Investment Products & Securities Types Flashcards

Which type of bond is backed by the full faith and credit of the US government and is considered the safest fixed-income investment?

Answer: US Treasury bonds

US Treasury bonds are backed by the full faith and credit of the US federal government and are considered the benchmark risk-free investment in the US.

What is a convertible bond?

Answer: A bond that can be exchanged for a set number of the issuer's common shares

A convertible bond is a debt instrument that gives the holder the option to convert it into a predetermined number of the issuer's common shares at a specified price.

Which type of preferred stock allows unpaid dividends to accumulate and must be paid before common stock dividends?

Answer: Cumulative preferred

Cumulative preferred stock requires that any missed dividend payments accumulate and must be paid in full to preferred shareholders before common shareholders receive any dividends.

What is the primary characteristic of a zero-coupon bond?

Answer: It is issued at a discount and pays no periodic interest, returning face value at maturity

Zero-coupon bonds are issued at a significant discount to their face value and pay no periodic interest; the investor's return comes entirely from the appreciation to face value at maturity.

An ETF (Exchange-Traded Fund) differs from a mutual fund primarily because ETFs:

Answer: Trade on exchanges throughout the day like stocks

Unlike mutual funds that price once daily after market close, ETFs trade continuously on stock exchanges throughout the trading day at market-determined prices.

Which of the following is a characteristic of a 'callable' bond?

Answer: The issuer can redeem the bond before maturity at a specified price

A callable bond gives the issuer (not the investor) the right to redeem the bond before its maturity date, typically at a premium to par value, usually when interest rates fall.