Flashcards

Treasury bonds are long-term debt issued by the Treasury at face value. Bonds pay interest semi-annually and mature in a period of ten years to thirty years.

Treasury notes are medium-term Treasury debt sold at face value. Notes pay interest semi-annually and mature in one to ten years.

Treasury stock is issued stock that has been repurchased by the company. While the stock is held in the company’s treasury, it has no dividend or voting rights.

Trough is a phase of the business cycle. The trough follows the contraction. It is the low point of economic decline. It precedes the expansion (recovery).

The Trust Indenture Act of 1939 governs debt offerings. It requires all publicly offered, non-exempt issues to be registered under the Securities Act of 1933. Additionally, it requires that the debt be issued under a trust indenture that protects the bondholders.

A trustee is a person who is appointed to act on a beneficiary’s behalf. A trustee may be an individual of legal age and a sound mind. A business may also be granted trusteeship.

The underwriter is a broker-dealer in charge of selling securities. For mutual funds, the underwriter is the person or company in charge of distributing and selling the fund shares to the public.

The underwriting spread is the difference between the price the underwriter pays the issuer for the new shares and the public offering price.  The underwriting spread is also known as the load or sales charge.

Unearned income is investment income such as interest, dividends, and capital gains.

UGMA is a law adopted in most states that permits a direct gift to a minor without a trust or guardianship. The donor appoints a custodian to manage the gift until the minor reaches the legal age. There are certain tax rules for these accounts. Some states are UGMA states while others are UTMA states (Uniform Transfer to Minors Act). The major differences between UGMA and UTMA states are the age at which the asset can belong to the minor and the type of investments that can be held.

The Uniform Practice Code is the FINRA code designed to make uniform the customs, practices, and trading techniques among members in the securities business, such as regular way settlement.

The Uniform Securities Act is a state’s securities law. State securities laws are also called blue-sky laws. States have the option of adopting the legislation in its entirety or adapting it as needed.

A unit is the basis of the valuation of an annuity, similar to a share of a mutual fund. During the pay-in, the annuity is valued in accumulation units. During pay-out, the annuity is valued in annuity units.

A unit investment trust is an investment company that invests in a fixed portfolio of securities. An investor will purchase units in the trust representing an undivided interest in the securities held.  A UIT has no management fee or board of directors.

An unsecured bond is not secured by the pledge of some specific asset or assets of the issuing corporation. Unsecured bonds are also known as debentures. Unsecured bonds represent a higher level of risk to the investor than a secured bond so their nominal yields will be correspondingly higher.

In an unsolicited order the client places the trade. Unsolicited orders are initiated by the client.

Unsystematic risk is stock-specific risk. Unsystematic risk is also called non-systematic risk. Unsystematic risk is reduced by diversification. Business risk, credit risk, legislative risk, political risk, and regulatory risk are some of the types of unsystematic risks.

A variable annuity is a type of annuity issued by life insurance companies.  Like fixed annuities, variable annuities guarantee monthly payments for life once the contract is annuitized. The insurance company accepts the mortality risk for the client. However, unlike fixed annuities, the variable annuity contract does not guarantee the amount of the annuity payment or the performance of the account. The annuitant accepts the investment risk, not the company.

Vesting refers to ownership. An employee vests immediately in their contributions into a qualified plan. They will vest in the employer’s contribution over a period of time. Some qualified plans require immediate vesting of employer contributions (SIMPLE), but many have a vesting schedule to encourage employee retention.

Volatility is the magnitude and frequency of price changes within the securities industry over a given period of time.

A voting trust certificate is a certificate that is issued by the trust to the beneficial owners of the voting trust. It is a type of security that is considered liquid.

A warrant is a stock purchase option similar to rights because it allows the holder to purchase stock at a predetermined price. Warrants are usually attached to bonds to make them easier to sell (sweeteners). Warrants are long-term options, expiring in up to 30 years.

A wash sale occurs when the investor sells a security at a loss but has purchased substantially identical securities within a certain time period. The IRS will disallow a loss if the investor repurchases substantially identical securities within 30 days before or after the sale of the security in which the loss was claimed, for a total of 61 days.

The Wilshire 5000 is the broadest U.S. index.

Some mutual funds will offer withdrawal plans to clients whose account balances meet a minimum requirement. With a withdrawal plan, the client requests the systematic withdrawal of his or her account periodically. Withdrawals may be based on a fixed dollar amount, a fixed number of shares, a fixed percentage, or a fixed period of time.  A withdrawal plan is different from an annuity in the fact that the client may outlive the payments.

Working capital is a dollar amount that is found by subtracting a company’s current liabilities from its current assets. Working capital is not good for comparison purposes. It is a measurement of liquidity.

A wrap fee program is one in which one fee is charged for both the transaction costs and the investment advice given. When an investment adviser has a wrap fee program it must deliver Appendix 1 of Form ADV to customers of the program.

Yield is the rate of return on an investment, usually on an annual basis.

The yield curve is a plot of the yields of debt instruments of varying maturities, starting with short-term, then mid-term, and lastly long-term debt.

The yield spread is the difference in the yield that two distinct types of issuers must pay when selling debt of the same maturity. The yield spread is also referred to as the credit spread. Commonly the yield spread looks at the yields on corporate debt versus U.S. government debt, of the same maturity.

When an investor purchases a callable bond in the secondary market that is trading at a premium the most important yield to consider is yield to call (it is called yield to worst in this situation).

A bond’s yield to maturity takes into account the discount or premium paid for the bond and averages the gain (or loss) with the stated interest payment to calculate a yield over a period of time. When a bond is purchased in the secondary market at a discount, the most important yield for the investor to consider is the yield to maturity. A bond’s yield to maturity is also known as its internal rate of return.

A zero coupon bond is a bond in which a broker-dealer has separated the interest payments from the principal amount. The zero coupon bond represents the principal only. Zero coupon bonds are sold at a discount. They are also called STRIPS (separate trading of registered interest and principal). Zero coupon bonds have the highest duration since the investor receives no interest payments. The interest that accrues on a zero coupon bond is taxed each year, making them fairly unpopular investments.