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SIE Exam
| Question | Answer |
|---|---|
| Shares of stock are categorized into what four buckets? | Authorized - The number of shares a company can sell Issued - Shares sold via IPO and APO's Outstanding - Total number of shares owned by investors Treasury - Shares the company repurchased from the market (stock buy backs) |
| What two financial reports publicly traded companies must file? | 10-K Annual Report (Audited) 10-Q Quarterly Report (Un-audited) |
| What are the two voting structures for the BOD? | Statutory - Applies votes on a per position basis - Beneficial for "large" stockholders Cumulative - Applies all votes to one position - Beneficial for "small" stockholders |
| Dividends can be paid in one of three forms? | 1. Cash 2. Stock 3. Product |
| Cash dividends are paid in what timeframe (usually)? | Quarterly |
| Stock Splits (two general characteristics) | 1. Require shareholder approval 2. Same overall value (if Forward or Reverse) |
| Stock Splits (two types; shares; price) | Forward Stock Split - More shares outstanding - Lower price per share Reverse Stock Split - Fewer shares outstanding - Higher price per share |
| Liquidation priority (7 levels) | 1. Unpaid wages 2. Unpaid taxes 3. Secured creditors 4. Unsecured creditors (senior) 5. Unsecured creditors (junior) 6. Preferred stockholders 7. Common stockholders |
| Transfer Agent (4 characteristics) | 1. Responsible for maintaining the book of stockholders 2. Issues and redeems shares when a transaction occurs 3. Distributes proxies (voting materials) to stockholders 4. Distributes dividend payments to stockholders |
| Negotiable securities | 1. Trade in the secondary market between investors 2. Common stock is negotiable 3. Most securities are negotiable |
| Redeemable securities | 1. May only be bought and sold with the issuer 2. Mutual funds and Unit Investment Trusts (UITs) are redeemable 3. Trades occur at NAV |
| Secondary Market subdivisions | First market - Listed stocks trading on exchanges Second market - Unlisted stocks trading OTC Third market - Listed stocks trading OTC Fourth market - Institutions trading through ECNs (Electronic Communications Networks) |
| Dividend dates - DERP | D - declaration date E - ex-dividend date R - record date P - payable date |
| ADRs | American depositary receipts (ADRs) - US registered receipts for foreign investments - Created by domestic financial firms with foreign branches - Trade in US dollars in US markets - Subject to currency exchange risk |
| Going Long | The purchase and ownership of a security |
| Going Short | The sale of borrowed securities |
| Systematic Risk (define) | Occurs when an event or circumstance negatively affects the entire market |
| Systematic Risk (2 types) | 1. Market Risk 2. Inflation Risk (aka: purchasing power risk) |
| Non-systematic Risk (define) | affects specific investments or sectors, not the entire market |
| Non-systematic Risks (6 types) | 1. Financial risk 2. Business risk 3. Regulatory risk 4. Legislative risk 5. Political risk 6. Liquidity risk |
| Financial Risk (define) | Company with significant debt levels (also known as being over-leveraged) |
| Business Risk (define) | Company has difficulty with its general business, due to competition or mismanagement (Radio Shack) |
| Regulatory Risk (define) | Company faces challenges due to current or potential government regulation (Meta Platforms) |
| Legislative Risk (define) | This occurs when a law or regulation negatively affects an investment (Trump Tariffs) |
| Political Risk (define) | Foreign countries with political instabilities (military coups) |
| Liquidity Risk (define) | Difficultly turning their stock into cash |
| Preferred Stock (4 characteristics) | 1. Considered a fixed income security known for dividend income 2. Typically, $100 for preferred stock 3. Dividends must be approved by the BOD; paid quarterly 4. Market Price influenced by interest rates like bonds |
| Preferred Stock /Cumulative / Straight /Participating | /Cumulative - issuer must pay skipped dividends (bene-investor) /Straight - issuer does not pay skipped dividends (bene-issuer) /Participating - issuer can receive more than stated dividend (bene-investor) |
| Preferred Stock /Call feature /Call protection /Call premium | /Call feature - allows issuer to buy back to security /Call protection - number of years before security can be called /Call premium - amount above pare required to call shares |
| Preferred Stock /Convertible | Convertible - into common stock (bene-investor) |
| Preferred Stock (4 risks) | 1. Interest rate risk 2. Reinvestment risk 3. Call risk 4. Inflation risk |
| "normal" Bonds make payments on what time interval? | Semi-annual Ex. J&J 01 (pays interest on Jan 1st and July 1st) Ex F&A 15 (pays interest on Feb 15th and Aug 15th) |
| How do investors make money on Zero coupon Bonds? | Issuers sell zero coupon bonds at "discounts", then they mature at par. |
| Bond Issuance - Term | All bonds Issued on the SAME DAY and Mature on the SAME DAY Typical Issuers: - Corporations - US government |
