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1
Q

Current Yield

A

Annual interest / Current market value

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2
Q

9’s of 2025

A

9% interest on a bond that matures in 2025

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3
Q

YTM

A

Yield To Maturity - overall return if bond is held until maturity

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4
Q

YTC

A

Yield To Call - same as YTM, but assumes bond is called (paid off early)

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5
Q

Bond Quotes

A

state the price of a bond as a percentage of its par value (112=112%1000=1120; 90=90%1000=900)

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6
Q

Nominal Yield

A

Coupon % - never changes

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7
Q

Common Stock

A

equity; represents ownership of a company

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8
Q

Dividends

A

Distribution of company’s earnings, paid to shareholders

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9
Q

Capital gains

A

share appreciation, increases value of ownership stake

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10
Q

Limited Liability

A

Most you lost is how much you invest

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11
Q

Treasury Stock

A

Shares that company repurchases (ie. it believes its stock is undervalued and decides to repurchase in the open market). Can be reissued to the public. Does not receive dividends and do not have voting rights.

Only outstanding shares have voting rights.

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12
Q

Common stockholders vote on the following:

A

BOD, corporate events (mergers)

Not on management (C-suite) or dividend distributions

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13
Q

Cumulative Voting

A

Combine total votes and allocate as they wish (3 seats = 300 total votes)

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14
Q

Statutory Voting

A

Set # votes for each seat (3 seats = 100 per seat) not combined

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15
Q

Income Stock

A

Mature industries, consistent dividends, utility stocks (objective: income=dividends)

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16
Q

Defensive Stock

A

stable across economic cycles, serve basic needs
food, hygiene, medicine
objective: stability

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17
Q

Growth Stock

A

Reinvest earnings back into business, higher volatility
Tech, biotech
Obj: capital gain (realized on sale)

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18
Q

Cyclical Stock

A

Performance mirrors economic cycle, capture discretionary spending
Retail, auto, restaurants, entertainment
Obj: outperform market

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19
Q

Systematic Risk (market risk)

A

risk that an individual security is impacted by overall market performance
protection: hedge

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20
Q

Non-systematic Risk (business risk/ specific risk)

A

risk of a specific business doing poorly
protection: diversify

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21
Q

In a bankruptcy, common stockholders are repaid ______

A

last

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22
Q

ADRs

A

American Depository Receipts
Exposure to foreign stock without having to buy foreign shares

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23
Q

ADR risks

A

political, currency, inflation
NOT call risk

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24
Q

Preferred stock

A

equity security providing regular, steady income (receive same amount regardless of company’s performance) - fixed quarterly payments

