Series 65 - d

Consolidated Tape....10s.IBM95.94.....

"10s" mens 10 round lots, or 1000 shares. So 1000 Shared of IB just traded at $95.04

A Preemptive Rights clause in a corporate charter includes all of the following characteristics

- Allows the existing shareholders first right of refusal on the newly issued shares Protects the existing shareholders from dilution of shares Allows the existing shareholders control over newly issued shares

Under the provisions of the Uniform Securities Act, disciplinary proceedings generally require the Administrator to provide which of the following

- Appropriate prior notice - Opportunity for a hearing - Written findings of fact and conclusions of law

characteristics of closed-end investment companies?

- Closed-end shares are not redeemed. they are sold in the market. - Shares are traded on an exchange and valued like any other negotiable security.

According to NASAA's Policy Statement on Unethical Business Practices of Investment Advisors, which of the following are true with regard to reasonable investment advisory fees?

- Fees should be in line with those charged by other advisors providing essentially the same services. - The administrator of a state may research the competitiveness of an advisor's services and fees to determine if they are reasonable. - The reasonable rules are not applicable to clients who are financial institutions or accredited investors

persons are included in the definition of an "investment adviser representative" under the Uniform Securities Act

- Someone who manages client's accounts and portfolios while employed by an investment adviser - Someone who provides investment advice to clients while employed by an investment adviser -Someone who receives compensation for transactional business

An Investment Advisor pays a cash fee to a solicitor. The disclosure statement which is given to the client must include

- The affiliation between the solicitor and the investment advisor - A description of the compensation to be paid to the solicitor by the advisor - The amount of any charges to the client which relate to the solicitors activities

If a company goes belly up, interested parties make their claims on the company's assets in the following order:

1. Employees/wages. 2. IRS/taxes 3. Secured creditors. 4. Debentures/general creditors. 5. Subordinated debentures. 6. Preferred Stock. 7. Common Stock.

How many shares represent one option contract?

100. They also expire on the saturday following the third friday.

A customer is long 200 shares of stock. There is a 3 for 2 split. How many additional shares will he receive

3/2 x 200/1 = 300 shares But the question asks for how many ADDITIONAL shares. Starts with 200 shares Ends with 300 shares Additional 100 shares

According to the Uniform Securities Act, if no proceedings are pending and the Administrator does not specify an earlier date, an investment adviser's registration generally becomes effective

30 days after the application is filed. According to the Uniform Securities Act, registration becomes effective when determined by the administrator and if no denial order is affected and no proceeding is pending, registration generally becomes effective at noon on the 30th day after the application is filed

The four issues that are not considered to be a sale

: a stock dividend, pledge of securities for a loan, acts incidental to a class vote by the shareholders (merger), and acts incidental to a judicially approved reorganizations.

Investment Grade Bonds

A bond that is assigned in the top four categories by commecial credit ratings agencies.

Residual Claim

A "residual claim" means that the stockholder has a claim on any assets remaining after the satisfaction of the creditors of the corporation that is in bankruptcy. Corporate assets remaining at dissolution after the satisfaction of senior obligations.

ABC Corporation wants to issue $20,000,000 of debentures each of which are convertible in 20 shares of common stock. How many common shares are issued if all the debentures are converted

A $1,000 par debenture convertible into 20 shares has a conversion price of $50 per share. $20,000,000 divided by $50 is 400,000 shares

457 Ret Plan

A 457 Ret plan is the most common type of non=qualified plan. It is offered to employees of state and local goverments.

A "Head and Shoulders" pattern

A H&S pattern on a chart signals the reversal of a trend. So, a head and shoulders "TOP" indicates the bul trend is about to end.

REIT

A Real Estate Investment Trust is a company that owns a portfolio of properties and sells shares in the operation to investors.You could buy into apartment buildings, office buildings, shopping centers, hotels, convention centers, you name it.

The right to buy a stock is

A call

When is a call option in the money?

A call option is in the money when the market price exceeds the options exercise price.

When is a call option AT the money?

A call option would be AT the money if the strike price and market price are the same.

In order to comply with NASAA Statements of Policy on Dishonest and Unethical Business Practices by Broker-Dealers and Agents, when is it acceptable for a broker/dealer to exercise discretion in a customer's account

A customer must give written authority prior to any trading in order for a broker/dealer to exercise discretionary authority The Model Rule forbids agents of broker/dealers from exercising discretionary authority without the prior written authorization of the client. Discretion as to time and price can be used until the end of trading on the day that such discretion is given, without the agreement in writing.

