Questions and Answers
What is a bond that only pays interest if the issuer has sufficient income?
What describes a speculative-grade bond that offers high yield and high risk?
What is an unsecured corporate bond of good quality that provides fixed income?
What is a zero coupon Treasury that pays par at maturity?
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Which CMO tranche has the longest maturity and is the last to be paid?
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What is the high-risk option strategy used to generate income through premiums?
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What type of stock provides stable dividends and does not allow for voting?
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What type of stock shares in earnings growth and is considered a long-term investment?
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What is a debt instrument that pays principal and interest on a monthly basis?
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What is a bond issued at a deep discount that pays par at maturity?
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Which type of stock provides a steady dividend and is considered low-risk?
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What type of mutual fund holds mid-cap stocks and aims for long-term growth?
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What kind of retirement savings requires one spouse to have earned income?
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What involves investing a lump sum that is immediately annuitized?
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What describes money invested over time and annuitized in the future?
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What is a state-sponsored, college savings plan that offers tax-free earnings?
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What provides a predetermined schedule of principal repayments based on mortgage prepayment speeds?
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What provides protection from contraction risk and not from extension risk?
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Study Notes
Bond Types
- Income Bonds: Pay interest only if the issuer has sufficient income; categorized as high-risk junk bonds.
- High-yield Bonds: Speculative-grade bonds providing higher yields but carrying significant risk; associated with potential high income.
- Investment Grade Debentures: Unsecured corporate bonds of good quality, providing fixed income opportunities with average to low risk.
- Zero-Coupon Bonds: Issued at a deep discount; pay par value at maturity and do not offer periodic interest payments.
- T-STRIPS: Zero coupon Treasury securities that provide fixed growth, maturing at par value without interim income.
Mortgage-Backed Securities
- CMO Z Tranche: CMO tranche with the longest maturity and the last to be paid; does not offer monthly income.
- Collateralized Mortgage Obligation (CMO): A debt instrument that pays principal and interest monthly, but has uncertain maturity.
Stocks
- Preferred Stock: Non-voting equity that provides stable dividends, offering fixed income until sold.
- Common Stock: Voting equity shares that enable earnings growth and potential dividends; viewed as long-term growth investments.
- Utility Stocks: Stable equities known for providing consistent dividends, characterized by low risk.
Investment Funds
- Mid-Cap Stock Fund: A mutual fund focused on mid-cap stocks aimed at providing long-term growth that exceeds inflation expectations.
Retirement Accounts and Annuities
- Traditional IRA: Requires earned income from one spouse; restricts contributions after age 70 and a half.
- Lump-Sum, Immediate Annuity: Immediate income provided from a single investment; can be fixed or variable, needs substantial upfront funds.
- Periodic Payment, Deferred Annuity: Investments made over time, deferred until retirement; not applicable for investment post-retirement.
- 529 Plan: State-sponsored college savings plan allowing tax-free earnings specifically for educational purposes, not retirement.
Bond Classifications
- Planned Amortization Class (PAC): Offers a set schedule for principal repayments, accounting for mortgage prepayment speeds within a specific range.
- Targeted Amortization Class (TAC): Provides protection against contraction risk with a shorter repayment schedule, while not addressing extension risk.
Studying That Suits You
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Description
Test your knowledge on key bond concepts with these flashcards tailored for the Series 7 exam. This quiz includes definitions and characteristics of various types of bonds, including income bonds and high-yield bonds. Perfect for anyone studying for financial certifications.
