Investments Flashcards
(59 cards)
Why are brokered CDs subject to Interest Rate Risk?
Because they are traded/negotiable.
Whereas normal CDs are just purchased at the bank and not subject to interest rate risk. (no secondary market for CDs)
How to calculate the current yield of a bond?
Current Yield = Annual Interest (in dollars) / Bond’s Market Price
STRIPS/CATS/TIGRS all produce _____
Phantom Income
T-Bill, Note, Bond interest is subject to what taxes?
Federal Tax Only.
No State or Local Tax on the interest
Who normally purchases STRIPS? Why?
Pension Plans, given its tax-deferred nature, the phantom income doesn’t have to be recognized
Are EE Bonds martketable? Transferable? Negotiable?
No. No. and No.
What ownership qualifies the EE bond for Education status
The parents must own the EE Bond
EE Bonds Taxation
Interest earned on EE Bonds is not subject to federal taxation until the bonds are redeemed or reach maturity. Think in an UGMA/UTMA (Child owned).
If it’s an Education EE Bond, it is federally tax-exempt if the parent’s AGI is less than the phaseout at redemption
Interest is never subject to tax at the state and local level
The safest type of Muni Bond? Riskiest?
Safe = GO
Risky = Revenue
Does a Z-Tranche carry a coupon? Does that make it more or less risky?
No, more risky
Are GNMAs guaranteed by the federal government? FNMAs? FHLMCs?
GNMAs = guaranteed
FNMAs/FHLMCs = NOT guaranteed
-Think Fucked out of my money!!
The formula for computing the conversion value of a convertible bond
Conversion Value = (Par Value of the Bond / Conversion Price) x Current Market Price
ADR Definition
Receipts for the shares of a foreign-based corporation held in the vault of US Bank.
Prices = Quoted in US Dollars
Dividends paid = US Dollars
Dividends declared = Foreign Currency
Foreign tax credit approved
Why are UITs a passive investment?
because its assets are not traded, but frozen. No new securities are purchased, and securities originally purchased are rarely sold.
True or False: UITs offer a limited number of shares when issued?
False, UITs offer Units NOT Shares.
Better not fuck this up.
Are Mutual Funds Marketable? Negotiable?
No and No. They are REDEEMABLE securities.
What do Index Funds emphasize?
Tax Efficiency
GICs are issued by?
Insurance Companies
Does the value of a GIC fluctuate with interest rate changes?
No, their value depends on the financial strength of the issuer.
Subject to Default Risk
Are Mortgage REITs highly leveraged?
Yes
REIT Tax Rules to Achieve Conduit Status
- 75% of the REITs income must come from Real Estate Investments. (15% can from securities like GNMAs)
- If the REIT distributes at least 90% of net investment income or more, it only pays tax on the undistributed portion
- If the REIT fails to distribute 90%, then all the net investment income is taxable to the REIT as an entity
- Because REITs generally operate as pass-through arrangements, distributions from REITs are ordinary dividends and may qualify for the QBI deduction of up to 20% of that income
Investment that provides high leverage and hedges against inflation?
Improved Land
What is a protective put?
Involves buying a stock (or owning it already) and a put for the same stock; a long position in the stock and put.
The put acts as insurance against a decline in the underlying stock.
How are LEAPs taxed?
They are taxed based upon the time from EXERCISE! Not the date of purchase.
If exercised and held for more than 12 months before the sale, it is LTCG.
If exercised and sold within 12 months, it is STCG