Economic uncertainty is generally the condition when which of the following yield curves is present

A flat yield curve generally indicates a period of economic uncertainty, and investors should consider short and intermediate security investments

Fulcrum Fee

A fulcrum fee is a performance-based fee that can be charged only to registered investment companies, individuals with accounts exceeding $1 million or individuals with accounts exceeding $750,000 and net worth of at least $1.5 million

Coincidental Indicators

A metric which shows the current state of economic activity within a particular area. Coincident indicators are important because it shows economists and policymakers the current state of the economy. Coincident indicators include employment, real earnings, average weekly hours worked in manufacturing and the unemployment rate. The Index of industrial production

A non-recourse note

A non re-course note mean that the creditors have no recourse to collect thiis debt out of the the investor's personal assets.

Moral Suasion

A persuasion tactic used by an authority (i.e. Federal Reserve Board) to influence and pressure, but not force, banks into adhering to policy. Tactics used are closed-door meetings with bank directors, increased severity of inspections, appeals to community spirit, or vague threats. A good example of moral suasion is when the Fed Chairman speaks on the markets - his opinion on the overall economy can send financial markets falling or flying

The right to sell a stock is

A put

Regressive Tax

A regressive tax is flat. A list of regressive taxes would include sales, gas, payroll and excise tax. Everybody pays the same rate there.

What is considered to be a "sale" under the Securities Act of 1933 and/or the Uniform Securities Act

A sale is any disposition of a security for value

What is a specialist

A specialist can function in a dual capacity as a broker and a dealer. A specialist maintains an orderly market in trading one or more stocks for his own account. They may never place their orders before those of the general public. They make their money by way of a spread, the difference between the price they paid (bid) and the price at which they sell (ask).

Definition of Investment Advisor

An Investment Advisor is an individual who receives compensation for advising others about securities. However, no where in the definition does it specify that the advice must be in writing. Therefore, advice about commodities and real estate would not fall under this definition.

ADR

ADRs are priced in American dollars and trades alongside any other stock on NYSE.. If the U.S. dollar is weak, then the dividend will converto to more dollars.

Gift Tax exclusion

Allos individual to give away assets with out being subject to the gift tax. 2012 $13,000 2013 $14,000

Test Topic Alert. Cumulative Preferred sotck

An investor seeking steady income would find this to be the most suitable of the different preferred stock. Such dividends are usually tied to the rates of T bills, and Money market rates, and can be adjusted as often as quarterly.

More on REITs

An owner of REITS holds an undivided interest in a pool of real estate investments. REIT are not investment companies (mutual funds). REITs offer dividends and gains to investors but do not pass through losses. Risks: Poor management. Problem loans in the portfolio could cause income and/or capital to decrease. Dividends are not considered qualified. They are taxed at full ordinary income rates.

The Current Yield formula is

Annual Interest Divided by Market Value

Under the Uniform Securities Act, records must be kept for a minimum of

As required by the administrator. According to the Uniform Securities Act, records must be kept for a time which is determined by the Administrator or Federal Law

Some of the functions of the Federal Reserve are:

Auditiong member banks. Acting as an agent for the US Treasury. Lending to commercial banks

A 10 year zero-coupon Treasury bond is most suceptible to which type of risk

Purchasing power risk. ( There is no income to reinvest. The U.S. Treausure Department's credit is excellen ).

First Market

The new your Stock Exchange, auction market or dobule auction market are the same as First Market. The exam might refer to the first market as a physical location where buyers and sellers gather.

A head-and-shoulders bottom formation is a I bearish Indicatior II bulish Indicator III reversal of an uptrend IV reversal of a downtrend A I,IV.....B II, IV......CI,III........D.II, III

B. The head-and-shoulders pattern is always a reversal on the exam. If the reversal is at the bottom the downtrend must be ending, with a bull market ahead.

Athens Fund has an ask price of $19.25, while the ask price of the Troy Fund is $18.50. The net asset value per share of the Athens Fund is $20.25, while the Troy Fund has a net asset value per share of $17.02. Which of the following is probably true?

Based on the above information, you can determine that the Athens fund is closed end because the NAV is greater than the Ask. Whenever the NAV is more than the ask, the fund has to be closed end. Troy is probably open end because the NAV is less than the Ask and because the difference between the two is less than 9% (maximum sales load under the Investment Company Act of 1940 is 9%)

Beta

Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market

Broker Call Loan Rate: Prime Rate:

Broker Call Loan Rate. The rate bloker-dealer pay when borrowing on behalf of their margin customers. Prime Rate: The rate that most creditworty corporate customers pay when borrowing through unsecured loans.

Buy Stop @ 41

Buy stop @ 41 means that the price first has to reach 41 or higher, at which point the order is triggered.

Business Risk

Buying stock in any company presents business risk. BR includes the risk of competition or the "risk of obsolescence," which is the risk that a company products suddenly become obsolete.

