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mark up/down

fee charged by a dealer acting as a principal in a transaction of an OTC stock


purchase if US government securities from the trustee. used to effectively retire existing debt for a municipality

first market

compnent of secondary market that includes the stock exchanges and exchanges that trade equity options

fixed UIt

unit-investment trust, considered non-managed. purchases a select portfolio of securities which is fixed for life of trust

fiscal agent

brokerage house acting as a representative of a govt agency to market and sell new issues to the public

green shoe clause

provision of most underwriting agreements stating that in the face of strong public demand for an offering, the corporation will issue an additional number of shares

securities Act of 1934

regulates margin accounts and gives authority to refulations to FRB. Prohibits stock price manipulation. Requires registration of exchanges and their member firms with SEC


. jointly owned by the exchanges, regulated by the SEC, and sets standardized terms for options.


mortgages made into a derivative product


replacing existing municipal debt with a new issue when the old one matures

GO Bonds

bonds backed by taxation of the issuing municipality

revenue bonds

bonds issued for new project funding. i.e. roads and bridges


implicitly backed. issues securities to purchase VA, FHA, & commercial mortgages in the markets

pre-payment risk

risk that a homeowner pays off mortgages early, causing the funds used for bond issues to be redeemed earlier than expected.

breakeven point

strike price + premium

open interest

measures liquidity by determining the # of contracts that have not yet expired, been exercised, or been closed out.

Prof. Management, diversification, and liquidity

three fundamental advantages for smaller investors

participating UIT

pool of investments is not static,


an investment company that sells pieces of interest in the income arising from a pool of securities

types of REITs

equity REITs, mortgage REITs, combination REITs

REITs benefits

do not pay corporate taxes on ordinary income from the underlying portfolio if: 95% of REITs income is distributed to investors; 90% of income comes from rents and interest on real property or dividends and interest on securities; 75% of gross income is from rents and interest on real property; 75% of REITs assets consist of real estate, govt securities, orcash


rate of interest at which dealers determine investors will buy a new municipal bonds


explicitly backed; sells govt backed securities to raise funds for VA and FHA residential mortgages


second major NY stock exchange; noted for its listings of oil & gas companies, and for its foreign securities. it lists close to 1000 medium-sized companies.

third market

trading of exchange listed securities by an otc firm rather than by a member of the exchange.


broker/dealer who acts as an intermediary in a transaction helping an investor purchase stocks from or sell them to a second dealer. charges commission


fee charged by a broker dealer to its customers, it is a PERCENTAGE of the total cost of the securities that were bought/sold

second market

over-the-counter market

Reg A Exemption

small issue exemption; regulation allowing companies to make public offerings of up to 5 million without meeting normal SEC registration requirements

underwriting spread

difference between the pop and the amount the issuing corp receives.


notice placed in a financial paper that announces a new issue. it names the issuer, size, price, and syndicate members

penalty bid clause

provision that cancels the fee earned by a member of und. syndicate if its customers are found to be selling their shares back to the lead underwriter who has just aced a stabilizing bid

due diligence meeting

meeting held at the end of the cooling off period in which the issuer, lead underwriter, and syndicate members make sure all security laws have been met.

statutory voting

receive one vote for each ballot item

cumulative voting

one vote per share per voting matter, use them as they see fit

regular way settlement

standard required completion of a security transaction on the third full business day after the trade

corporate bond indenture

specifies: total amount of issue; par value; coupon; maturity date; property pledged as collateral; protective covenants; call put provisions

bank qualified issues

banks may deduct 80% of interest they pay as ling as they are not: private activity binds or cannot issue more than 10 million


Separate Trading of Registered Interest and Principals of Securities.


short-term debt of 13, 26, and 52 weeks. 13 and 26 week auctions every monday, 52 week every 4 weeks on a tuesday. purchase price = discount rate x par x fraction of year remaining


11-30 year maturities. sold on % of par basis. returns are frequently used as benchmark for other long-term investments


2-10 years. sold on % of par basis.

adjustment bonds

issued by company in bankruptcy; replaces existing bonds with higher face value than original and pay interest only when company generates income

NYSE Rule 396

nine-bond rule; and nyse firm that is executing an order for 9 bonds or fewer mist place the order on the floor for one hour before sending it to the otc market


total amount of interest payments the issuer makes over the life of the bond; amount of each maturity x corresponding interest rate x appropriate # of years

notice of sale

an advertisement in the bond buyer; includes: amount of the sale, type of bond, dated date (date which interest will start accruing), taxes that are backing the issue, and process for submitting bids

bond buyer

tracks visible supply of bonds, supplies info on new issues, and gives placement ratios for all issues that dealers have placed

four main indices of bond buyer

Bond Buyer Index: 20 municipals, 20 years, A or better
Eleven Bond Index: 11from the 20, avg AA or better
Revenue Bond Index: 25 revenues, 30 year maturity
Municipal Bond Index: 40 heavily traded, 19 years maturity, A or better

good faith deposit

entered with official bid; generally 2% of the bids value

earned income

compensation a person or company receives for providing goods and services. certain expenses can be deducted

passive income

generated by a business venture in which the tax payer has no active managerial role. example: a limited partners income from a dpp is passive bc by law the limited partner cannot participate in daily operations.

