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ser 6 (2)

series 6

QuestionAnswer
bond yelds cash interestes pmts in relation to bond value
nominal bond yield same as coupon rate, set when issued and printed on bond, fixed % of bond's par (stated)
t or f nomianl rate will always be paid to holder even if price changes true
current bond yield (CY) MEASURE BOND'S ANNUAL INTEREST RELATIVE TO IT'S MARKET PRICE. annual interest/market price = current yield
t or f bond prices and yields are opposite of each other true
how do you know if bond is trading at a prem or a discount? if current yield is higher = discount if lower then premium
yield to maturity (YTM) the annualized return of bond if hdlt to maturity
what is the current yield of 6% bond trading for $800 $60/$800 = 7.5%
gov securities highest degree of debt safety, T-bill, bond, and series EE, HH and I Bonds, New Housing Authority bonds (NHA), GNMA,
Issues of Agency (gov spons) 2nd safest debt instrument, Fed farm, fed home lona mtg (fr mac), fed nat mtg ass FNMA
Municpal Issues 3rd safest Debt instrument, general obligation bonds, backed by taxing power of issuer safer than revenue bonds,
Revenue bonds backe by revenue from the facility financed by the bond issue
Corporate debt range from very safe to junk. AAA - Very Save and Junk - risky
what are some different types of corp debt secured bonds (safest), debentures, subordinated debentures, income bonds (riskiest)
what are types of corp bonds secured, unsecured, guaranteed, income and zero coupon,
what are the secured bonds mortage, collateral trust, and equipment turst Trustee holds these securities.
who normall issues equipment trust certificates ralirods, airlines, trucking and oil companies
who holds titles to equipment in equip trust certificates trustee
debentures backed by general credit of isuing corp, debenture owner = creditor of company
subordinated debentures (high yld junk bonds) jer to claims of general creditors, gen offer more income than straight debentures or secured bonds due to increased rick.
guaranteed bonds backed by a company other than issuer such as a parent company
icome bonds also called adjustment bonds, used when co is reorganziing and coming out of bankruptsy. pay interest only if corp has enough $$ and board declares it.
unsecured bonds debentures
zero coupon bonds no reg interest pmts, issued @ deep discount from face value, issued by corp, muni, and us treasurey
how do taxes work for a zero bond? Investor must pay taxes on bond ea yr on amt a which bond have accretited just as if the investor got cash. the bond issuer must send 1099 to show interest even thought owner did not recv it yet.
which security has nor reinvestment risk zero bonds b/c no semi-annual interwst pmt to reinvest. also zero's are only way to lock in a rate of return
convertable bonds corp bonds, can be changed for fixed # of shares of stock, pay less int rates than non convertaible, they have fixed rates, and maturity dates
t or f convertabel stock is sr. over common true
t o f converstion of sr. secuity to common stock is not consedered a pruchase for tax pruposes true
common stock pric $40, conversion ratio of $50 what is the parity price? $1000 (par of bond)/$50 = Conversion ratio 20, then 20*$40 (stock price) = $800 (parity)
Duration measure the amount of time a bond will take to pay for itself. Teh > the duration the > the volitility and the risk. Duration is always shorter thant time to maturity because of interest payments. If no int pmt they are the same
short term anything < 1 yr
t bonds pay how often pay semiannually
Strips zero coupon bonds issued by the treasury
Alabama Power Bond (9s 2010 (ala P) Vol 18 what is int rate, maturity, and how many trades in the previous day? int 9%, matures 2010, 18 trades in previous day
bond 97 5/8 what is the price? 1 bond point = $10 97*10=970; 5/8=.625*10=6.25 so 970+6.25 = 976.25
who is the nations largest borrower? federal government
what is the federal gov credit back by? the power to tax
treasurey debt securities bill and bonds
t-bill short term, issued at dicount from par, no interest paid, rtn is diff betwn price pari and par recv'd, term 4-26 weeks, auctioned weekly
t-notes pay int every 6 mo, term 1-10 yes,
how much is a t-note that states 98:24 24/32=.75 so 98.75*1000=987.50.
t-bonds long terms 10 yrs or more, pay int every 6 mo,
how long does treasury have to give investor before calling a t-bond 4 months
treasure receipts created by brokerage firms form ntoes and bonds these are zero coupons. they are not backed by full faith and cr of gov.