Airline XYZ has gone into bankrupty and faces liquidation. Which type of investor has first priority in receiving any payments from the liquidation.

Collateral trust certificates are a type of secured bond that received higher priority than unsecured bonds, preferred stock or common stock.

commercial paper

Commercial paper is an unsecured promissory note issued by corporations that can be traded negotiable in the secondary market. All of the other choices are correct

Interest payments to investors on CMOs are subject to which of the following

CMO interest payments are subject to BOTH Federal and State income tax.

WIth what system does a registered Rep register

CRD or Central registration Depository

Rights of shareholders

CS have the right to vote for corporate directors through a absentee ballot, known as a proxy. They have the right to sell or give away their shares with out permission of the corporation. CS have a right to limited access to the corporations's books. They also have the right to receive audited financial statements. CS usually jave the preemptive right to maintain proportionate share of ownership.

Which of the following types of preferred stocks typically has the highest stated rate of dividend, and why? A) Convertible B) Straight C) Cumulative D) Callable

Callable Preferred. Because when the stock is called, dividend payments are no longer made. To compensate for that possibility, the issuer must pay a higher dividend.

Which are the two methods of holding common stock?

Common stock can be held in two ways, it can be directly issued to the shareholder, or it can be held in "street name" at the brokerage firm where it was purchased

Convertible bonds

Convertible bonds can be converted into a company's common stock, not preferred stock, at the option of the bondholder. The bondholder is likely to convert only if the market price exceeds the conversion price

Corporate bonds normally pay a higher rate of interest (coupon rate) than other issuers of debt because

Corporations usually pay a higher rate of interest than other issuers of debt because corporate bond interest is fully taxable at the federal, state and local level.

Current Ratio =

Current Assets/Current Liabilities

current ratio is best descibed as?

Current assets divided by current liabilities

The primary difference between yield to maturity (YTM) and the current yield (CY) on corporate bonds is

Current yield only considers coupon rate and market value, whereas YTM considers coupon rate, market rate and time until maturity.

Cyclical Stocks

Cyclical stocks tend to perfomr very well during an expansion but very poorly during a contraction. (Heavy equipment, steel, manufacturing)

LLC

The owners are called members. LLC has no limit on the number of members. The owners and any officer and directors of an LLC are personally protected from the debts and lawsuits

Treasury Notes

Intermediate Term. One to yen years. They are sold at par, and pay semi-annual interest.

Discount Rate: Fed Funds Rate:

DR. THe rate banks have to pay when borrowing from the federal Reserve. Fed Funds R. The rate banks charge each other for overnight loans in excess of 1 Million. Considered the most volatile rate, subject to daily change

Debentures

Debentures are written promises of a corportation to pay the principal and interest on corporate debt when due. The debenture is not secured by any pledge or property.

Bankers Acceptance

Debt security (short term) Created by a non financial company and guaranteed by a bank for payment. It is used in international transactions.

If a corporate convertible bond with a conversion price of $25 is currently trading @ 80, while the common is at $23, this situation would be best described as

Disparity . Conversion parity means that the current market value of a convertible bond = the current market value of the shares of the common stock into which it's convertible. Disparity means that they are unequal. Here there is disparity because the convertible bond is selling for $800. (quoted @ 80) and it is convertible into common shares selling for $920. ($1,000. par value /$25 conversion price = 40 shares x $23. per share current market value.)

Which of the following investments has the highest duration? a) Ten year debenture. b) 12-year debenture. c) 5 year treasure note. d) 12-year STRIP.

Duration is "the weighted average of a bond's cash flows". If the bond pays out huge cash flows, it reduces the volatility/duration of the bond. A zero coupon bond such as STRIP, there are no cash flows, so a 12-year STRIP has a much higher duration.

Another name for operating profit is....

EBIT. ( Earnings before interes and taxes).

The US Goverment EE bonds

EE bonds are non-marketable and non-transferable. They are sold at 50% of the face value. The term of the bond is 17 years. The bond pay interst at the maturity or redemption. The interest is federally tazable, but exempt from state and local taxes.

A 10% preferred stock has a market price of $80/share. What is the dividend yield on this stock?

EXPLANATION Dividend Yield is the same as Current Yield. Both are calculated by taking the annual dividend divided by the market price. First, we have to find the annual dividend. To find the annual dividend we would take: Annual Dividend = Par Value X dividend rate(%) Annual dividend = $100 X .10 = 10 dollars annual dividend Next, we can do the Dividend yield formula (or current yield formula) Dividend Yield = Annual dividend / Stock Price Annual dividend $10 /stock price $80 = 12.5%

Rising unemployment, falling GDP, falling interest rates woulb be considered a:

Economic slump

Monetary Policy

Enected by the Federal Reserve Board.

