Knopman Marks SIE Exam

Regular Way Settlement for Equities

T + 2

The First Day that a Buyer Buys Stock Without a Dividend

Ex-Dividend date

The Last Day a Buyer Can Buy Stock and Receive the Dividend

business day before the ex-date

When Ex-Dividend Date Happens Relative to the Record Date for Regular Way Trades

1 business day before

Fixed Rate Equity Security that Responds to Market Conditions like a Bond

Preferred Stock

Declaration Date

date on which the board declares that a dividend will be paid, when it will be paid (payable date), and the date an investor must be on the books to receive the dividend (record date), and this announcement must be at least 10 business days before the record date

Dividends in Arrears

missed dividend payments

When Ex-Dividend Date Happens Relative to the Record Date for Cash-Settled Trades

the business day after the record date

Adjustments to Price of a Security with Dividends

on the morning on the ex-date, the price of the security will fall by the amount of the dividend

Forward Stock Split

more shares for a lower price each

Long-Term Capital Gains

the profits from a sale of securities that have been held by the investor for more than one year

Long-Term Capital Gains Taxation

taxed at a preferential rate

Nominal Owner

the registered or legal owner of the security in name only, as another entity is the beneficial owner, retaining all rights of ownership

Proxy Statement

disclosures sent to a company's shareholders prior to corporate vote

Reverse Stock Split

fewer shares for a higher price each

Rights

provide shareholders with the ability to maintain their proportionate ownership in a company if the company issues additional shares

Short-Term Capital Gains

profits from the sale of securities that have been held by the investor for one year or less

Short-Term Capital Gains Taxation

taxed as ordinary income

Stock Dividend Taxation

taxed upon the sale of the shares by the investor, not taxed upon receipt

Street Name

a type of security registration in which the broker-dealer maintains the customer's securities in the firm's name to allow for the ease of transfer when securities are bought and sold

Transfer Agent

in charge of recording changes in ownership of securities and recording the names of registered security holders

Three Things a Company May Choose to Do with Treasury Shares

1. held by company

2. reissued to the public

3. cancelled

Event that Turns Common Stock Shares Owned by the Public into Treasury Shares Held by the Company

company stock buyback (repurchase)

Filing Deadline for Form 10-K

within 90 days of a company's fiscal year-end

Purpose of Pre-Emptive Rights

to avoid dilution

Price at Which Warrants are Issued

with no intrinsic value, so the exercise price is well below the current market value

The Entity that Issues and Cancels Stock Certificates and Processes Investor Mailings such as Proxies

transfer agent

The Entity Responsible for Holding Assets and Securities for the Protection of Investors, and also for Maintaining Certain Investor Records

custodian

Impact of a Cash Dividend Received on a Common Shareholder's Cost Basis

nothing as cash dividends do not impact share cost basis they are taxable as ordinary income

Order of Four Key Dates in the Dividend Payment Process

1) declaration date 2) ex-dividend date 3) record date 4) payment date

Income Tax Treatment of Stock Dividend

the investor's tax basis on each share held is adjusted downward in proportion to the stock dividend

Equivalent of 100 Basis Points

1%

Regular Way Settlement for Corporate Bonds

T + 2

Regular Way Settlement for Municipal Bonds

T + 2

Regular Way Settlement for Agency Securities

T + 2

Frequency of Interest Payments to Bondholders

semi-annual

Value of One Bond Point

$10

Uses a 360-Day Year in the Calculation of Accrued Interest

municipal and corporate bonds

Highest Yield When a Bond is Trading at a Premium and is Callable

current yield

Highest Yield When a Bond is Trading at a Discount and is Callable

Yield to Call

Lowest Yield When a Bond is Trading at a Premium and is Callable

Yield to Call

Amount a Bondholder Receives at Maturity

par + final semiannual interest payment

The Degree of Risk Associated with an Issuer's Ability to Repay the Principal

credit/default risk

Process of Calling Bonds when Interest Rates Have Fallen

refunding

Special Amount in Which Issuers Funds are Set Aside in Advance of a Call

sinking fund

Type of Bond Issue that is Not Typically Callable

U.S. government bonds

Risk that Proceeds from a Called Bond Cannot be Invested as Favorably

reinvestment risk

Bond Purchased at a Deep Discount and Pays No Interest During the Life of the Bond

zero-coupon bond

The Corporate Practice of Raising Money to Call Outstanding Bonds

refunding

Current Yield Formula

annual interest / current market price

Date on Which Interest on New Municipal Bonds Begins to Accrue

dated date

Regular Way Settlement for Municipal Securities

T + 2

High-Yield Bond

junk bond; non-investment-grade bond that has a higher chance of default

Refinancing

the process of replacing a higher interest rate loan with a new loan at a lower rate of interest

