Investment Mgt Flashcards

Question

Taxation of Money Market Funds

Answer 1

MM Mutual fund reinvested dividends are considered income, subject to taxation

Answer 2

I-Bonds offer investors the opportunity to pay taxes annually, upon sale or defer taxation until maturity.

Answer 3

Min fed stock initial margin requirements = 50% Mid fed maintenance margin requirements = 25%

Answer 4

IV + Time Premium IV cannot be less than 0

Answer 5

IV of Call Options = MP - EP

Answer 6

IV of Put Options = EP - MP

Answer 7

Use the Margin Call Price Formula to calculate the margin call price. When the stock price falls below the margin call price amount, you will received a margin call (1 - initial margin %) / (1 - maintenance margin %) x Initial Purchase Purchase Price

Answer 8

Spot price is what the current market value of the item is in today’s market

Answer 9

Anyone who owns something is said to be “long” (e.g., a farmer growing corn is long corn).

Answer 10

Anyone who has to buy something is said to be “short” (e.g. a construction company that needs to build is short lumber).

Answer 11

anyone who is long (owns something) needs a short hedge. Selling a futures contract establishes a short hedge.

Answer 12

Long Hedge: anyone who is short (needs to buy) needs a long hedge. Buying a futures contract established a long hedge.

Answer 13

Are NOT standardized and carry counter party risk

Answer 14

Take a long position

Answer 15

Take a short position

Answer 16

Protective call OR Covered Put Protective call = Buy the call contract/right to buy the stock for the stock for which you expect the stock prices to go up (ie. EP will be lower than MP = Buy low) Covered Put = Sell a put contract / agree to buy stock

Answer 17

occurs when a taxpayer realizes a LOSS on the sale of a security and acquires a “substantially identical” security within a 61-day period. T -30 < T0 > T+30 if a wash sale is triggered, a client’s tax return will be affected.

Answer 18

Bonds: Investor purchases back the same exact bond or bond fund Convertible bond – can convert to stock which is the same stock that was sold for a loss. Purchase of a call option that can be exercised into the same stock that was sold for a loss. (Selling a call no problem; fixed income secs are also no problem typically)

Answer 19

Loss on sold security will be disallowed. The disallowed loss will be added to the basis of the new securities purchased. Eventually you will be allowed to use the loss when the new (replacement) securities are sold (via the higher cost basis).

Answer 20

Current Assets / Current Liabilities current ratio increasing = good (going higher/up because liabilities/denominator is decreasing compare to Assets/numerator)

Answer 21

Total Debt / Total Assets Debt ratio is decreasing = good (going down/low, It's improving (because total assets are growing compare to total debts or debts are decreasing compare to assets)

Answer 22

Net worth over $1M, excluding primary residence (individually or with spouse or partner) OR Income over $200K (individually) or $300K (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.

Answer 23

Pros with Series 7, 65, or 82 license Director, Executives, General partners of the company selling the securities Any "family client" of a "family office" that qualifies as an accredited investor, "knowledgeable employee" of the fund

Answer 24

tend to rise and fall in advance of the economy Avg weekly hours of production workers (manufacturing) Initial claims for unemployment insurance Manufacturers’ new orders % of companies reporting slower deliveries New orders of non-defense capital goods New private housing starts Yield curve S&P 500 Money supply (M2) growth rate Index of consumer expectation

Answer 25

tend to change at the same time as the economy Employees on non-agricultural payrolls Personal income less transfer payments Industrial production Manufacturing and trade sales

Answer 26

tend to follow or lag economic performance Avg duration of unemployment Ratio of trade inventories to sales Change in index of labor cost per unit of output Average prime rate Commercial and industrial loans outstanding Ratio of consumer installment credit outstanding to personal income Change in CPI

Answer 27

LGR US Stocks = S&P 500 LGR US Stocks & Bonds = Vanguard balanced SML US Stocks = Russell 2000 US Bonds = Barclays Cap All Pub US Companies = Wilshire 5000 Cash = 3-month T-Bill Commodities = Deutsche Bank Liquid Commodity Pub REITS = Down Jones US Select REIT Stocks in Dev. non-US = EAFE Stocks in Emg. non-US = MCSI ME

Answer 28

are closed-end investment companies that: invest in real estate instead of financial assets and, serve as a conduit for earnings on investments in real estate or loans secured by real estate.

Answer 29

REITs pass earnings on to their shareholders. As long as 90% of REIT taxable income is distributed to shareholders annually, that income is free from taxation for the REIT. At least 75% of a REIT's assets and income must be derived from real estate equity or mortgages.

Answer 30

Real Estate Mortgage Investment Conduits (REMICs) allow investors to receive a stream of income from the mortgage payments.

Answer 31

offer investors the potential growth of their investments through realized capital gains, as well as the pass-through from rental income.

Answer 32

* 1. Money Market * 2. Capital Markets (Primary & Secondary) * Secondary - Exchanges & OTC | Cap Markets are Primary (1933) and Secodary (1934 - Sec)

Answer 33

Profit / Cost (AKA - Maid / Paid) HPR is not indexted for Time (TVM) Dividents are not reinvested Two Components: 1. Income/Annual Yeild: Income Generated / Intial Value 1. Capital Appreciation (Ending Value - Initial Value)/Ending Value

Answer 34

T-Bill = No Credit/Default Risk CD with 6m maturity = Lower risk MMF (Money Market Fund) = Includes commercial paper - default is possible and NOT insurered Tax - exampt Money Market Account = default is possible and not insured; more risky than MMFs

Answer 35

US Dollar(s) deposited in any foregin banks

Answer 36

Dollar deonominated bonds issued by foreign banks and corporations. Issued in the US and registered with SEC

Answer 37

When bonds are selling at a significant premium, corps are most likely to call their callable bonds

Answer 38

Treasury Inflation-protection Securities Issued in minimum denomination of $1000; Interest rate is fixed, but the interest payment may vary depending on inflation adjustment of the principal

Answer 39

Both are issued at full face value Both are backed by full faith and credit of US EE are fixed incoem securities; I bonds are an inflation-indexed accrual security Onwer of EE and I bond can choose to defer interest income tax till full maturity Only Federal income tax, no state and local tax

Answer 40

EE bonds provide a fixed rate of interest (fixed income security) I bonds interest has two components: fixed base rate + inflation adjustment. I bond interest is added to the bond monthly and paid when the holder cashes the bond

Answer 41

Security backed by pool of morgtages Investors receive payments sourced from interest + principal on the underlying mortgages It's a pass-through security pooled debt repackaged as certificates

Answer 42

C DRIP Credit risk - risk that issuer of the bond cannot make interest and principal payments Default Risk - A creditor of the issuer may seize the collateral to recoupe owed principal Re-investment risk - Interest Rate risk - Rising interest rates cause bond prices to fall Purchaing power risk - inflation lowers the purchasing power of fixed bond interest

Answer 43

Banker's acceptance. Maturity is 9 months or less

Answer 44

Earn inerest for up to 30 years Accrue earnings based on fixed base rate + inflation Adjustment Tax benefits available for education savings the difference between pruchase price and redemption value is taxable interest taxed at Fed level, not state and local level

Investment Mgt Flashcards

(68 cards)