Short Term Capital Gains

Explanation: An asset sold for a gain after being held for one year or less is taxed as a short-term capital gain

Which strategy gives the best downside protection for a long position?

For downside protection you would either buy a put or sell a call. Buying a put gives the best protection because you are protected all the way down to 0. Selling a call only gives you protection up to the amount of the premium received, therefore you only have limited protection

If an intentional omission of a fact is made in a securities transaction, it would constitute fraud

Fraud would have occurred if the information was needed in making a decision as to whether or not the investment was appropriate for the client.

Fundamental Analysis

Fundamental Analysis beleves in efficient market hypothesis, which states that the current price reflects all historical data.

Gross National Product

Gross National Product for the US would count the production of US workers stationed here as well as working overseas for American Companies.

Growth Stocks

Growth stocks have high P/E rations. Many are sill making renevue on the top line of the income statement but losingmoney on the bottom line. The higher the P/E ratio, the more speculative the stock.

An investment advisor has access to a confidential report prepared by a respected securities analyst. Under NASAA's Statement of Policy on Unethical Business Practices, if he bases his recommendations to a client based on the information in this report

He is acting unethically by using the report prepared by the analyst. Since the information was "confidential" the advisor would be acting unethical by using such information to base recommendations to clients.

Commission House Broker

He works for the brokerage house and fills their orders for a commission. If he is too busy fo fill an oder, he can call in somebody off the bench knows as a TWO DOLLAR BROKER, who gets a commission to help.

S&P and Moodys Ratings

Highest rating................AAA........Aaa Very solid......................AA Aa Still solid........................A A Still Investment Grade...BBB Baa Junk...............................BB Ba Junkier............................B B Watch out!......................CCC Caa ........................................CC Ca .........................................C C

Which of the following statements concerning the Investment Advisors Act of 1940 are true?

I. An investment advisor must obtain client approval before assigning a client's contract II. Registration would not be required for an advisor whose only clients are insurance companies IV. The SEC requires an investment advisor to maintain all cancelled checks

reasons would not cause a penalty to occur?

I. Unreimbursed Medical Expenses more than 7.5% of AGI II. Disability III. Higher Education Expenses IV. First time Home purchase

A broker/dealer charges customers a separate fee for financial planning services which includes specific securities advice. One of the broker/dealer's representatives offers similar financial planning services outside of his employment as a registered representative. Under the Investment Act of 1940, which two of the following are true

I.The broker/dealer is subject to regulation as an investment advisor III.The registered representative is subject to regulations as an investment advisor.

The Administrator is empowered to revoke the registration of an investment advisor if

I.The investment advisor has ceased operating as a business in the State. II.The investment advisor has been judged to be mentally incompetent. III.The investment advisor has relocated the advisory firm and has not notified the Administrator of the new business location.

Alpha

If a portfolio has an expected return of 8%, but only geta 6% return, we could call that "negative alpha". Portfolio managers who get excess returns of show positive alpha are said to be adding value with their money management skills.

Support and resistance

If a technical analyst sees that a stock has been closing between $20 and $25 for the past three months, he'll call the low number SUPPORT and the high number RESISTANCE

If there is a rise in interest rates it could be a result of the Federal Reserve Board

If the Fed sells government securities to its member banks, that would take money out of the system. When there is less money in the system, that tightens money and credit and promotes a rise in interest rates

Obligation bonds

If the MUNICIPAL BONDS are paid off through sales, income or property taxes, we call these general obligation bonds. Muncipal bonds generally pay interest that's tax exempt at the federal level.

ABC's callable convertible 4% preferred stock ($100 par) is called for $70 per share. It is convertible into common stock at $25 per share. The current market value of the common stock is $15.50 per share. An ABC preferred stockholder should:

If the company calls the stock, the stockholder must tender it, unless the stockholder has already converted it to common stock. If the stockholder tenders the preferred, he will get $70 per share. If the stockholder converts, he will get 4 shares ($100/25=4) of common stock which he can sell for $15.50 per share thus receiving $62 for each preferred share. The $70 call price would give the investor a $8 profit over converting to common.

Debenture

If we buy a bond backed simply by the full faith and credit of an issuer, we are buying a DEBENTURE.

Step-up cost basis

If you inherit an investment, your cost basis is the value of the asset as of the decendents date of death.

The Random Walk Theory

Implies that actively picking stocks is about as effective as a random walk through the stock page of the newspaper. Random stock selection would be no worse than active stock picking.