investment income

income from dividend or interest payments on securities, as well as capital gains from investments

capital gains

profits realized when an asset is sold for more than it was purchased

capital loss

can be carried forward 2 years! realized when an asset is sold for less than it was originally purchased for. in general, they can be written off against capital gains.

cost basis

an assets cost for tax purposes. includes purchase price and expenses.

short term capital gains

gains realized on assets of up to ine year; taxed at same rate as investors income (up to 35%)

long term capital gains

gains realized on assets held more than a year; taxed based on tax bracket (5% and 10% pay 5%; 25%, 28%, 33%, and 35% pay 15%)

territories and possessions

interest income is exempt, capital gains are taxed as other securities

corporate dividend exclusion

owns less than 20% of another company then it pays no tax on 70%; if it owns 20% or more then 80%of dividend is tax free


the IRS assumes shares are sold via this basis, or the order in which they were purchased, if the investor does not designate which shares are being sold.

how corporate bonds are taxed

for bonds held to maturity, gains and losses are never treated as capital gains

short term capital loss

holders who allow options to expire...

short term capital gain

writers of expired options have ...


long term equity anticipation options

donor of the gift

who is taxed with regards to gifts?

11,000; federal gift tax

individuals can give HOW MUCH per person per year without being taxed by THIS TAX

estate tax

first 2 million is tax free. also, cost basis is the current market price at time of death, and capital gains/losses are treated as long term

short sale

an investor sells a stock that he/she does not own, borrowing it from a broker and replacing it at a later date.

short against the box

an investor sells short a security that he/she already owns.

60 days beyond closing out

how long must an investor remain at risk? no gains during this period.

wash sale

sale of a security and the repurchase of "substantially the same security" within 30 days

municipal bond tax swap

investors who sell municipal bonds must purchase other municipals with at least two of these three different: issuer, interest rate, and maturity.

opportunity cost

the potential income from one investment that was forgone when the investor chose a different investment.


refers to the volatility or variability of a given security's returns.


average of squared deviations around an average. (dispersion of actual annual returns around the average return over a given time)

standard deviation

square root of the variance.

risk-return tradeoff

demonstrated by historical returns, and the standard deviations of those returns, on t-bills, t-bonds, and common stocks

maturity premium

additional return required by investors for investing in longer term Treasury bonds, ad opposed to t-bills.

risk premium

extra return over the risk-free returns that investors insist on when purchasing risky securities.

market risk and unique risk

two most important risks in terms of investment portfolio theory.

market or systematic risk

nondiversifiable because it can never be mitigated completely. type of risk in which a downturn in the economy as a whole, or decline in the larger securities market, might negatively affect the securities of an individual issuer, regardless of that company's own performance over the same period.

unique or nonsystematic risk

associated strictly with the issuer; can be eliminated by diversification.

S&P 500

frequently referred to as the market portfolio

capital asset pricing model

expected return on a stock
risk free rate (return on tbills)
-return on market port. (s&p500)

(risk free rate plus risk premium times the beta)


a measure of the sensitivity of a stocks return to fluctuations in the market.

cyclical stocks

generally have betas greater than 1.0. tend to follow the business cycle

counter-cyclical stocks

generally have negative betas and move against the market.

legislative risk

when changes in laws might lower an investors profits

liquidity risk

stems from the inability to convert a security to cash easily or quickly

credit risk

results when a borrower might not have the capacity to make timely interest an principal payments

interest rate risk

mainly a risk for bonds. this rate and bond prices are inversely related

purchasing power risk

a security's rate of return will not keep pace with inflation. dilutes the overall return

sovereign risk

relates to international investments

clients unique objective

a brokers first consideration in creating a securities portfolio is this...

safeguarding of principal

blue chip and defensive stocks. this objective is less interested in growing capital as it is reducing the risk of losing capital. typically an objective of someone with limited funds or nearing retirement


objective to maximize current investment income. bonds and stocks with high dividends compose this type of portfolio. utility companies are know for paying high dividends


wants the value of investment to grow at a rate equal or greater than the market. this objectives comes from risk-takers or younger investors


seeks greatest possible gain and willing to take any risk. young investors with large incomes and few commitments.

aggressive portfolio

this portfolio tends to be built around growth and speculation. high gains set off by high risk

defensive portfolio

this portfolio tends to be built around income, liquidity, and principal safeguarding. uses diversification to eliminate unique risk

selective diversification

a limit is placed on the total amount that is invested in a particular industry or region

random diversification

no constraints on how much money is concentrated in an industry or region provided that the portfolio, as a whole, remains diversified

velocity of money

the turnover that a dollar experiences over a given period

resolve trade imbalances and maintain a fair and orderly market

duties of a specialist on the NYSE

duties of municipal bond counsel

prepare the legal opinion, validate the issue, examine the treasury arbitrage restrictions to prevent tax law violations; DO NOT set the underwriting spread


