Margin Equity and Federal Actions Quiz

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Questions and Answers

What is the formula for Long Margin Equity?

LMV - Debit = Equity

What is the formula for Short Margin Equity?

Credit - SMV = Equity

What are the actions by the Fed? (Select all that apply)

  • Margin Requirements (correct)
  • Discount Rate (correct)
  • Reserve Requirements (correct)
  • Open Market Operations (correct)

What does the Municipal Order include? (Select all that apply)

<p>Member Orders (C)</p> Signup and view all the answers

What does a Debit and Credit Man want?

<p>Expires (Credit) (A), Exercises (Debit) (B), Wants spread to narrow (Credit) (C), Wants spread to widen (Debit) (D)</p> Signup and view all the answers

How do yield curves behave in a good economy?

<p>Yield curves come together.</p> Signup and view all the answers

How do yield curves behave in a bad economy?

<p>Yield curves move farther apart.</p> Signup and view all the answers

What type of bonds are offered through competitive bids?

<p>GO Bonds</p> Signup and view all the answers

What type of bonds are offered through a negotiated offering?

<p>Revenue Bonds</p> Signup and view all the answers

Which records must be retained forever? (Select all that apply)

<p>Stock Certificates (C)</p> Signup and view all the answers

What is the formula for Current Yield?

<p>Annual Interest (Income) / Market Price</p> Signup and view all the answers

What is the formula for Conversion Ratio?

<p>Par Value / Conversion Price</p> Signup and view all the answers

What is the formula for Taxable Yield?

<p>Tax Free Yield / (100% - Tax Bracket %)</p> Signup and view all the answers

What factors are associated with volatility?

<p>Prices in long term, yields in short term, discount bonds.</p> Signup and view all the answers

What does 1 MIL equal?

<p>0.001</p> Signup and view all the answers

What do Revenue Bonds use?

<p>Debt service coverage ratio</p> Signup and view all the answers

What is a Basis Point?

<p>A basis point is a unit of measure used in finance to describe the percentage change in the value of a financial instrument.</p> Signup and view all the answers

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Study Notes

Margin Equity

  • Long Margin Equity formula: Equity = LMV - Debit.
  • Short Margin Equity formula: Equity = Credit - SMV.

Federal Actions

  • Discount Rate (D): The interest rate charged to commercial banks for loans from the Federal Reserve.
  • Open Market Operations (O): The buying and selling of government securities to influence the money supply.
  • Reserve Requirements (R): The amount of funds that banks must hold in reserve against deposits.
  • Margin Requirements (M): The minimum amount of equity that an investor must maintain in their margin account.

Municipal Orders

  • Types of Municipal Orders:
    • Pre-sale (P)
    • Group Orders (G)
    • Designated Orders (D)
    • Member Orders (M)
  • Acronym: "Pro Golfers Don't Miss."

Debit and Credit Concepts

  • Debit:
    • Prefers spread to widen and typically exercises options.
  • Credit:
    • Prefers spread to narrow and generally expires options.

Yield Curves

  • Depicted as hands clapping; represent economic health:
    • Yield curves converge during strong economies (happy).
    • Yield curves diverge during weak economies (not happy).

Competitive vs. Negotiated Issuance

  • General Obligation (GO) Bonds: Offered via competitive bidding (think of a competition).
  • Revenue Bonds: Offered through negotiated sales, requiring spread disclosure to clients.

Options in Trade

  • Exporters typically buy Puts (E).
  • Importers typically buy Calls (I).
  • Note: U.S. dollar calls/puts do not exist.

Record Retention

  • Must be kept indefinitely:
    • Stock Certificates (S)
    • Partnership Agreements (P)
    • Articles of Incorporation (A)
    • Meeting Minutes (M)

Current Yield

  • Calculated by the formula: Current Yield = Annual Interest (Income) / Market Price.

Conversion Ratio

  • Determined by: Conversion Ratio = Par Value / Conversion Price.

Taxable Yield

  • Formula for conversion to taxable yield: Taxable Yield = Tax Free Yield / (100% - Tax Bracket %).

Volatility

  • Factors affecting volatility vary:
    • Prices are more volatile in the long term.
    • Yields are more volatile in the short term.
    • Discount bonds exhibit higher volatility.

MIL Rate

  • Definition: 1 MIL = 0.001.

Revenue Bonds

  • Utilize the debt service coverage ratio for assessment of payment ability.

Basis Point

  • A unit of measurement for interest rates and other percentages; 1 basis point = 0.01%.

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