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Series 6 > vocab 2 > Flashcards

vocab 2 Flashcards

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1
Q

The __________________ is the rate of interest banks charge each other on overnight loans.

A

fed funds rate

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2
Q

Is the fed funds rate considered the least or most volatile rate?

A

Most Volatile rate

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3
Q

In proper order, list the four phases of the business cycle.

A

1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough

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4
Q

__________________________ is the measure of goods and services produced by the U.S. worldwide.

A

Gross National Product (GNP)

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5
Q

_____________________ measures the goods & services produced within the U.S., disregarding the producer’s origin.

A

Gross Domestic Product (GDP

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6
Q

A decline in GDP for two successive quarters is defined as a ____________.

A

recession

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7
Q

What economic theory emphasizes government intervention and the use of fiscal policy to manage the economy?

A

Keynesian Economic Theory

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8
Q

What economic theory emphasizes controlling the money supply to manage the economy?

A

Monetary Economic Theory

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9
Q

If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?

A

It should strengthen as more foreign money is being invested in the U.S.

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10
Q

______________ is the rate that banks charge their most creditworthy corporate clients.

A

Prime Rate

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11
Q

Define parity

A

The value of two investments being equal, even, or the same

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12
Q

A bond convertible at $25 is trading at $1,150, and the stock is trading at $30. Is the bond at parity with the stock?

A

No, the bond’s parity price is $1,200. The bond can be converted to 40 shares selling at $30, which equals $1,200.

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13
Q

A bond convertible at $50 is trading at $1,200. For parity, where should the stock be trading?

A

Conv. ratio = $1,000 ÷ $50 = 20 sh. The stock needs to trade at $60 to be at parity with the bond ($1,200 ÷ 20 = $60).

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14
Q

ABC = $50. ABC’s bond is convertible at $40 and callable at 105. Is the call or conversion and sale more profitable?

A

Conversion and sale equals $1,250 (25 shares x $50), while the call only provides $1,050.

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15
Q

____________ occurs when the supply of goods exceeds the demand for goods.

A

Deflation

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16
Q

Deflationary periods are characterized by __________________ prices.

A

falling/decreasing

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17
Q

___________ is what occurs when there is “too much money chasing too few goods.”

A

Inflation

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18
Q

True or False: Inflation is a persistent rise in the general level of prices.

A

True

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19
Q

Would inflationary periods be characterized by rising or falling interest rates?

A

Rising

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20
Q

The _______________________ is often considered the most important measure of inflation.

A

Consumer Price Index (CPI)

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21
Q

True or False: Covered call writing is a conservative option strategy designed to generate income.

A

True

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22
Q

What is a covered call position?

A

The sale of a call (obligation to sell) against stock that is owned

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23
Q

True or False: Common stockholders have the right to vote for the payment of dividends.

A

alse. Dividend payments are determined by the board of directors.

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24
Q

True or False: Both common and preferred stockholders are offered preemptive rights.

A

False. Preemptive rights are only offered to common stockholders.