dividends paid before common stock dividends

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25
Investor owns XYZ 5% preferred with $100 par value - what dividend payments should the investor expect to receive each quarter
$1.25 5% of par/year = $5/year = $1.25/quarter
26
If a dividend is skipped, does it get repaid next quarter?
no, but yes if specified cumulative preferred
27
Do preferred stock have voting rights?
no, but common stock does
28
Penny stocks
<$5/share AND quoted over-the counter (unlisted, not traded on any exchange) typically have voting rights
29
Pre-emptive Rights
grant shareholders the ability to participate in an issuer's future offerings to avoid dilution. short-term opportunity to buy additional shares of a slight discount to current market price can (1) exercise rights, buy new shares, and avoid dilution, (2) sells the rights in the market, generating a capital gain, or (3) client allows the rights to expire
30
Warrents
entitle the holder to buy the issuer's stock at a specified exercise price; can be liquidated (sell instead of exercising) long-term instruments, often 5+ years often issued in connection with other securities, sweetening a deal freely tradable in the secondary model the value is tied to the price of the underlying share
31
Declaration Date (dividends & settlement)
the date the board announces a dividend
32
Ex-date (dividends & settlement)
the first date a security trades without the dividend included in the contract price (ie. a buyer on or after the ex-date will not receive the dividend)
33
Record date (dividends & settlement)
the date a shareholder must legally own the stock ( be an owner of record) to receive the dividend
34
Payment date (dividends & settlement)
The date the dividend is paid
35
Settlement (dividends & settlement)
the date a transaction is completed. regular way settlement is T+2 (2 days after T, trade date) cash settlement is same day On settlement: (1) ownership transfers to buyer, (2) payment is delivered to seller Trade executed on Monday, 5/1 - settles on Wed, 5/3 Sell order executed on Fri, 5/12 - settles Tues, 5/16 Record date established as Thurs, 5/25 - need to have bought by Tues 5/23
36
What happens to the price of the stock on the morning of the ex-date?
automatically lower - reduced by the amount of dividend
37
2-for-1 split ($20)
2x$10/share
38
4-for-1 split ($60)
4x$15/share
39
1-for-10 split ($30)
reverse split $30/10 = $3/share
40
Post split...
number of shares owned, number of votes, price per share all changes economic ownership does not change
41
Short Sale
a sale of stock that the client does not own hope that the stock goes down in value - to sell stock at a higher price and return at a lower price (will lose money if it increases in price)
42
Bond
loan from an investor to an issuer pays (1) semiannual interest -coupons and (2) return par value at maturity most bonds have a par value of $1000 or a multiple bond prices fluctuate above or below par due to market forces
43
Coupon
annual interest rate paid of the face amount quote as a percentage of par, typically paid out semiannually
44
An investor buy a 10-year, $1000 par value bond with a 6% coupon - (1) how much interest should the investor expect to receive each payment? (2) how much interest will the investor receive if the bond is held until maturity
(1) $60/year = $30/payment (2) $60/year*10 years = $600
45
Relationship between interest rates and bond prices
negative relationship interest rates rise, bond prices fall interest rates fall, bond prices rise
46
What features make a bond more sensitive to interest rate risk
longer duration (low coupon+long maturity) longer duration bond = high interest rate risk
47
Which would appreciate most in a time of falling interest rates
Long duration
48
If prevailing market rate < coupon rate, pay premium or discount?
premium (everyone wants to buy coupon bc it pays more than interest) vice versa
49
AT&T 9's of '25
AT&T issued a bond with a 9% coupon rate maturing in 2025
50
Bond Quotes
state the price of a bond as a percentage of its par value
51
Quote = 112
price = $1120 (112%*$1000) YTM = < coupon (losing $120) paid a premium on bond
52
Quote = 83
price = $830 (83%*$1000) YTM = >coupon (gaining $170) paid a discount on bond
53
On a 8% bond, what is current yield for bond quote = 90 100 132
90 = 8.9% ($80/$900) 100 = 8% ($80/$1000) 132 = 6.1% ($80/$1320)
54
zero coupon bond
no annual payments (no coupons) usually priced at a deep discount from par owner receives par at maturity investment obj: retirement, college/education risks: (1) higher interest rate risk (2) phantom income - avoid by putting in tax deferred accounts
55
Call
issuer can buy back the bond at a set price before maturity call protection period could be instated typically high coupon for investor
56
Put
investor can sell bond back @ par can also convert into a fixed number of common shares typically lower coupon rate
57
Municipal Bonds
tax-free interest income
58
Secured Bonds
backed by collateral (mortgage bond, collateral trust bond, equipment trust obligation)
59
Unsecured Bonds
DEBENTURE corporate bond unsecured by any specific piece of collateral; backed by good faith and credit of the issuing corporation
60
Legal obligation to make regular payments
Secured bond, unsecured bond (debenture), subordinated debt
61
Eurodollar bonds
bonds issued and traded outside the US, but denominated in USD coupon payments made in USD and used by companies to make their securities more marketable; not registered with SEC
62
Conversion Price
the price paid per share on conversion set at the time the bond is issued
63
Conversion Ratio
the number of shares received on conversion =Par value / CP
64
Parity Price
the point at which the price of a convertible bond = market value of stock received on conversion
65
Convertible bond yield < or > than non-convertible?
lower
66
Hedge funds must register with SEC if they have more than ____ in assets
$150M
67
How are LGIPs different from mutual funds?
Not subject to SEC registration/regulation; do not require issuers to prepare a prospectus and statement of additional information, calculate NAV on daily basis, or est. a BOD with independent directors
68
MLP
A master limited partnership (MLP) is a pass-through taxation entity, but has ownership divided into shares that can be publicly traded. A business structure that offers limited liability and pass through benefits but is publicly traded
69
Which of the following investment opportunities offer a flow through of losses to investors? I. Closed end funds II. Direct participation programs III. Hedge funds IV. ETFs
II. Direct participation programs III. Hedge funds
70
Blind Pool Fund
A hedge fund in which the fund manager is given complete authority to decide on the assets in which to invest
71
DDP
A direct participation program (DPP) is characterized by the flow-through of tax consequences to investors. It may participate in oil & gas, real estate, agriculture and other types of activities.
72
American Style Option Contract
may be exercised any time the buyer chooses prior to exp date single stock option often
73
European Style Option Contract
may be exercised only on the expiration date stock index option often

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