unit 3/4 Flashcards
(19 cards)
t-receipts
backed by broker-dealers and banks
zero coupons (ex: say you buy the bond at 600, it matures at 1000 and you would get paid 400)
t-strips
backed by US treasury
zero coupon (ex: say you buy the bond at 600, it matures at 1000 and you would get paid 400)
TIPS
issued with maturities of 5, 10 or 20 years
have a fixed coupon rate and pay interest every 6 months
treasury inflation protected securities (adj for inflation)
receive interest semi-annually
GNMAs (Ginnie Mae0
only one that is backed by the US gov’t
fully taxable across the board, federal state and local tax
principal on monthly interest basis
typically backed by mortgages
jumbo CDs
a money market security with fixed interest rates and minimum face values of half a million - $1 million
trick question: 30 year treasury bond and maturing in 6 months. can it be held as a money market security bond?
yes bc it matures in < a year
money market securities
not a lot of risk, but not a lot of reqard. if you need something quickly and that’s highly liquid, this is the way to go.
1 year or less to maturity
CMO (collateralized mortgage obligations)
asset backed security
pool a large number of mortgages, usually on single faimly residences.
pool of maturity is structured into maturity classes called tranches
rated high
CDO (collateralized debt obligations)
set up by investment bankers and BDs
can be a pool of auto loans, bonds, or other asset classes, but still a pool
breakpoint
quantity discounts on open-end management company shares
letter of intent
person who plans to invest more money with the same mutual fund company
one-sided contract binding on the fund only
customer must complete the investment to qualify for the reduced sales charge
if a customer has not completed the investment within 13 months they will be given a choice of either sending in a check for the difference in dsales charges or cashing in escrowed shares to pay the difference
sales charge
cost to get into the fund
12B1
cost to stay in
combination privilege
can use a combination of toher points to make a breakpoint
NAV
calculates fund share
total assets - liabilities = net assets of fund –> net assets of fund / number of shares outstanding = NAV
annuitize
an investor who reaches retirement may choose to annuitize her contract
one time irreversible election to give up ownership of the assets of the annuity in return for a lifetime income guaranteed by the insurance company
when are variable contract considered most attractive?
for someone who can fund the contract with cash
when cashing out a life insurance p9olicy or existing annuity is considered abusive and is not a suitable recommendation
NOT suitable for anyone who might need the lump sum of cash invested in the variable annuity at a later time for any reason
variable annuity
meant to be supplemental income at a time in one’s life when the income is needed
would be most likely when anticipating buying a home, needing cash for your children’s college education, any other upcoming expense would need to be considered
FAC and UITs
FAC: they are investsment companies as defined under the investment company act of 1940
UIT: organized under a trust indenture. they don’t have board members but trustees, they sell redeemable interests (aka units)