SIMPLE

In a SIMPLE plan, business owners must eithe match teh employee's plan contribution up to 3% of compensation, or contribute 2% of the employee's compensation whether he contributes or not. During the first two years participant can only roll the money into anther SIMPLE IRA to avoid tax. During this phase, if she tried to roll it into a Traditional IRA, she'e get dinged with a 25% penalty.

Fiscal Policy

In other words taxes and expenses.

Deflation

Is a general decline in the prices of goods and services. Deflation can occur from an increase in taxes, less government spending, and a reduction in money supply

The produce Price Index (PPI)

Is a measure of the of the change in wholesale prices. The leading indictor of inflation trends is the PPI.

Family Limited Partnership

Is a partnership with a general partner and at least one limited partner. The main benefit of an FLP is the significant reduction of estate taxes, reduce probate cost, credit protection, and the partnership assets are not considered part of the marital assets

Transfer agent

Is a record keper who has alist of all the shareholders. the transfer agent cancels old shares and issues new ones when they are lost.

R-Squared

Is a statistical measurement that tries to explain how much of a portfolio's movement is explained by the movement in the benchmark index. R-squared value of 100 means that 100T of the movement is explained by the movement of the benchmark index.

The registrar

Is an outside firm that audits the transfer agent.

Preferred Stock

Is consider a senior equity. They will be paid out prior to common stockholders in the event of liquidation. PS normally pays a fixed quarterly dividend rate. They are interest rate sensitive. They have no voting rights. Most preferred stock can be called away (callable). The par value for a preferred stock is always $100. Common will never receive a dividend until the preferred have been paid theirs.PS usually has no preset date at which it matures, and no scheduled redemption date. PS is thus a perpetual security.

Recession

Is defined as two consecutive financial quartersof declining GDP, up to six quarters ( 18 months ). After that, we call it a depression.

REIT Taxation

Is similar to that of a Mutual Fund. REITs may qualify for conduit taxation on distributed net income. To qualify a REIT must obtain at leat 75% of tis income from real estate-activities and must distribute at least 90% of investment income to shareholders.

Yield to Maturity

Is the Yield achieved if the bond is held to maturity.

10-k

Is the annual shareholders report

10-Q

Is the quartely shareholder report

Discount Rate

Is the rate the Fed charges banks that borrow directly from the Fed.

Interest Rate Risk

Is the risk that rates will duddenly go up, knoking down the market price of your bond. The longer the term on the bond, the more volatile its price.

403b

It is a tax-deferred retirement plan that is adopted by certain tax-exempt organizations, public schools, universities, etc. It is not a qualified plan. 403(b) plan only offers annuities and mutual funds as investment vehicles. The 403(b) plans can also be referred to as tax-shelter annuties.

Commercial Paper

It is amajor component of money market mutual funds. Commercial paper is a sort of a coporate (I-O-U), backed by the credit quality of the issuer, which is generally very high.

Market makers

It is just a broker dealr who carries an inventory of a particular security and stands ready to either buy it or sell it throughout the day.

12B-Fee

It is supposed to cover marketing costs associated with the fund. The fee is not part of the fund's expense ratio. The fee is permitted by the SEC.

ADV Part I

It is used to file for SEC registration. Assets under management, form of organization, and regulatory issues are all common questions that appear on the registration form.The education of the financial planners of the firm is asked for on ADP Part II

Jumbo or Negotiable CDs

Jumbo CDs are not fully insure. That makes their yields higher.

A corporation that has issued bonds but has little or no track record of sales and earnings would most likely have issued

Junked BOnds

Keogh plans

Keogh plans are for individuals with self-employment income. Ther are not for S-corps, C-Corps, LLC.The business owner can put 20% of her compensation into a keogh.

Treasury Bonds

Long Term bonds 30 years. Treasury bonds make interest payments semi-annually and the income that holders receive is only taxed at the federal level. Treasury bonds are issued with a minimum denomination of $1,000.

Market Risk

Market Risk is a type of systematic risk, which means it affects the overall market across the board. Market risk is the risk that an investment will lose its value due to an overall market decline.Diversification will not help reduce overall market risk.

Liquidity Risk

Marketability or liquidity has to do with the ability to quickly turn an investment into cash. So thinly trade securities have liquidity risk. When a stock gets kicked off NASDAQ and lands in that purgatory known as the OTC Bulletin board, it start to trade in a less liquid market.

Churning

Marking more trades than necessary

Measures of central Tendency "MODE"

Mode is the most common number in the set of data

Monetary Supply

Monetary policy is the action taken by the Federal Reserve to influence the growth of the money supply. The tools of the Federal Reserve include controlling the reserve requirements, discount rate, margin rates, and open market operations

Mortgage Real Estate Investment Trusts generally invest in which of the following

Mortgage Real Estate Investment Trusts lend money to builders and developers and then pass the income on to shareholders.

