American Investment Training

Monday, November 26, 2018

Understanding Bonds

By Lyn Bell

In simple financial terms a bond is a debt instrument. A borrower who is the issuer of the bond seeks to raise money from investors. The borrower may be a government, municipality or corporate, and the investors are the lenders. In return for the loan of funds the borrowers promise to repay the debt on a specific date in the future and to pay interest either along the way or at maturity.

Although this sounds simple enough, there are certain things that a bond investor needs to know before putting money into the bond market. There are some important terms to be aware of when purchasing a bond and these include par value, maturity date, and coupon rate.

The par value (or face value) of a bond refers to the amount of money you will receive when the bond reaches its maturity. What confuses many people is that the par value is not the price of the bond but it is the value at maturity.

A bond's price fluctuates during its life in response to interest rates. A bond which trades at a price above the face value, it is said to be selling at a premium or at a discount when it sells below its face value. The maturity date is the date that the bond will reach its full value and you will receive your initial investment. As interest rates rise, the value of a bond decreases and if interest rates drop the value of the bond then becomes more sought after and the value rises. People are willing to pay the premium to get the higher interest rate.

The interest may be paid at maturity or at intervals during the term of the investment. Terms may be, six monthly, quarterly or other specified terms. The interest is known as the coupon rate and is normally a fixed rate throughout the life of the bond. The term coupon originates from the past when physical bonds were issued that had coupons attached to them. On the coupon date the bond holder would give the coupon to a bank in exchange for the interest payment.

The bond yield is basically the amount or percentage of return that an investor can anticipate receiving from a bond issue within a specified time period. Calculating the yield involves making use of current data regarding the current price of the bond as opposed to the price at the time of purchase. It also includes the current annual coupon associated with the bond and usually assumes that the buyer will hold the instrument for at least a term of one year.

The advantage of a bond is that they can be traded before maturity if cash is required, making them a liquid investment. Depending on the interest rates they will trade at par or at a premium and therefore it is possible to make a profit or loss on the sale. Holding to maturity does not affect the value of your investment as all things being equal you will get the money back that you deposited.

Bonds can be purchased using a broker or brokerage firm or your financial adviser. Most banks also have a money market department where bonds are transacted.

Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. She has helped many clients achieve their financial goals.

Become a Licensed Financial Broker - SERIES 7, SERIES 65 and many more....

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Monday, November 5, 2018

Series 99 License - Series 99 Training Course Information



The FINRA® Series 99, Operations Professional Exam assesses the competency of an entry-level registered representative to perform their job as an operations professional and measures the degree to which each candidate possesses the knowledge needed to perform the critical functions of an operations professional, including client on-boarding; financial control; receipt and delivery of securities and funds and account transfers, and collection, maintenance, reinvestment and disbursements of funds.
Corequisites: Securities Industry Essentials (SIE) exam
Exam Format: 50 multiple-choice questions
Exam Duration: 1 hour, 30 minutes
Outline of Topics Covered (with % of topics covered on exam):
  • (F1) Knowledge Associated with the Securities Industry and Broker-dealer Operations 70%
  • (F2) Professional Conduct and Ethical Considerations 30%

The full Series 99 course is updated and available. This course is designed for self study prep and will enable you to pass the SERIES 99 Exam on the first try. 

FULL SUPPORT IS INCLUDED

BEGIN: 

Tuesday, October 23, 2018

Bond Market Interest Rates - Effect On Stock Market

Rising Bond Rates Impact on the Stock Market


The recent stock market sell-off prompted a herd mentality among many investors. Moving with the flow of the crowd, investors large and small sold enough shares to cause the Nasdaq to fall 4.1%, S&P 500 3.3%, and Dow close to 5%.

Bond yields had much to do with the sudden drop in the stock indexes and there are reasons bond rates can prompt a down turn in the equities markets.

The Federal Reserve began to move short-term interest rates higher over a year ago and signaled it would raise rates further to 2.5 percent in December 2018, 3.0 percent in 2019, and 3.5 percent in 2020. Short term prime rates are a primary reason for bond rates going up.

The Fed game plan to increase prime rates over time signaled the bond market to strengthen its yields. On October 9, the 10-year note yielded 3.25%, following indications from the Federal Reserve that more rate hikes are in the future.

Individual and institutional investors view rising interest rates as a signal to move dollars out of the equity market and into fixed income investments. Rising bond yields throw off more interest income and are safer alternatives compared to dividend income from stocks.

Bonds compete for investor dollars and investors will seek the highest investment income with the greatest margin of safety.

Both the Fed prime rate and resulting bond yield are also a reason for determining the U.S. economic outlook. Economic expansion or contraction will respond to the costs of borrowing money.

Higher bond yields force companies to spend more dollars for expansion projects, resulting in more debt on their balance sheets. Thus, companies often cut back in research, development, and capital expansion when borrowing costs increase.

Investors also become sensitive to business slow downs and follow these closely. Because investors view their stock ownership as part ownership in a company, any expectation of business contraction affects their decisions to hold stock.

Negative changes in company growth and expansion result in lower cash flow, less money to pay stock dividends, and less incentive for owning a company's stock. Thus, stock valuations drop along with share prices.

When the Federal Reserve consistently raises prime interest rates and bond yields follow, history reflects money flowing out of stock investments and into bonds. As rates have steadily risen this year, this pattern has followed. Money has clearly moved from stock funds into bond investments with stock share prices dropping in lock step.

For the personal investor with a long holding period, rising bond yields are not a cause for alarm. The investor with a portfolio of growth stocks will see falling stock valuations as corporate businesses contract. For the investor primarily holding dividend stocks, not only will share prices contract but continued dividend increases become a concern.

