchange, New York Stock Exchange.

Question 20

What is a regional stock exchange?

Answer 20

A stock exchange outside a country’s primary financial center, trading publicly held equity for companies not meeting national exchange listing requirements.

Question 21

What is the PSEi?

Answer 21

The Philippine Stock Exchange Index, composed of the top 30 companies in the Philippine stock market.

Question 22

What is a bond?

Answer 22

A fixed-income instrument representing a loan made by an investor to a borrower.

Question 23

What are the characteristics of a bond?

Answer 23

Maturity date, term or tenor, coupon rate, coupon dates, face value (principal, maturity value, par value).

Question 24

What is the relationship between bond price and interest rates/bond yields?

Answer 24

Inverse relationship - when interest rates rise, bond prices fall, and vice versa.

Question 25

What are the different types of yield curves?

Answer 25

Normal yield curve, inverted yield curve, flat yield curve.

Question 26

What is a normal yield curve?

Answer 26

Short-term bonds have lower yields, long-term bonds have higher yields.

Question 27

What is an inverted yield curve?

Answer 27

Short-term bonds have higher yields, long-term bonds have lower yields.

Question 28

What is a flat yield curve?

Answer 28

Short-term and long-term bonds have similar yields.

Question 29

How often are interests on bonds usually paid?

Answer 29

Semi-annually.

Question 30

What are the different types of interest rates?

Answer 30

Zero-coupon bonds, step-up notes, deferred coupon bonds, accrued interest, floating rate securities.

Question 31

What are the options embedded in bonds?

Answer 31

Call provision, put provision.

Question 32

What is a call provision?

Answer 32

The right of the issuer to redeem the bond before maturity.

Question 33

What is a put provision?

Answer 33

The right of the bondholder to sell the bond back to the issuer at a specified price.

Question 34

What is interest rate risk?

Answer 34

The risk that arises due to variability in interest rates, affecting bond prices.

Question 35

What bond features affect interest rate risk?

Answer 35

Maturity and coupon rate.

Question 36

What are the different types of debt securities?

Answer 36

Corporate bonds (secured and unsecured) and government bonds.

Question 37

What are the types of corporate bonds?

Answer 37

Secured: mortgage bond, equipment trust certificate, collateral trust bond. Unsecured: subordinate debenture, convertible debenture, commercial paper.

Question 38

What are the types of government bonds?

Answer 38

Treasury bills, treasury notes, treasury bonds, agency bonds, municipal bonds, banker's acceptances, repurchase agreements (repos).

Question 39

What is the liquidation order of assets?

Answer 39

Secured, unsecured, preferred, common.

Question 40

What are the taxes on investments?

Answer 40

Final withholding tax (20% on interest income) and documentary stamp tax (DST).