Most CMOs carry which of the following credit ratings

Most CMOs carry a AAA credit rating because the mortgages in the portfolio are excellent mortgages such as Fannie Mae's and Ginnie Mae's.

Mr. Smith has owned 400 shares of ABC common stock for several years. ABC announces a 3:2 stock split. How many additional shares of ABC will Mr. Smith own after the stock split?

Mr. Smith will end up with a total of 600 shares: 3/2 x 400/1 = 1200/2 = 600 shares However, the question is asking how many "additional" shares will be owned by the customer which would be 200 shares: 600 total shares - 400 original shares = 200 additional shares

Which of the following terms are synonymous when referring to open-end investment company shares

NAV = redemption price = Bid

Earnings per share

Net Income/Number of shares outstanding

Inverted Yield curve:

Occures when interest rates on short term bonds are higher than long term bonds

stagflation

Occurs when the economy isn't growing but prices are.

Which of the following investment companies issue only redeemable shares?

Open-end investment companies and unit investment trusts both issue redeemable securities. Closed-end investment companies issue shares which are publicly traded in the secondary market. Customers can redeem open-end investment company shares at the NAV, less any redemption fee charged.

How is determine Operating Margin

Operationg Margin is determined by dividing net profits by net sales.

If an agent decides to appeal an Administrator's order by filing for review of the order with the appropriate court, this must be done

Orders by Administrations maybe appealed in court if they are filed within 60 days after the order by the Administrator.

Purchasing Power Risk

PPR is sometimes called inflation risk or even constant dollar risk

Performance-based fees

Performance based fees are generally prohibited. Only two types of clients may be charged such a fee: - Registered investment companies (Mutual Funds). - An individual with an account value in excess of 1 million. - An individual with an account value in excess of $750,000 and a net worht of at least 1.5 million. In this cases Fulcrem fees are permitted.

Assume a $1,000 par value corporate convertible bond with a conversion price of $25 is currently trading at 80. The common stock is trading at $23. The common stock is selling at what relationship to the convertible bond?

Premium above parity price. Par Value $1000 Conv. Px $ 25 = 40 Common Shares produced at Conversion Mkt Px of Bond $800 Shares 40 = 20 Parity Price of Common The common stock would be trading at parity if its market price were 20. Because it is currently trading at 23, it is trading at a premium above parity

Prepaid advisory fees

Prepaid advisory fees in excess of $500, six months in advancd require the advisor to disclose their Balance Sheet. All fees must be disclosed in writing in the advisory contract. Fees could be prepaid for more than six months if disclosure requirements are met. Prepayment of an advisory fee would not be considered "custody" of client funds.

REIT's

REITs are normally publicly traded.If publicly sold, they must be registered with the SEC. A minimum of 75% of the gross assets must be in Real Estate related activities. Must distribute at least 90% of earnings to shareholders. REIT's are trust and are NOT limited partnerships. They could become subject to double taxation if they do not distribute at least 90% of its net earning and most of them are publicly traded A FIXED unit investment trust would not have an investment manager or be managed since the securities in the portfolio are fixed. The securities in a UIT are supervised, but they are NOT managed.

Real Estate Limited Parnerships

RELM are extremely iliquid. often, the folks who buy limited parnerships are looking for tax write-offs. Ofter a new partnership will generate losses the first years that can be used to offset passive income. Do note, thousgh, that these partnership losses can only be used to offset passive incove, not earned income or portfolio income.

what is Beta?

Represents Risk. How sensitive is the portfolio to the market, usually represented as the S&P.The S&P has a beta of 1.

Ginnie Mae Bonds

Represents an interest in pools of insured or guaranteed mortgages. Expect monthly interest payment that consist of both interest and principal, minimum denominations of $25,000, and interest that is subject to local and state tax.

A money purchase plan

Requires the employer to make mandatory contribution to each employee's account.

SIPC

Securities Investor Protection Corporation. A non profit, industry-funded insurance. It provides coverage of each customer account up to a total of $500,000, of which only $250,000 may be cash. Commodities are not covered.

Defensive Stocks

Shares of companies relatively unaffected by general fluctuations in the economy. These companies tend to have slow, steady growth and become more popular during recessions like steel companies.

According to the Uniform Securities Act, an agent may share in the profits and losses in a customer's account if

Sharing arrangements must be approved, in writing, by both the customer and the employing broker/dealer

Generally, a normal or ascending yield curve would indicate that

Short-term maturities are yielding less than long-term maturities and investors should consider investing in intermediate and long-term instruments

The yield of a money market fund is most affected by:

Since the largest expense of a money market fund is the management or advisory fees, those fees would have the greatest impact on the yield of the fund.

