Unit 2 Checkpoint Exam
Negotiable Jumbo CD
$100,000 - $ 1 mil Secondary market One year or less No prepayment Semi annual basis
One of your customers notices that the short interest on KAPCO common stock is high. When she asks you for an interpretation, you should tell her this signals
Bullish To replace the stock shorted, an investor must go into the market to buy that stock. When all of those short sellers have to buy back stock they shorted, it puts upward pressure on the price of that stock.
How To Protect Against Unlimited Loss With Selling Short
Buying call option This is the best way to hedge a short position.
Convertible Debt Issue Is
Creditor Any bond is creditor
Risk Avoided With Eurodollar Bond
Currency risk
Straight Preferred Stock Is Sensitive To
Interest rates
Adjustable Rate Preferred Stock
Price is stable
Yield Spread
The term yield spread refers to the difference in yield between very high quality debt instruments, such as US government bonds, and those with lower ratings. The spread compensates for the additional risk. When investors perceive that the risk has lessened, they won't demand as much in return from the lower rated instruments.
Marketability and Income
Treasury notes
In the past 20 years, 55-year-old James has put $27,000 into accumulation units in his nonqualified variable annuity. The current value of his units is $36,000. He wishes to withdraw $16,000 to assist with his grandchild's college education. If he is in the 28% tax bracket, what is his tax consequence on the withdrawal?
$9,000 x .38= 3,420 .38 because he's 55 and there is a 59 1/2 rule, so .28 + .10 = .38 9,000 because of the growth
REIT
A REIT is a professionally managed company that invests in a diversified portfolio of real estate holdings. REITs are traded on public exchanges and OTC, which provides liquidity.
The current yield on a bond with a coupon rate of 7.5% currently selling at 105-½ is approximately:
A bond with a coupon rate of 7.5% pays $75 of interest annually. Current yield equals annual interest amount divided by bond market price, or $75 ÷ $1,055 = 7.109%, or approximately 7.1%.
Variable Annuity Offers Investor
Ability to invest in equity securities in tax deferred basis
Prepayment Risk Is A Major Concern With Purchasing
CMOs Because prepayment has to do with mortgage backed
Alternative Investment
DPP ETN
Variable Life Contract Guarantees
Death benefit
Debt Securities
ELN Structured notes
Interest From US Gvt Obligations Is
Exempt from state and local taxes
Which of the following is a possible advantage of scheduled premium variable life insurance over whole life insurance?
Inflation protection for death benefits
Your client has heard about investment opportunities in life settlements. Among the risks involved with this investment is
Insured may live past maturity date
YTC Involves
Interest payments to be received Length of time to the call Current price Call price
Best Time To Buy Long Term Bonds
Interest rates have peaked Because as interest rates go down bond prices go up
Low Coupon = ___ Duration High Coupon = ____ Duration
Inverse Long Short
Equity Products
Leveraged funds Inverse funds
Hedge Funds Are Issued BY
Limited partnerships
REIT Advantages
Liquidity Professional management Diversification
A 45-year-old investor wants the greatest possible monthly income with the preservation and stability of capital as secondary objectives.
Long term bond, good for income
1 US Treasury 7-½% due Dec 2019 at 102
Nom yield : 7.5 % 102: Premium of $1,020
Option Buyers
Option buyers have rights, they can choose what they wish to do - there are no obligations
Passive Real Estate Investment
Real estate limited partnership DPP is passive
Prepayment Risk
When interest rates fall, there is an increase in refinancing causing the mortgages to be paid off ahead of schedule. This results in the investor receiving a return of principal ahead of time, but only able to reinvest at the current lower rate.
Dividend Discount And Discount Growth Used By
Fundamental analysis
GNMA
GNMA pass-through certificates trade OTC. GNMAs are the only agency whose securities are direct US government obligations.
US Gvt Agency Obligations
They generally have higher yields than direct U.S. obligations. The Federal National Mortgage Association is a publicly traded corporation
Liquidation Order
Wages Taxes Secured debt holders Unsecured debt holders (including general creditors) Bonds Preferred stockholders Common stockholders.
Options positions can either create rights or obligations. In which option position has the investor created the possible obligation to purchase stock?
Selling (write) a put
Variable Life Insurance
Federal law requires the insurance company to allow the insured to exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, for two years, with no additional evidence of insurability.
Your client is interested in investing in preferred stocks in an effort to receive dividend income. The client's target goal is a 6% current return on investment (ROI). If the RIF Series B preferred stock is paying a quarterly dividend of $.53, your client's goal will be achieved if the RIF can be purchased at
First, take the quarterly dividend and annualize it (4 × $.53 = $2.12). Then, divide that number by 6% and you get $35.33
Many investors with a long position in common stock employ the technique of writing call options on the underlying stock for the purpose of
Generating income
Discounted Cash Flow
Summary of the expected interest payments that has been adjusted to reflect the time value of money With all other things being equal, the bond with the higher DCF is the better investment.
NSO
Taxed to the recipient as salary income at the time the option is exercised Neither of the employee stock options are publicly traded.