stips separate trading of registered insterest and principaql of securities), backe by gov, zero coupons instruments
series EE bonds & HH exempt form state and local taxes but are subject to fed tas
How can you purchase HH bonds only by trading in EE bonds, HH bonds pay semiannual interest
Series I bonds purpse to protect securites holder from inflation, interst not paid till end
agency issues gov agencies sell debt dfocs to fund projects, they have implies gov backing rather than direct so they have higher interest rates. they are % of pay so 97% would be $970,, trade in 2nd mkt, exempt from sta and local tx by pay fed
what is the min denom on a GNMA pass through? $25000, investors buy to satify income needs,
CMO collaterized mortg obligation, mtg backed securities like pass thru's used by GNMA
what are the risks of CMO's if int rate decrease, refinancing increases and invest rec principal sooner and get fewer int pmts, if int rates increase investor may have to hold investment longer they do get more pmts this way. liquidity 2nd mkt but complex,
Real Estate Mtg Invest Conduits (REMICS) MTG backed pass thrus, more flex than CMO, have diff risk classes,
who are muni bonds good for investors in high tax brackets
general obligation bond (GO) Backed by issued, know as full faith and cr bond, issued to raise $$ for muni cap improvements for community, backed by muni tax power
capital market source of intermediate to long term financing usually in equity or debt securities with > 1 year maturity
hwo do corps and banks raise short term money? bankers accep, comm paper, negotiable CD, Fed funds, broker and dealers loans
bankers acceptance short term draft with specified pmt date drawn on bank 9like post dated check) 1-270 days, issued at a discount and mature at par
commercial paper issued @ discount, unsecured, to raise cash for season inventory,
CD nonnegotiable, used by most investors, set maturities and fixed rates, 30 days to 10 yrs or more
Jumbo CD negotiable, time depos, mon of 100k most are $1 mil or more, unsecured, guaranteed by issuing bank, most are 1 yr or less,
what does economic activity tell us reflects overal health of contry's economy
GDp Gross Domestic Product, all the good produced in nation along with services
CPI consumer price index, most prominat measure of genera price changes, measure hwo fast increase and decrase in a range of consumer prices.
business cycles and the 4 cycles periods of economic expansion are followed by econ contraction 1) expansion 2) peak 3) contraction 4) trough then it repeats
business cycle expansion increase business activity
business cycle peak a economy can only expand so long and then reach the top
business cycle contracting decling business after peak
depressions occur when GDP decreases for 6 consec qutrs (18 mo)
business cycle trough when business stops recling and levels off
how does FRB affect money supply? change resever requir, change discount rates on lns to banks, open market operations buying and sellign of treasury securities
reserve requirements commercial banks must deposit certain amt of money with Reserve. these are called federal funds
fed funds rate rate of interes fed chages banks to loan addition $$ for the reserves
discount rate rate fed charges its mbrs for short term loans
fiscal policy refers to legis decision of congress and president, using fiscal policy gove can increas and decrease inflation.
prune rate base rate on corp loans at large US money center
call money rate charge on loans to brokers with stock as collateral
balance of pmts flow of $$ between US and other countries
ERISA Employee income security act of 1974, estab to prevent abuse of pensions. applies to corp, union and gov plans.
what does erisa cover participatio 21 yr and over, work for full yr with 1000 hrs, funding - must be sep from corp assets. vesting-get all after # of yrs, must be open to all, bene's must be named
SIPC Securities Investor protection Corp, protects investors from investor insolvency, all firms reg with SEC must be registered wit SIPC
t or f firm accts and its officers are not covered by SPIC act true
Is SIPC needed on advertising brokers and dealers must advertise SIPC on all marketings
tippers and tippees person who gives and ges insier information
chinese firewal written comp barrier agains free flow of sensitive info btwn firms departments
penalties for insider info $1 mil or 300% of profits made and criminal penalties up to 20 yrs in prison
Reg S-P requires financial firms to maintain safe gards to protect customer info
disclosures customer must be todl as soon as they c/c a client what safe gards are in process. must get annual notice
right-to-opt-out customers can opt out of sharing personal infor the disclosure must clearly state how to opt out and it must be simple
what is the difference btn sales lit and advertising? sales lit mbr selects an audience and advertizing cannot selct audience it is pub at large
Created by: tnl