Registration of Investment Advisors

Some IA's must register with the state rather than with the SEC. If you register through your state, you are regulated by the Uniform Securites Act, instead of the investment Advisers Act of 1940.

reasons that a company might want to buy back large blocks of its stock in the open market

Some of the advantages to a company of buying back blocks of its outstanding shares includes: reducing the number of shares outstanding, increasing the company's earnings per shares, and use in future acquisitions to name a few. Reducing the amount of dividends paid to shareholders is not an appropriate reason to buy stock in the open market.

Test Topic Alert. Adjustable Rate Preferred.

Some preferred stocks are issued with adjustable or variable dividend rates. For investors looking for income through preferred stocks, this would be the least appropriate choice.

Secured Bonds

Sometimes corportions secure the bonds with specific assets like airplanes, government securities, or real estate.If the collateral used is real esatete, we cal it a mortgage bond. If the collateral is securities, we call it a COLLATERAL TRUST CERTIFICATE. These bonds are more secure, they offer the lowest coupon payment, too.

Specialit

Specialist trde for their own account, carrying an inventory. Specialists are exchange members whose responsibility is to maintaina fair and orderly market.

Jarod Stevens had the following results on four stock sales last year: - $15,000 in long-term capital gains. - $5,000 in long-term losses. - $5,000 in short term gains. -$13.000 in short-term losses.

Step one: LIne up the long term gains and the long-term losses, then line up the short-term gains with the short-term losses.Now, here's the tricky part. You can take the 10k long term gain and reduce it by the 8k short-term loss for a nte lont-term gain of 2k.

Of straight and cumulative preferred, which would have the higher stated rate? and why?

Straight Preferred. Cumulative is safer. Because straight preferred has no special features, it will pay a higher stated rate of dividend.

Types of preferred Stock - Straight (Non cumulative) - Cumulative Preferred - Callable Preferred - Convertible Preferred - Adjustable Rate Preferred

Straight. No special features beyond stated dividend. Cum Pref. Accrues payments due to shareholders in the event dividends are reduced or suspended. Call. Pref. A Company can buy back form investors. In return for the call privilege, the company may pay a premium. If the cost of new money comes down, the company will call in the preferred. Conv. Preferred. Usually issued with a lower stated dividend because the investor has the opportunity to convert to common.

Systematic Risk

Systematic Risk is also known as non diversifiable risk. No matter how well an invester deversifies systematic risk cannot be avoided (purchasing power, reinvestment rate, interest rate, market and exchange rate risks).

Systematic Risk

Systematic risks are those that affect the entire market such as market risk, interest rate risk, purchasing power risk, exchange rate risk, and reinvestment risk. Systematic risk is known as non-diversifiable risk, whereas; unsystematic risk can be eliminated through diversification.

Technical analysis `

Technical analysis is based on the belief that studying the history of security trades will help predict movements in the future. Technical analysts are known as "chartists" because they believe that the history of a security is told by its stock prices. Technical analysts will use moving averages, trading volume, breakouts, charts, support and resistance levels

Quick Ratio =

The "i" in the work "quick" reminds us that "inventory" is substracted from current assets

Form ADV Part II

The ADP part II is a disclosure document often called "The brochure". It describes an investment advisor's business, methods used to charge clients, and must be given to prospect clients.

The Capital Asset Pricing Model

The Capital Asset Pricing Model says that investors whoy buy stock demand a return that is above the riskless rate of return plus a "risk premium".

Efficient Market Hypothesis

The EFH assumes that all information is absorbed instantly and immediately acted upon. It can be subdivided into thre sub-categories: weak, semi-strong, and strong.

Reserve Requirement

The Fed requires that banks kep a certain percentage of their customer deposits in reserve. So if the economy is sluggish, they could lower the requirement inorder to make more money available to fuel the economy.

The two principal US Goverment Agencies that issue debt securities are:

The Federal Farm Credit Bank (FFCB) and the Federal Home Loan Banks (FHLB)

The Administrator of a given state may be able to force an investment advisory firm to abide by the minimum capital requirements of the Administrator's State under NASAA regulations in which of the following cases

The IA has its main office in the State

Sharpe Ratio

The Sharpe Ratio uses standard deviation to determine if an investor is getting enough return for the risk he's taking. Mathematically, it would be the actual return you get minus the "riskless rate of return," divided by teh standard deviation.

The Wilshire 5000

The Wilshire 5000 is considered to be the broadest measure of activity and movement of the overall stock market.

A 10 year-year zero-coupon bond is must suceptible to which of the following? A) Credit Risk B) Reinvestment Risk C) Liquidity Risk D) Purchasing Power Risk

The answer is D. There in no income to reinvest. The US treasury Deprtment's credit is excellent, but fixed income securities are generally poor at protecting purchasing power.