However, personal investors holding shares in good companies with track records of solid performance can weather adverse effects on the economy as it relates to rising bond yields. The message here is that the caliber of a company and strength of its management team is much more important in the long run than any impact bond yields may have on the economy.

I have been an active investor for over 35 years. With the exception of employer 403(b) retirement plans, my investments have always been self-directed. My preferred investment style would fall into value investing with dividend growth and income as a long term objective.

Contact:

LinkedIn: https://www.linkedin.com/pub/jack-chambers/b6/534/144

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Wednesday, October 17, 2018

New FINRA, NFA and NASAA Training Courses online - Series 7 - Series 65 - Series 3 and more

American Investment Training has updated their Broker Exam Training Center by partnering with Kaplan Financial!  

MORE LICENSES - MORE COURSES

SIE Exam Course

SERIES 3 Licensing

SERIES 4 Training

SERIES 6

SERIES 7

SERIES 9 Exam

SERIES 10 Prep

SERIES 9/10 Complete Course

SERIES 24 Course

SERIES 27 License

SERIES 30 Training

SERIES 31 License

SERIES 34 Course

SERIES 52 Test

SERIES 53 Licensing

SERIES 63 Exam

SERIES 65 Training

SERIES 66 Course

SERIES 79 License

SERIES 99 Training

All courses are available now!  Get licensed online

American Investment Training



Series 53 Training Course - Municipal Securities Principal Exam Training Series 53


Pass the Series 53 the first time with American Investment Training and Kaplan Financial. 

The Series 53 training course provides the best methods and techniques to pass the exam on your first try. This course package is ideal for self-directed individuals who have a proven record of success when studying without the guidance of an instructor. 

Plan your exam preparation by building a customizable study calendar based on your study time frame and exam date. Begin your study for the Series 53 test with units in the License Exam Manual for a comprehensive overview covering all aspects of the exam. Practice Questions in areas of weakness by taking custom quizzes after each unit with the Securities Pro QBank. Finally, test your knowledge with our Practice Exam for a final review before the actual exam.


  • Complete the exams online or print them out to study on the go.
  • Review your performance on previously taken exams.
  • Track time spent on a question and/or exam.
  • Search for specific questions based on keyword, question ID, or notes.
  • Create personal notes and bookmarks on questions for future reference.
  • Build weighted mock exams to provide a comprehensive test review of all material.

SERIES 53 COURSE MATERIALS

Tuesday, April 3, 2018

Stock and Option Hedging Strategies - Stock and covered call writing for Series 7 Exam Study

Covered call writing with an existing long stock position is a popular hedging strategy that investors and brokers-in-training should know. It is an income strategy, and it lowers your cost on your main (long stock position) because of the premium you receive for selling (shorting/writing) the contract. 

Let's look at a covered call with Stock Example

Mr. Bonds owns 100 shares of HPK at $72 a share. HPK has been fairly stagnant recently, trading between 71 and 74. It has yet to breakthrough $75, but Mr. Bonds feels the stock has great potential to rise considerably in 3-6 months, so he does not want to sell it. How can he profit from this prediction?   One way is to sell (write) a call option contract on HPK to receive income. These contracts have monthly expiration dates, with the longer term expirations costing more money. 

He decides to initiate writing a covered call. It is called "covered" because he owns the stock that the call options is based on. If the call options is exercised, Mr. Bond will have to deliver (sell) his 100 shares to the call holder at a specific price set in the contract. This is called the strike price. If the call option does not get exercised and expires worthless - Mr. Bond keeps the premium he received for selling the option, and retains ownership in the stock. This is the best case scenario for an investor who writes call options on a long stock position. 

It is best explained by laying out a complete position - and the hedge. 

LONG 100 SHARES HPK@ $72 
SHORT 1 HPK JUL 75 CALL@3

Breakdown of the call option contract:

Each option contract represents 100 shares of stock. They also expire monthly. So this one expires in July. Whatever decision the investor makes, he must decide before the contract expires towards the end of July. Each contract carries a "premium" based on 100 shares. This contract is $300. That amount is what the buyer would pay to own the contract, and what the seller (writer) receives for shorting the contract. Each person betting on different directions of the stock. 

For Mr. Bond, he is shorting the call option hoping the stock stays stable and the option is expires. He keeps the $300 premium, which now lowers his cost on his stock to 69. He can continue to write calls periodically, and if he is successful - his cost (and break even) can be lowered even more. So YES!, you can make money on a sleepy stock. 

The maximum GAIN on this strategy (while both positions stay) is $600. If the stock rises enough to trigger the option, the investor MUST sell the shares at 75. He paid 72, and he also collected $300. 3 points on the stock and 3 on the premium = $600

What is the downside?  There always is a downside.....

The main downside is the stock itself drops big, and the contract expires.You lose in share price on your stock, and the contract is now gone. The lesser risk is the stock rises before July which triggers the option, and Mr. Bond has to sell his stock at 75. He still makes money, but if the stock continues to shoot up - the investor will miss out on it, as he no longer owns the stock itself. 

The Maximum LOSS is $6900.  If the stock drops to ZERO, the share value can all be lost - the $300 premium which he always keeps. 

The Breakeven is 69.  The breakeven on these positions is always the cost of the stock minus the premium received. He is profitable until the stock hits 69.

The best case scenario is the stock stays stable or within a thin trading range, the premium is kept, the option expires, and then at a later date - the stock jumps up strong for unlimited gains in the future.

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