Investments

Question 1

Brokered CDs vs Regular CD risks

Answer 1

Brokered: RIP (reinvestment, interest rate, purchasing power)

Regular: RP (reinvestment, purchasing power)

Question 2

Current Yield

Answer 2

annual interest in dollars / bond’s market price

Question 3

Who normally purchases STRIPS? Why?

Answer 3

pensions/IRAs/annuities

because of phantom income

Question 4

Does a Z tranche in a CMO bear a coupon?

Answer 4

NO. Similar to a zero. Receives only interest and principal after all other tranches have been liquidated.

Question 5

Put and Conversion features

Answer 5

benefit bond holder

come at expense of lower yield

Question 6

For Net Operating Income (NOI), operating expenses exclude…

Answer 6

interest and depreciation

Question 7

REITS

Answer 7

ordinary income, put in tax deferred

75% income must come from real estate

90% income must be distributed

qualifies for Qualified Business Income up to 20%

Question 8

Equity REIT

Answer 8

for growth

Question 9

Mortgage REIT

Answer 9

Highly leveraged

makes income from spread

Inflation is bad for mortgage REITs

Question 10

What do short sellers do?

Answer 10

sell borrowed shares hoping that when they have to close the short sale the share price will be lower

Question 11

LEAPs

Answer 11

Long-Term Equity Anticipation Securities (LEAPS).

Expiration of 9 months to 3 years

once LEAP exercises, must hold for 12 months

Question 12

EEs and STRIPS are NOT subject to which risk?

Answer 12

reinvestment risk because they bear no interest.

subject to IP

Question 13

Yield Curve shows what bonds?

Answer 13

different maturities

same credit ratings

Question 14

Bond duration shows what risk?

Answer 14

Cashflow Risk

Question 15

Markowitz includes which variables?

Answer 15

risk (standard deviation), return, and covariance

Question 16

Market Risk premium

Answer 16

Rm - Rf

Question 17

Stock Risk premium

Answer 17

(Rm - Rf) B

Question 18

If the R2 values for mutliple investments are mixed choose…

Answer 18

highest SHARPE

Question 19

Are options marginable?

Answer 19

NO

Question 20

Liquid vs Marketable

Answer 20

Liquid: cannot loose value

Marketable: can be sold quickly

Question 21

Which is more risky? General obligation bonds or revenue bonds?

Answer 21

Revenue bonds. Backed by the revenue of the project rather than the obligation of the issuer

Question 22

What is the maturity of a preferred stock?

Answer 22

Perpetual

Question 23

Unit investment trust

Answer 23

UIT. Passive investment where the assets within are frozen, not traded

Question 24

What two things is the premium of an option contract composed of?

Answer 24

Time and intrinsic value. The more time left on the option, the more expensive the premium can be