Term Bond

a type of bond issuance in which all the bonds mature a once

Trading Flat

a bond that does not pay accrued interest, such as a zero or bond currently in default

Yield to Call

the rate of return on a bond that accounts for the difference between the purchase price and the amount of proceeds received on the earliest call date

Yield to Worst

the lower of a yield to call or yield to maturity

Nominal Yield Calculation

annual coupons / par value

Type of Bond with the Greatest Exposure to Interest Rate Risk

long-term maturity and low-coupon

Duration

a measure of a bond's sensitivity to changing interest rates

Type of U.S. Treasury Security with the Least Exposure to Interest Rate Risk

Treasury bills because they have very short maturities

When Bonds are Subject to Amortization

when purchased at a premium

When Bonds are Subject to Accretion

when purchased at a discount

Accrued Interest is Paid By

Buyers of Bond to Sellers of Bonds

Tax Treatment of Accrued Interest

taxable as ordinary income to the bond seller

An Unsecured Corporate Bond

debenture

Agency Debt Fully Backed by the U.S. Government

ginnie mae

Bond Taxable at the Federal Level but May Be Exempt from Taxation at the State Level

U.S. Government bonds and notes

Maximum Maturity of Commercial Paper

270 days

Protects Bondholder Through a Written Agreement between the Issuer and Trustee

trust indenture

Typically Secured by Other Securities Owned by the Corporation

collateral trust bond

Amount of Interest Paid Prior to Maturity on a Treasury Bill

none as t-bills are zero coupon securities

U.S. Government Instruments that Matures within 2-10 Years

treasury note

U.S. Government Instruments that are Quoted in 32nds

treasury notes and treasury bonds

U.S. Government Zero-Coupon Bond Instrument that has No Reinvestment Risk

STRIP

Frequency of Interest Payments on Mortgage-Backed Securities

monthly

Mortgage-Backed Securities with the Implied Backing Of the U.S. Government

fannie mae and freddie mac

Type of Corporate Security that is Backed by Equipment

equipment trust certificate

Zero Coupon Securities Created from U.S. Treasury Notes and Bonds by Brokerage Firms

treasury receipts

Federal and State Tax Treatment of Most Municipal Debt Interest

exempt from taxation at the federal level but may be taxable at the state level

Tax Treatment of Capital Gains from Sales of Municipal Bonds

taxable

Type of Tax that Backs General Obligation Bonds Issued by Cities and Counties

property taxes

Self-Supporting Municipal Debt

revenue bonds

Maturity of Typical Municipal Notes

12 months or less

Statutory Limits on the Amount of Debt a Municipality Can Carry

debt limit

Type of Municipal Issue that May Require Voter Approval Through a Referendum

general obligation bonds

Safest Type of Municipal Issue

general obligation bonds

Type of Municipal Issue Which May be Impacted by Debt Limits

general obligation bonds

Interest on Bonds of These Two Issuers is Taxable at the Federal, State, and Certain Local Levels

corporations and agencies

Interest on Bonds of These Two Issuers is Taxable at the State and Certain Local Levels, but Exempt at Federal Level

municipal

Interest on Bonds of These Two Issuers is Taxable at the Federal Level, but Exempt at State and Local Levels

U.S. government

Alternative Minimum Tax

a second method of calculating the tax liability for certain wealthy individuals to ensure they pay an appropriate amount of taxes

Bond Anticipation Note

a short-term municipal note that is issued in anticipation of a future bond sale

Commercial Paper

unsecured, short-term corporate debt that typically has a maturity of 270 days or less

Debt Limit

reflects the total amount of GO debt that a municipality can have outstanding at any time

Extension Risk

risk that as interest rates increase, homeowners will no longer refinance their mortgages so investors will not get their money back as fast

Farm Credit System

a government sponsored enterprise that provides loans to different entities within the agricultural sector

Money Market

the fixed-income market that deals in short-term debt instruments with maturities of one year or less

Examples of Money Market Instruments

t-bills, commercial paper, negotiable CDs, and banker's acceptances