SERIES 65 - investment vehicle
characteristics UPDATED Exam Questions
and CORRECT Answers
TIPS - Treasury Inflation Protected Security - CORRECT ANSWER - - issued by the treasury
- principal adjusted for inflation (use CPI) ***
- stated interest rate constant
- - semiannual payments fluctuate bc stated rate is applied to inflation-adjusted principal
maturities: 5, 10 and 30 years
STRIPS - separately traded registered interest and principal securities - CORRECT
ANSWER - - zero-coupon bonds deeply discounted by US treasury
- accrete in value = gain in value every year; gain considered interest income
"phantom interest" - CORRECT ANSWER - investor receives no interest over the life of
these instruments, but is taxed on the accretion annually
- popular in tax sheltered accounts: IRAs, coverdalls and 529s
- have to report income on money u didnt actually hold in your hand
corporate bond taxation - CORRECT ANSWER - interest taxable at all levels
- federal
- state (if applicable)
- city (if applicable)
capital gains taxable IF - CORRECT ANSWER - bonds sell at profit to investor
municipal bonds (three) - CORRECT ANSWER - Government Obligation Bonds (GO)
,revenue bonds
IDRs (Industrial Revenue Bonds)
Government Obligation Bonds (GO) - CORRECT ANSWER - backed by full faith and credit
of issuer
revenue bonds - CORRECT ANSWER - self-supporting
- backed by issuer fees, revenues, or assessments
- project-centered (hospitals, toll roads, airports)
** projects generate revenue on own
IDRs (Industrial Revenue Bonds) - CORRECT ANSWER - - issued to construct sports
stadiums and parking lots
- backed by corporations
- typically NOT exempt from taxes at the federal level
** corporate partner involved - not tax exempt
ex: sports stadiums, immediate commercial
methods used to determine value of fixed income securities : - CORRECT ANSWER - capital
gains
interest
municipal bonds - TAXATION - CORRECT ANSWER - capital gains - taxable at all levels
interest -
- at federal level tax FREE
- at state level :
-- if a bond is issued in investors state tax FREE
-- if a bond is issued outside of investors state - TAXABLE
,THREE basic Financial classes - CORRECT ANSWER - 1. stocks
2. bonds
3. cash
CASH - CORRECT ANSWER - = insured bank deposits
OR money market instruments
insured bank deposits - CORRECT ANSWER - - checking accounts
- NOW accounts
- savings accounts
- bank CDs (not securities, FDIC insured)
*unlike bank CDs, negotiable CDs are securities but still carry FDIC insurance
money market instruments - CORRECT ANSWER - - treasury bills - ST gov sec.
- bankers acceptances- CD international transaction
- commercial paper - ST borrowing by AAA rate corps for 9 mo's or less
- repurchase agreements - bank agreements trade $ w each other over night, small int rate
electronic trans, back and forth in 24 hrs
Insured deposits / Demand Deposits - CORRECT ANSWER - funds held with financial
institution that the owner may obtain immediately upon demand
- checking accounts
- NOW (negotiable orders of withdrawal)
- money market accounts
- some savings accounts
demand deposits + cash = M1 - CORRECT ANSWER - M1 is the narrowest measure of
domestic money supply
, CDs - CORRECT ANSWER - bank-issued time deposit financial instruments
- may or may not be negotiable
- part of M2 money supply
time deposits - CORRECT ANSWER - value get, not exactly what shows now
money market instruments - place to park cash **STABILITY OF LIQUIDITY - CORRECT
ANSWER - immediate availability/ stability (might earn some small amt $)
SHORT TERM - max maturity 1 yr (not react to int rates)
LIQUID - trade constantly in the secondary market
VERY SAFE - investment grade or direct obligation of the US treasury
ALWAYS DEBT INSTRUMENTS - no equity sec. bc change value daily
- may be owned by a money market mutual fund
- low returns
- used for preservation of CAPITAL
ex: treasury bills, t-notes, or t-bonds w less than 1 yr to maturity, bankers acceptances,
commercial paper (90 days), repurchase agreements (overnight depository)
commercial paper - CORRECT ANSWER - = unsecured promissory note
- issued by blue chip co. w investment grade credit rating
- sold at DISCOUNT - buy for less than redeem
- matures at FACE VALUE
- maturity period from 30-270 days (1-9 months)
- unique rating system: P1 (highest), P2, P3
- EXEMPT from sec registration
Fixed Income securities - US government - CORRECT ANSWER - - treasury notes & bonds
