Unit 2 Checkpoint Exam

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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.​


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