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25
If a corporation executes a stock split, is there a resulting gain or loss for existing stockholders?
No, the overall position stays the same. Forward = more shares at lower price; Reverse = fewer shares at higher price.
26
ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Monday, October 17 be entitled to the dividend?
No, the investor must own (trade settles) on or before the record date. This trade would not settle until October 20.
27
XYZ's record date is Thursday, May 3. With a regular-way trade, when could Emma sell her stock, but keep the dividend?
On Tuesday, May 1 or later. She must remain the owner at least through May 3 to keep the dividend.
28
What can be determined if given the following bond information? 7% bond, due 6/1/20XX, yielding 8.7%
$70 interest ($35 each 6/1 and 12/1), matures on June 1, 20XX, is a discount since YTM (8.7%) is above the nominal (7%)
29
Mack, in the 35% tax bracket, is earning 5.4% on a tax-free municipal bond. What is his taxable equivalent yield?
The formula is: Tax-Free Yield ÷ (100% - Tax Bracket %). 5.4% ÷ 65% = 8.3%
30
The ________________ the duration, the greater the bond's price sensitivity.
longer/greater
31
Rank in order, from highest to lowest, the three yields on a bond priced at a discount.
YTM, Current Yield, Nominal Yield
32
Rank in order, from highest to lowest, the three yields on a bond priced at a premium.
Nominal Yield, Current Yield, YTM
33
A bond has a 12% coupon and is trading for $1,200. What is a realistic YTM for this bond?
YTM must be less than 10% since the current yield ($120 ÷ $1,200) is 10%.
34
Define duration.
The measure, expressed in years, of a bond's price sensitivity to interest rate changes
35
What does a normal, positive, ascending, or upward sloping yield curve indicate?
Bonds with longer maturities have higher yields than bonds with shorter maturities.
36
The yield curve is ___________________________ when short-term bonds have higher yields than long-term bonds.
inverted (negative/descending)
37
True or False: A flat yield curve reflects both long and short-term yields being the same.
True
38
As it relates to securities law, what does the acronym USA mean?
The Uniform Securities Act, also known as the blue-sky laws
39
Are ADR holders exposed to currency risk?
Yes, since these securities will track the underlying stock.
40
The NAV of a mutual fund is like the _____ price of a stock.
bid
41
The POP of a mutual fund is like the _____ price of a stock.
ask
42
Specialists are found in what type of trading venue?
Physical auction markets
43
A mutual fund portfolio manager wanting to generate income would engage in what option strategy?
Covered call writing
44
Call buyers and put writers are __________.
bullish
45
Put buyers and call writers are __________.
bearish
46
On Monday at 10:00 a.m., a customer places a call to buy an ETF. What price will she pay?
The current ask (offer). ETFs are traded throughout the day.
47
Is a hedge fund investment considered liquid?
No
48
Who typically buys hedge funds
Qualified (sophisticated) investors through Reg. D offerings
49
May hedge funds sell stocks short and use margin?
Yes
50
What is implied when a growth fund has a beta of 1.5?
The fund is more volatile than the general stock market.
51
What are the two main types of municipal bonds?
General obligation (GO) and revenue bonds
52
________________ is considered risky since it is junior to both preferred stock and bonds.
Common stock
53
Regarding rights, options, and warrants, which instrument has the longest maturity?
Warrants
54
Who sets the prime rate?
Individual banks, not the Federal Reserve Board
55
What is a judicially approved restructuring?
This is a technical term for bankruptcy
56
What is the capitalization of a corporation?
The stocks and bonds a company has issued in order to raise funds for its own operations
57
What is the portfolio of a corporation?
The corporation's investments
58
What security helps to finance foreign trade?
A banker's acceptance (BA)
59
What type of bond typically offers a lower yield?
Municipal bonds, since the return is tax-free
60
The spread represents the difference between the _____ and _______ price of a stock.
The spread represents the difference between the bid and ask price of a stock.
61
What does it mean to say an issuer is heavily leveraged?
The issuer has more debt than equity outstanding.
62
A yield has gone from 3.44% to 3.53%. What is the amount of the increase?
9 basis points (BPs). Each full percentage point is equal to 100 BPs.
63
Identify the acronym: SIMPLE
Savings Incentive Match Plans for Employees
64
What is a blue chip stock?
A well-known company that is a leader in its field
65
What is not included in the expense ratio of a mutual fund?
Sales charges are not included in the expense ratio.
66
What is the current yield on a 4% coupon bond selling at 50?
$40 ÷ $500 = 8%
67
On a discount bond, which yield is the highest?
TM. Remember the seesaw on a discount bond - NY, CY, YTM (lowest to highest).
68
On a premium bond, which yield is the highest?
Nominal. Remember the seesaw on a premium bond - NY, CY, YTM (highest to lowest).
69
Jim owns a 5% bond maturing on 6/1/2022. What would Jim receive at maturity if the bond pays interest semi-annually?
$1,025, which represents the $1,000 principal value plus the final coupon payment of $25
70
Which government bonds are non-marketable?
Series HH and EE Bonds have no secondary market.
71
What is the significance of a narrow spread in a stock quote?
A narrow spread (small difference between bid and ask price) is often indicative of active trading.
72
What does the term good delivery mean?
The security is in proper form and endorsed or accompanied by a stock power.
73
Identify the acronym: SBI
Shares of Beneficial Interest (This represents a client's UIT holdings.)
74
Which market is considered negotiated?
The over-the-counter (OTC) market, such as Nasdaq. In the OTC market, market makers negotiate prices.
75
When acting in a ____________ capacity, a firm is assuming risk.
When acting in a principal capacity, a firm is assuming risk (e.g., a firm-commitment underwriting).
76
When acting in an ________ capacity, firms assist customers, but do not assume risk.
When acting in an agency capacity, firms assist customers, but do not assume risk (e.g., a best-efforts underwriting).
77
What action would the Federal Reserve take in an inflationary environment?
Tighten credit to make money more expensive
78
What must be included in a mutual fund confirmation?
Potential redemption fees or CDSCs that may apply
79
Issuers of bonds may be referred to as __________.
debtors.
80
Zero coupon bonds are purchased at a __________ and mature at ____________.
discount, par value
81
True or False: Municipal bonds may be referred to as tax-exempt bonds.
True
82
To protect a long position, an investor would _____ a _____ option as a hedge.
To protect a long position, an investor would buy a put option as a hedge.
83
Is a real estate investment trust (REIT) considered a mutual fund?
No. A REIT invests primarily in real estate rather than securities.
84
When must RRs complete the Regulatory Element of Continuing Education?
On the 2-year anniversary of their registration and every 3 years thereafter.
85
True or False: Firm Element Continuing Education requires BDs to update employees on job and product-related subjects.
True
86
What three items must be specified on a not held order?
Action (buy/sell), Amount (quantity), and Asset (security)
87
For how long may a not held order be maintained?
A not held order will be considered a day order.
88
The Trust Indenture Act of 1939 regulates ________________ offerings.
corporate bond offerings (NOT municipal or government offerings).
89
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
90
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers' acceptances, bank issues, non-profit and small business issues
91
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
anti-fraud
92
n a firm commitment underwriting, unsold securities are retained by ________________.
the syndicate.
93
In a best-efforts underwriting, unsold securities are retained by ______________.
the issuer.
94
What type of underwriting is cancelled if the entire issue is not sold?
All-or-None
95
What type of underwriting is cancelled if a specified portion is not sold?
Mini-max
96
A ___________ underwriting is used for shares not purchased through a rights offering.
Stand-by
97
____________ is the only form of price manipulation allowed by the SEC.
Stabilization
98
What system is used for the issuance of Treasury securities?
An auction
99
What is the purpose of a Tombstone Ad?
It calls attention to the new issuance of securities and members of the syndicate.
100
The Securities Exchange Act of 1934 regulates the ____________________.
Secondary Market.

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