Which of the following does not enforce MSRB rules: SEC, FINRA, Comptroller of the Currency, or MSRB?

put credit spread

when an investor received more for the put that he sold than he paid for. Want the spread to narrow. Want options to expire

total takedown

A member of the syndicate is entitled concession plus the additional takedown. This is called the:


A customer sells 100 shares of GM short. GM pays a 5% stock dividend. When the customer covers the short position, the customer will have to deliver

limit order

a trade that is executed at the given price or better. (higher for a sell limit order; lower for a buy limit)

Bankers' Acceptance

the only instrument that is used as a means of financing foreign trade

American Depositary Receipt

facilitates the trading of foreign securities in U.S. markets

Eurodollar CD

pay interest and principal in Eurodollars (U.S. dollars deposited in nondomestic banks) and are not used to finance importing and exporting operations

buy limit and sell stop

An open buy limit order
An open sell limit order
An open buy stop order
An open sell stop order
Which is entered BELOW the market price?


head and shoulders top formation is bearish, bullish, neutral, or highly unpredictable?

support level

where buyers came into the market to buy the stock and thereby "help" its price. It would be at this point that the stock stopped decreasing

variable annuities

these would theoretically provide the greatest protection against loss of purchasing power. The payout is based upon the securities in the separate account which historically have increased in inflationary periods.

Net revenue to debt service

When computing "coverage" for revenue bonds, the ratio used is

placement ratio

Total par value of new issues sold during previous week divided by Total par value of new issues issued during previous week

odd-lot theory

The theory which states that the small investor is usually wrong because he is uninformed, buying at market peaks and selling at market bottoms


Orders are sent directly to the specialist by computer, Orders do not go through a floor broker, and Transaction reports are received faster than those executed by floor brokers: all true about the ______ trading system

pre-refunded bonds

The proceeds of the sale of a municipal bond issue are invested in U.S. government securities that are sufficient to cover interest, principal, and call premiums on an outstanding bond issue

Fed Funds rate

Which rate is most volitile?
prime rate, discount rate, call rate, or federal funds rate

one day

The settlement date between the Options Clearing Corporation and the clearing firm for options transactions.

two days

The payment date for securities purchased in a cash or margin account as stated by Regulation T


When interest rates at savings banks are lower than money market instruments & When the FRB is pursuing a tight monetary policy which is causing a rise in interest rates; this causes....

Rule 145

applies to mergers, consolidations, reclassification of securities, or transfer of corporate assets

reoffering yields

A syndicate letter used in the formation of a municipal syndicate account will contain all of the following EXCEPT: account manager, member participation, reoffering yields, or duration of the account

Investment Banking Department

which department underwrites new issues, provides financing for industrial corporations, and distributes large blocks of already outstanding securities

order book official

Which of the following is an employee of an options exchange:
Market maker
Board broker
Order book official
Floor broker

paid-in capital

Money received by a corporation when it sells its stock above its par value is called

P/E ratio

market value divided by earnings per share (EPS)

8 1/2 percent

A broker-dealer selling mutual fund shares to a client is permitted a maximum sales charge of:

matured debt

All of the following are of importance with regard to the debt structure when analyzing a municipal bond EXCEPT:
Total bonded debt, Total direct debt, Overlapping debt, or Matured debt

additional bonds test

To determine what would happen to the coverage of revenue bonds when more bonds are to be issued in the future, one should examine


ABC Corporation has net income of $8 million. There are one million shares of common stock and one million shares of preferred stock outstanding. The preferred stock pays a $1.00 annual dividend. The earnings per share for the common stock is

may be segregated and identified as belonging to the customer

Fully paid customer securities held at a brokerage firm:
May be used as collateral for brokerage firm loans
May be commingled with other customers' securities
Must be segregated and identified as belonging to the customer
None of the above

exploratory or wildcat program

The riskiest type of oil and gas project would be a(n):

before the purchas

If a customer wants to purchase securities in an account that has been frozen, when must he deposit the required cash in the account?

best efforts

A type of offering in which whatever is not sold is retained by the issuing corporation is

firm commitment

A type of offering in which the issuing corporation is assured of receiving the full amount of the offering, and whatever is not sold is retained by the underwriter, is

debit balance

Customers are charged interest on the average daily amount of the _____ balance in their margin account

Keogh plan

The investor can make a maximum deductible contribution to a _____ plan of 20% of the income earned as a self-employed antique dealer or $50,000, whichever is less

not-held order

an order that a specialist can not accept

capital loss at time option expires

If a put or call option expires, the amount of the premium paid by the purchaser of the option is considered for tax purposes to be


If the economy is moving in a recessionary direction, one would expect that the yield spread between U.S. Treasury issues and intermediate grade corporate bonds to

5 business days

When you purchase an option contract, according to Regulation T, the transaction must be paid for in:

collateral trust bond

A bond secured by other bonds and securities is referred to as a

Dow Jones Composite Average

A measurement of the market based on 65 stocks is known as the:

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