| Bond Issuance - Serial | All bonds Issued on the SAME DAY and Mature on DIFFERENT DAYS (also Ballon with majority maturing at the very end) Typical issuers: - Municipalities |
| Bond Issuance - Series | Bonds Issued on DIFFERENT DAYS and Mature on the SAME DAY Typical issuers: - Construction-related projects |
| Underwriter - Firm Commitment | The underwriter is stuck with the unsold securities |
| Underwriter - Best Effort | The issuer is stuck with the unsold securities. |
| US Government bonds (Settle, System, Method) | - Settle one business day after the trade (T+1) - Settle through the Federal Funds system - Actual/365 method (days in month) |
| Municipal and Corporate bonds (Settle, System, Method) | - Settle one business day after the trade (T+1) - Settle through the Clearing House system - 30/360 method (assumes 30 days in each month) |
| Bond features (basic) | - Secured (collateral backs the bond) - Unsecured (aka full faith and credit bonds) |
| Bond Call features | - Call premium (amount above par issuer must pay to call the bond) - Call protection (number of years before a bond may be called) |
| Bond Put feature | - allows bondholder to end a bond before maturity |
| Short-Term zero-coupon corporate debt | Commercial Paper - 270 day max maturity - exempt from SEC registration - Typically sold in large denominations ($100,000+) |
| What is an unsecured (naked) corporate bond | Debenture Bond - Long-term unsecured corporate bond - Also known as full faith and credit bonds - riskier than secured bonds |
| What bond is backed by a 3rd party's promise to pay interest and/or principal in case of default | Guaranteed Bond - backed by third parties: - Parent companies - Insurance companies |
| What bond is backed by real estate as collateral? | Mortgage bonds - Secured debt by corporate real estate - commonly issued by utility companies |
| What bond is backed by equipment? | Equipment Trust Certificates (ETCs) - Secured debt by corporate equipment (airplanes) - Issued in serial form |
| What bond is backed by marketable assets owned by the corporation? | Collateral Trust Certificates (CTCs) - Secured debt by marketable corporate assets example: PepsiCo Inc pledge Gatorade |
| How are corporate bonds quoted? | It is not a valid corporate bond quote if the fraction isn't in eighths or reduced 1/8 or 4/8 would be 1/2 Fraction-Boot-Scoot |
| FDIC insurance covers | FDIC Insurance - Covers up to $250k of bank deposits - Coverage provided per bank, per cusomer |
| Explain Jumbo CDs | Jumbo CDs - Large bank deposits made for short periods - 100k min denominations - $1 Million denominations are common - Trade in the Secondary market |
| Explain Banker's Acceptances | Banker Acceptances - Used to facilitate international trade - 270 days or less to maturity |
| When a US Dollar is held in an account outside the US? | Eurodollar deposits - US Dollars held in foreign banks |
| Explain a Eurodollar Bond | Eurodollar Bonds - Debt security issued outside of the US that pays in US Dollars - Currency risk applies to foreign issuers and investors - Not subject to SEC jurisdiction or registration |
| What is an Exchange rate for currency exchanged today? | Spot Rate - is primarily utilized when a currency conversion must occur immediately |
| What is an Exchange rate for currency exchange in the future? | Forward Rate - is an exchange rate agreed upon today but for a conversion in the future (US Dollars to Euros in 4 months) |
| General Obligation Bonds define | Municipal Debt security - issued to finance public non-self supporting projects - Ex: Public Schools, Parks, Non-Toll Roads - Paid off with Property Taxes (Ad Valorem) - Voter approval; Sold on Firm Commitment Basis - Long-term debt |
| Revenue Bonds define | Municipal Debt security - Issued to finance self-supporting projects - Ex: Toll Roads, Airports, Zoos, Stadiums, Water Treatment Plant - Paid off with Revenue - No voter approval is required - Long-term debt |
| Short-Term notes define | Municipal Debt security - Issued to finance activities that can be paid off in a short period - Access to funding prior to receiving taxes or other capital - Maturity between 3 months - 3 years |
| Taxation: Corporate Bond interest | Subject to all taxes: Federal, State, and Local |
| Taxation: Municipal Bond interest | Subject to State and Local taxes - Exempt from federal taxes |
| Taxation: US Territory Bond interest | Tax-free - Exempt from federal, state, and Local taxes |
| Taxation: US Gov Bond interest | Subject to Federal taxes - Exempt from State and Local taxes |
| Anticipation notes TANs, RANs, TRANs, BANs, GANs, VRDNs | Municipalities requiring short-term funding issue NOTES: - Tax (TAN), Revenue (RAN), Tax and Revenue (TRAN), - Bond (BAN), Grant (GAN), Variable Rate Demand (VRDN) |
| Types of US Government Debt | Treasury Bills (weekly auction) (1 yr or less) Treasury Notes (all other monthly auction) (2-10 yrs) Treasury Bonds (up to 30 yrs) STRIPS (up to 30 yrs) TIPS (up to 30 yrs) |
| Treasury Bills maturity (timeframes) | 04 wks / 1 month 06 wks 08 wks / 2 months 13 wks / 3 months 17 wks / 4 months 26 wks / 6 months 52 wks / 1 year |
Created by:
RandieP