Investment Vehicle Characteristics Flashcards
(58 cards)
1
Q
Equity Securities
A
- ownership
- most common form is common stock
2
Q
Common Stock Rights
A
- voting rights (BOD, m&a, recapitalization, CANNOT vote for Officers)
- right to receive dividends if and only if company has declared dividend
- preemptive right (right not be be diluted, have right to maintain % ownership)
3
Q
Date on which you must be on company books as shareholder to receive dividend
A
Date of Record
4
Q
First day stock trades without right to dividend
A
Ex dividend date
5
Q
What date does a company not determine?
A
Ex-dividend date, determined by industry settlement cycle
6
Q
Investment objective of buying Common Stock
A
- growth (capital appreciation)
- income
7
Q
Preferred Stock Characteristics
A
- fixed dividend just like a bond
8
Q
Investment objective of buying Preferred Stock
A
- fixed income
9
Q
American Depository Receipts (ADR)
A
- US domestic security issued and regulated in US
- facilities domestic trading of foreign securities
- subject to currency risk
10
Q
Restricted Stock
A
- comes from private placement (restricted for 6 months or until registered)
- employees stock plans
11
Q
Debt Securities Issuers
A
- Corporate
- Government
- Municipalities
12
Q
Debt Securities Owners
A
Creditors
13
Q
Par Value
A
- Face value
- amount received when bond matures
- principal
- all mean $1k
14
Q
Fixed Income Risks
A
- DRIP
- default (aka credit risk)
- repurchase
- inflation (inverse relationship)
- purchasing power
15
Q
Current Yield
A
Annual Income / Market Price
16
Q
Yield Ladder
A
- discount = YMCA
- premium = ACMY
17
Q
More Volatile
A
- Zero Coupon (MOST OF ALL)
- Long Term vs Short Term? (Long term)
- Same Maturity? Lowest Coupon is MOST VOLATILE
18
Q
Zero Coupon Bond
A
- doesn’t pay fixed income
- buy at very deep discounts
- since absolute lowest coupon, means its the most volatile
19
Q
Preferred Stock
A
- pays fixed interest, subject to interest rates
20
Q
Pooled Investment Companies
A
- UIT
- Open-Ended Management (Mutual Fund)
- Closed-Ended Management
- Exchange Traded Funds
pooled investors money together
all have clearly defined investment objective found in prospectus
can have fractional shares
21
Q
When issuing new shares to the public
A
- prospectuses (IPO)
- securities act of 1933 (regulates UITs)
22
Q
UITs/Opened Ended Mutual Funds
A
Continuously issue new shares, aka continuous primary offering
- sell shares back to issuer (redeemable)
23
Q
Primary Market Regulating Act
A
Securities Act of 1933
24
Q
Secondary Market Regulating Act
A
Securities Exchange Act of 1934
25
Net Asset Value
- add up all fund values
- minus out liabilities
= total net asset value
- divided by number of outstanding shares
**counted twice a day**
26
Open-Ended/ETF
- still represent pool of investments
- issued to the public once, then secondary market (traded every day)
- price fluctuates during day, buy at market price
- still has NAV, can trade at discount or premium
27
Open-Ended Sales Charge
- total cost is NAV + sales charge (max 8.5%)
28
ETFs differ from open-ended
- Because they track an index
- doesn’t need active management of portfolio
- low management fees
- passive management
29
REITs
- not mutual funds or investment companies
- typically receives rental income or mortgage income
- trade on open market
- very big for income investors
30
US Government Securities
- safest (capital preservation)
- bills (1,3,6,12 mo)
- notes (1-10 yrs)
- bonds (10-30 yrs)
- bill knows bonds
- TIPS (adjusted for inflation/CPI)
- still subject to interest rate risks
- RIP
31
TIPS
- adjusted semi annually
- adjusted based on CPI
- coupon rate is fixed
- principal is adjusted
32
Yankee Bonds
- issued by foreign company paid in US Dollars
33
Brady Bonds
- gather foreign debt from 3rd world countries.
- Issued debt in US
34
Municipal Securities
- General obligation - backed by taxes
- revenue bonds - backed by revenue
- interest on bonds is tax exempt (no federal taxes on INCOME, no state tax if resident of state issued
- pay tax on capital gains
- most suitable for highest tax brackets
35
Tax Equivalent Yield
muni yield / (1-tax bracket) = corporate bond required yield
36
Cash and Cash Equivalents
- money market securities - not FDIC insured, (market place for ST, high quality, debt instruments) general safe, income, but not insured, used as a parking garage.
- demand deposit (checking account - no int)
- CD - no income, pays it out at end
37
Derivatives
- options - security
- forwards - not security
- futures - not security
38
Options
- contract, right to buy or sale
- calls, puts
39
Call Options
- buyer is bullish, gives buyer right to buy.
- seller is bearish, obligated to sell if buyer exercises right.
40
Put Options
- buyer is bearish, buyer has right to sell
- seller is bullish, seller has obligation to buy
41
Hedges (Option Strategy)
- used to hedge a stock position (already owns)
- used to protect or (never both) generate income.
- always BUY protection
- always SELL for income
- if risk is down, buy put for protection, sell call for income
42
Futures Contract
- Option on commodities
- standard contracts
- Chicago and New York exchanges
- buy = consumer (lock in price to buy)
- sell = producer (lock in price to sell)
43
Forward Contracts
- not standardized, not on exchange
- institution to institution
- unregulated/unregistered
- swaps is another name for forwards
- NOT FOR RETAIL CUSTOMERS
44
Alternative Investments
- limited partnerships
- Hedge Funds
- Structured Investment
45
Limited Partnerships
- one general partner (manages, active)
- limited partner (no management)
- limited partners have no liability
- passive investment
- best reason to enter is it is a viable business
- highly ILLIQUID
46
Hedge Funds
- pooled investment
- loosely regulated, unregistered fund, investment company
- can use options to speculate on different market movements
- can borrow on margin
47
Structured Investment
- Equity Linked Note (ELN)
- debt instrument linked to an equity (index)
- get regular income
- principal linked to return of equity index
48
Insurance Based Products
- Annuities
- Life Insurance
49
Fixed Annuity
- purely insurance product
- guaranteed and fixed contract
- no investment risk
- subject to purchasing power risks
- not meant for young investors
50
Variable Annuity
- security product
- no guaranteed return
- investment vehicle for retirement not at retirement (investments grow tax-deferred, penalty for early withdrawal)
- investment in mutual fund inside insurance wrapper (separate account)
- money invested is already taxed not taxed again (taxed LIFO on withdrawals as ordinary income)
- hedge against inflation
51
Index Annuities (Equity Based)
- variable annuity tied to equity index
- has participation rate, what they receive of return of index
- has cap on amount that can be earned
- cannot be negative, guaranteed against loss
52
Life Insurance
- needs analysis (suitability)
- traditional whole life
- variable life
- variable universal life
- universal life
53
Need Analysis
- death benefit needed for insurance are
- what death benefit is needed for situation
54
Whole Life Insurance
- everything is guaranteed (DB, cash value, etc)
55
Variable Life Insurance
- minimum guaranteed death benefit
- no guarantee on investment return or cash value
- 2 accounts, separate and general
- suitable for younger
56
Variable Universal Insurance
- NO guarantee
- only uses separate account
57
Whole and Variable Premiums
- fixed premium
58
Universal Insurance Premiums
- flex premium
