Investments

Question 1

Details on T-Bills

Answer 1

• Maturity of one year or less
• Issued on a discounted yield basis
• Risk-free rate of the market

Question 2

Banker’s Acceptance

Answer 2

Used to finance imports and exports

Question 3

What are Yankee Bonds?

Answer 3

Dollar denominated bonds issued in the US by foreign banks.

Question 4

When is a corporation most likely to call its bonds?

Answer 4

If bonds are selling at a premium, or if interest rates fall.

Question 5

Details on Treasury Bonds

Answer 5

• 30 year maturity
• Sold on a yield to maturity basis
• Can be called

Question 6

True or False: STRIPS are Zero Coupon Bonds

Answer 6

True

Question 7

Which tranche has the longest duration and highest yield?

Answer 7

Z Tranche

Question 8

What is a debenture?

Answer 8

A general debt obligation backed ONLY by the integrity of the borrower.

Question 9

Preferred Stocks vs. Bonds

Answer 9

Preferred stocks don’t have a fixed maturity date.

Question 10

Investment Company Act of 1940 - What do they define as “investment companies”?

Answer 10

• Open end funds
• Mutual Funds
• Closed end funds
• UITs
• Variable annuity companies

Question 11

Can REITS invest in limited partnership interests?

Answer 11

NO

Question 12

Buying Puts - Bearish or Bullish?

Answer 12

Bearish

Question 13

Buying Calls - Bearish or Bullish?

Answer 13

Bullish

Question 14

Liquidity vs. Marketability

Answer 14

Liquidity means that something can be sold quickly without a substantial change in price.

Marketability only refers to the speed of the transaction, i.e. T Bonds or Common Stock.

Question 15

What is a weakness of IRR?

Answer 15

It doesn’t take into account reinvestment rates.

Question 16

What happens if you match duration of a bond to a client’s investment horizon?

Answer 16

You eliminate interest and reinvestment rate risk.

Question 17

Formula for the Dividend Discount Model

Answer 17

(D(1+growth rate)) / (required rate of return - growth rate)

Question 18

A risk averse investor will have a _________ indifference curve.

Answer 18

Steep

Question 19

EMH suggests that financial planners should select securities based on….

Answer 19

Risk-Return Profile

Question 20

What kind of info should an Investment Policy Statement contain?

Answer 20

• Client’s objectives and constraints
• Desired return and level of risk
• Liquidity, time horizon, taxes, and regulatory restrictions.

Question 21

Ex Dividend Date / Record Date

Answer 21

To receive a dividend, you must purchase stock BEFORE the ex-dividend date. Ex-dividend date is set two days before the record date so you need to buy three business days before the record date.

Question 22

If a U.S. Investor bought Canadian Bonds, what would they want to happen to the Canadian Dollar?

Answer 22

For the Canadian Dollar to strengthen.

Question 23

Name some examples of investments that are NOT liquid

Answer 23

ETFs
Government Bond Funds
Tech funds

Question 24

Does the Markowitz Model use Beta?

Answer 24

NO

Question 25

Is a Pension Plan likely to purchase STRIPS?

Answer 25

YES

Question 26

T Bills and T Bonds. Which is callable?

Answer 26

T Bonds are callable. Bills are not.

Question 27

Mortgage REIT and Equity REIT. Which would do better in inflationary times?

Answer 27

Equity REIT. Can use leverage.

Question 28

Big difference between Yankee Bonds and ADRs?

Answer 28

Yankee Bonds reduce exchange rate risk.

Question 29

How would you calculate cost per share?

Answer 29

First, divide dollar amount by cost of shares lot by lot to calculate the number of shares per lot. Second, add up the number of shares bought. Last, divide the total dollar amount by the number of shares.

Question 30

Is bond quality part of the indenture agreement?

Answer 30

no.

Question 31

Which of the following are not a guarantee of the U.S government: GNMA or CMO

Answer 31

CMO

Question 32

What must you remember about the intrinsic value of an option?

Answer 32

It can NEVER be negative.

Question 33

What corporate reports are filed with the SEC?

Answer 33

10Q and 10K

Question 34

What is the relationship between correlation coefficient and beta?

Answer 34

A negative correlation will reduce portfolio beta.

Question 35

Shortcut for calculating standard deviation for a portfolio?

Answer 35

Add risk percentages and divide by number of funds. Look for next lowest answer.

Question 36

Would an employee of a firm be considered an insider?

Answer 36

No

Question 37

Correlation between two assets calculated as...

Answer 37

Covariance / (standard deviaton 1 x standard deviation 2)

Question 38

Do Zero Coupon Bonds need to be accreted?

Answer 38

Yes.