- TIPS
characteristics UPDATED Exam Questions
and CORRECT Answers
TIPS - Treasury Inflation Protected Security - CORRECT ANSWER - - issued by the treasury
- principal adjusted for inflation (use CPI) ***
- stated interest rate constant
- - semiannual payments fluctuate bc stated rate is applied to inflation-adjusted principal
maturities: 5, 10 and 30 years
STRIPS - separately traded registered interest and principal securities - CORRECT
ANSWER - - zero-coupon bonds deeply discounted by US treasury
- accrete in value = gain in value every year; gain considered interest income
"phantom interest" - CORRECT ANSWER - investor receives no interest over the life of
these instruments, but is taxed on the accretion annually
- popular in tax sheltered accounts: IRAs, coverdalls and 529s
- have to report income on money u didnt actually hold in your hand
corporate bond taxation - CORRECT ANSWER - interest taxable at all levels
- federal
- state (if applicable)
- city (if applicable)
capital gains taxable IF - CORRECT ANSWER - bonds sell at profit to investor
municipal bonds (three) - CORRECT ANSWER - Government Obligation Bonds (GO)
,revenue bonds
IDRs (Industrial Revenue Bonds)
Government Obligation Bonds (GO) - CORRECT ANSWER - backed by full faith and credit
of issuer
revenue bonds - CORRECT ANSWER - self-supporting
- backed by issuer fees, revenues, or assessments
- project-centered (hospitals, toll roads, airports)
** projects generate revenue on own
IDRs (Industrial Revenue Bonds) - CORRECT ANSWER - - issued to construct sports
stadiums and parking lots
- backed by corporations
- typically NOT exempt from taxes at the federal level
** corporate partner involved - not tax exempt
ex: sports stadiums, immediate commercial
methods used to determine value of fixed income securities : - CORRECT ANSWER - capital
gains
interest
municipal bonds - TAXATION - CORRECT ANSWER - capital gains - taxable at all levels
interest -
- at federal level tax FREE
- at state level :
-- if a bond is issued in investors state tax FREE
-- if a bond is issued outside of investors state - TAXABLE
,THREE basic Financial classes - CORRECT ANSWER - 1. stocks
2. bonds
3. cash
CASH - CORRECT ANSWER - = insured bank deposits
OR money market instruments
insured bank deposits - CORRECT ANSWER - - checking accounts
- NOW accounts
- savings accounts
- bank CDs (not securities, FDIC insured)
*unlike bank CDs, negotiable CDs are securities but still carry FDIC insurance
money market instruments - CORRECT ANSWER - - treasury bills - ST gov sec.
- bankers acceptances- CD international transaction
- commercial paper - ST borrowing by AAA rate corps for 9 mo's or less
- repurchase agreements - bank agreements trade $ w each other over night, small int rate
electronic trans, back and forth in 24 hrs
Insured deposits / Demand Deposits - CORRECT ANSWER - funds held with financial
institution that the owner may obtain immediately upon demand
- checking accounts
- NOW (negotiable orders of withdrawal)
- money market accounts
- some savings accounts
demand deposits + cash = M1 - CORRECT ANSWER - M1 is the narrowest measure of
domestic money supply
, CDs - CORRECT ANSWER - bank-issued time deposit financial instruments
- may or may not be negotiable
- part of M2 money supply
time deposits - CORRECT ANSWER - value get, not exactly what shows now
money market instruments - place to park cash **STABILITY OF LIQUIDITY - CORRECT
ANSWER - immediate availability/ stability (might earn some small amt $)
SHORT TERM - max maturity 1 yr (not react to int rates)
LIQUID - trade constantly in the secondary market
VERY SAFE - investment grade or direct obligation of the US treasury
ALWAYS DEBT INSTRUMENTS - no equity sec. bc change value daily
- may be owned by a money market mutual fund
- low returns
- used for preservation of CAPITAL
ex: treasury bills, t-notes, or t-bonds w less than 1 yr to maturity, bankers acceptances,
commercial paper (90 days), repurchase agreements (overnight depository)
commercial paper - CORRECT ANSWER - = unsecured promissory note
- issued by blue chip co. w investment grade credit rating
- sold at DISCOUNT - buy for less than redeem
- matures at FACE VALUE
- maturity period from 30-270 days (1-9 months)
- unique rating system: P1 (highest), P2, P3
- EXEMPT from sec registration
Fixed Income securities - US government - CORRECT ANSWER - - treasury notes & bonds
- TIPS
