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)
What does the Municipal Order include? (Select all that apply)
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What does a Debit and Credit Man want?
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How do yield curves behave in a good economy?
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How do yield curves behave in a bad economy?
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What type of bonds are offered through competitive bids?
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What type of bonds are offered through a negotiated offering?
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Which records must be retained forever? (Select all that apply)
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What is the formula for Current Yield?
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What is the formula for Conversion Ratio?
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What is the formula for Taxable Yield?
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What factors are associated with volatility?
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What does 1 MIL equal?
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What do Revenue Bonds use?
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What is a Basis Point?
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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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Description
Test your knowledge on margin equity formulas, federal actions like discount rates and open market operations, and various types of municipal orders. This quiz covers fundamental concepts in finance and investment strategies essential for understanding market dynamics.
