SIE Exam Notes
Municiple Bond: Interest payments are not taxed at federal level but may be taxed at state level. All capital gain are taxed
General Obligation (Municipal bonds) are used to finance public projects or projects that can be used by the public
serial bond structure- outstanding bonds are retired at different intervals with a portion of the issue maturing each year.
1bps = .01%
Investors prefer a longer call date to protect from call or reinvestment risk
Corporate debenture = unsecured coporate bond —> lower in the corporate liquidation waterfall and have higher yields
Where time and price are the only variables left to the registered reps choosing, this is an example of a "not held" order
Preferred stock - get called when rates are falling as the issuerer can refinance at a lower rate
Systematic risk is reduced through hedging
Securities are settled T+1 day
nflation risk is a major concern for investors who hold portfolios of fixed income investments for funding retirement income.
Sinking funds are commonly used to retire corporate debt. Issuers set aside money each year by making payments to a trustee who retires part of the issue by purchasing the bonds in the open market.
Longer term bonds are more risky than short term bonds.
Accrued interest is calculated from the last interest payment date up to but not including the settlement date of the transaction.
A bond trading with accrued interest is trading at its "full" price; a bond trading without accrued interest is trading "flat."
When a bond is trading at a discount, nominal yield is lowest, then current yield, YTM and finally YTC.
Treasury’s quoted at 1/32 and Corporate bonds quoted as 1/8
Tbill - short term maturity and sold at a discount with no coupon
T notes - 2 to 10 year maturity
T bonds - 30 year maturity
Distributions from non-qualified variable annuities are subject to tax liability on the amount in excess of the original contribution (which was funded with after-tax dollars).
Stagflation is characterized by rising unemployment and increasing prices.
Income from Treasury bonds are taxable only at the federal level, tax-exempt state and local
A put option would be exercised when the market price of the underlying security is lower than the strike price of the option contract.
A closed end investment company may trade at a premium or a discount to its net asset value.
In a non-qualified retirement plan, participants contribute funds on an after-tax basis. The invested funds then grow on a tax-deferred basis until they are withdrawn by the employee.
The best candidate for a variable annuity is someone in middle age who is fully funding their retirement benefits and is looking for supplemental retirement income.
Shares of an initial public offering (IPO) become marginable (or may be used as collateral) after 30 days
DPPs such as limited partnerships are most appropriate for investors in a strong financial position who have a high risk tolerance. These are often speculative investments that are generally inappropriate for retail investors.
Losses from DPP's can be used to offset passive gains, such as income from limited partnerships.
A company may pay a dividend in cash, stock or stock of a subsidiary company.
The Securities Investors Protection Corporation (SIPC) protects each separate customer account for up to $500,000, with a maximum of $250,000 in cash.
Discretionary trades are trades where the customer does not specify the type of security, type of transaction or quantity. For a discretionary trade, a registered rep must have discretionary authority. An order that leaves the time and price open is not considered discretionary.
Taxes and government spending are associated with fiscal policy, not monetary policy.
The interest income on federal agency securities (GNMA, FNMA) is taxed at the federal, state, and local level.
Keynesian economic theory espouses that the government needs to be the leading force in promoting economic growth and stability. Supply-side economics advocates that tax cuts provide incentives for consumers to save and invest, thereby producing benefits that will encompass the broad economy.
A registered representative (RR) must provide advance written notification to her employer prior to accepting a part-time position outside of her firm.
Closed-end investment companies are not redeemable securities. They are trading in the secondary market amongst investors.
12b-1 shares are charged by mutual funds for marketing and distribution. These charges are in addition to front-end or back-end sales charges.
unit investment trusts are without an investment advisor. They are not actively managed.
REITs are not defined as investment companies under the investment company Act of 1940 because they invest in real estate not securities.
The management fee is usually the largest expense of a management company.
Mutual fund shares are redeemed at the net asset value (NAV), not the public offer price (POP).
Closed-end fund and ETF shares trade on exchanges at premiums or discounts to their NAV.
An investment grade corporate bond CEF trading at a discount to NAV fits this investor's objective.
A DJIA ETF is a stock fund.
The securities traded on a stock exchange include: common and preferred shares issued by companies, derivatives, pooled investment products (including REITS and closed end shares), and bonds. Mutual funds shares are issued and redeemed only by a mutual fund or one of its sponsors.
Investors that liquidate their ownership in a UIT sell their units back to the issuing trust. The value of the units is determined at the end of the business day based on the current valuation of the securities held in the portfolio. There is no guarantee that an investor will receive more than their original purchase price if their units are redeemed.
A unit investment trust does not have an actively managed portfolio. The securities are selected based on the trust's investment objective and held to the termination of the trust. Investors in the trust must receive a prospectus. Units may be sold to non-accredited investors.
The Investment Company Act of 1940 permits a maximum 12b-1 fee of 1% of the fund's NAV.
A letter of intent is a unilateral contract that can be canceled at any time by the customer, but cannot be canceled by the fund. If the contract is canceled, shares from an escrow account are redeemed to pay for the sales charge that would have applied without the letter of intent
Rights are short term instruments that allow the holder to buy the stock at a price that is typically lower than the current market price of the stock. Warrants are long-term instruments. The exercise price of the stock is typically higher than the market price of the stock at the time the warrants are issued. Warrants have value only if the price of the stock appreciates.