Equity Securities
Conversion ratio of stock
Par value of preferred stock / conversion ratio
A corporate bond is trading at a price of 92. The bond's coupon rate is 7% and it makes interest payments on January 1 and July 1. If the bond is purchased on Monday, September 19 for regular-way settlement, what's the total purchase price of the bond?
$920 bond price + $15.36 accrued interest (79 days accrued int/360 days)
= $935.36Short interest theory, odd-lot theory, and advance-decline theory are all examples of:
Technical Analysis
Option liquidation:
Opening purchase is liquidated by a:
Closing sale
Opening purchase --> Closing sale
Opening sale --> Closing purchase
Name the three types of spreads:
Price spread (aka dollar or vertical)
Time spread (aka calendar, date, or horizontal)
Diagonal spread
2 key differences of sponsored vs. unsponsored ADRs
Sponsored: Issued in cooperation with the foreign company and may trade on US exchanges (NYSE or Nasdaq)
Unsponsored: Issued without the involvement of the foreign company and generally trade on the OTC market (OTC pink open market)
A bond with a basis of 4.35 and a coupon rate of 4.95% is selling at
a premium
An increase to a particular price level at which heavy selling pressure is encountered --> prices are too expensive and causes buying to cease
Resistance level
What are LEAPS?
Equity options with expirations of up to 39 months that operate in the same manner as other standard listed equity options.
*Provide a long-term opportunity to participate in the price movement of a security and offers long-term protection against unfavorable movement in the market value of an underlying stock position.
An investor is in her mid-30s and is interested in saving for retirement. She has a high risk tolerance and wants to outpace inflation. Which of the following investments is most suitable?
A. A CMO
B. A Zero-Coupon Bond
C. A Utility Stock
D. A Mid-Cap Stock Fund
D. A Mid-Cap Stock Fund --> provides long-term growth and is a good hedge against inflation.
What are warrants?
Type of equity security issued by corporations that give the holder the ability to buy the issuer's common stock at a specific price in the future. Key features include: above current market value and long-term
Think of it as a "sweetener" attached to the issuance of stocks or bonds.
How do you adjust the dollar value of a bond each year over the course of its life?
Accretion - upwardly adjusted
The bottom of a saucer pattern is a ______ indicator for the stock
Bullish
Even stock split
Increase in # of contracts, decrease in exercise price, number of shares remain unchanged
*Remember, even stock split is any split for 1
True or False: The money being contributed to a variable-annuity is invested by the insurance company in its general account.
False - the money contributed to a variable-annuity is invested by the insurance company in its SEPARATE account.
What is the Wash Sale Rule?
IRS doesn't allow investors to claim a deduction for a capital loss on an investment if he purchases "substantially the same security" within 30 days of the sale. The period of the wash sale rule is a total of 61 days since it includes the date of the sale, and both 30 days before and after.
What is the order of liquidation?
1. Secured creditors/bonds
2. Wages (payroll)
3. Taxes
4. General creditors/debentures
5. Subordinated creditors/subordinated debentures
6. Preferred shareholders
7. Common shareholders
Fundamental analysts will most likely analyze what?
Company's financial statements
What is the breakeven of an investor buying 100 shares at $91/share and 1 ABC November 90 put at $2?
91+2=93 breakeven
True or False: Equity-indexed annuities are not considered securities.
TRUE
Netting capital gains and losses
Netting refers to using capital losses to offset capital gains on a dollar-for-dollar basis. A maximum of $3,000 of losses can be used in the current tax year as deductions against ordinary income. After that, any unused losses are able to be carried forward in the subsequent years.
Moody's four municipal note rating categories
MIG 1
MIG 2
MIG 3
SG (speculative grade)
Quick Asset Ratio
(Total Current Assets - Inventory) / Total Current Liabilities
A _____ is an option strategy that involves both the writing of a covered call and the purchase of a protective put.
A collar.
True or False: A Direct Participation Program (DPP) is a type of investment in which only the profits of the business venture directly flow through to the investors.
FALSE - All results of the business venture flow through to investors: profits, losses, and cash flow