Measures of central Tendency "MEAN"

The average of the numbers

Wash Sale Rule

The benefit of selling securities at a loss is that you can offset your ordinary invome by up to $3,000 per year. But in order to use that loss, stay out of that stock for at least 30 days.

Progressive Tax

The bigger the income the higher the percentge rate the IRS charges. As the income progresses up the scale, so does the rate of taxation.

One of your fixed-income clients purchases a GE 6s debenture at 93.50. At the end of the year, the bonds are trading at 90. therefore, the total annualized return in?

The bond paid $60 (6s) but dropped to $35 in value. So, take the (60 - 35)$25 divided by the purchase price of 935 to determine total return...........

An advisor is not deemed to have custody of client funds when debiting management fees from the client account directly if all of the following conditions are met

The client must have provided written authorization to do so, the custodian agrees to send the client statements at least quarterly, and a copy of the bill and the manner in which the fee was calculated is provided to the client and custodian at the same time.

An investor buys 100 shares of ABC common stock at $85.50 per share. The stock pays a quarterly dividend of $1.00. If the common stock is currently trading at $95.50 per share, what is the current annual dividend yield

The current annual dividend yield is equal to the current annual dividend ($1.00 x 4 = $4.00) divided by the current market value of the stock ($95.50). Therefore, $4.00 / $95.50 = $4.19%.

A U.S. Balance of Payments deficit would tend to increase due to which of the following?

The deficit would increase when money is leaving the U.S.

When a registered representative is trying to determine if a stock is a growth stock, public utility, or blue chip, they would most likely look at the

The dividend payout ratio would help the RR determine what type of company they were looking at since most Blue Chip stocks maintain a dividend payout ratio of approximately 50%, growth stocks 25%, and public utilities 75%.

Consolidated Tape....GE36.55.....

The fist thing we see is the stock symbol GE. If there is no number before the symbol, we know that one roun lot of 100 shares of GE just traded for $36.55 per share

Alpha

The fund claim to be high alfpha. It means that his fund manager can outperform other funds. The claim of extra return.

The Grantor

The grantor (the person who establishes the trust with the help of an attorney) removes assets from his or her own holdings and places them in the trust.

A corporation is planning to distribute new shares of common stock to its existing shareholders. This would be described as

The key is that the shares are being offered to the existing shareholders, which would be done through a Rights Offering.

Money Market

The money market is the market for buying and selling short-term loanable funds in the form of securities and loans. All money market instruments mature in one year or less. The risk varies among the different type of money market products, however; they are considered low-risk investments. Most money market instruments are issued at a discount, so they do not pay any interest.

TIPS. An investor purchases an inflation-protected treasure note with a coupon rate of 3%. Inflation in the first year is 4%. Therefore:

The rate of inflation is 4%, so the principal becomes 4%larger. Multimply the principal 0of $1,000 by 1.04 to get the new principal amount of $1040. then multiply that principal by 3%, and that is the new annual coupat rate.

You are working on brokering a trade between two private parties. The trade goes according to plan until you find that a lawsuit has been filed by the buyer because of an error in material fact, or an untrue statement. The buyer has filed a civil suit against the seller, who had just recently acquired the security. Which of the following is a defense to this suit?

The seller must prove that reasonable care was taken to ensure that no error in fact was made and that they, the seller, did not know and could not have known that the statement was in error or untrue at or before the time of sale.

Bond Ratings

The top four categories according to Standard & Poor's are AAA, AA, A, and BBB. If you are utilizing the Moody's bond rating system, the top four classes would be Aaa, Aa, A, and Baa.

If a portfolio manager is compensated with a performance bonus for managing a small -cap portfolio, which of the following would provide an appropriate benchmark?

The two main indices/benchmarks for small-cap portfolios are the Russell 2000 and the S&P Small-Cap 600

Limited Parnership

There has to be at least one general partner whohas personal liability for debts and lawsuits against the business. Limited partners have limited liabillity. They can only lose what they invest into the business. A debt signed by a limited parner is called recoure note. In order to keep limited liabliity status a limited partner must stay the heck out of day-to-day managemente decisions.

Non Cyclical or Defensive stocks

These industries can weather a recession/contraction more easily . (Food, clothing, pharmaceuticals, healthcare, alchohol, tabacco.

Market not held orders

These market orders that don't have to be placed immediately are called "market not held orders". They are only good for that day and may not be executed tomorrorow or the next day.

Deferred Compensation Plans

These plans defer withhold some of an employee's compensation now, invest it on his behalf, and then pay it to him later. The company does not get to dedut the contributions the year they are set aside.The will simply pay tax onthe money when he receives it.

SEP-IRA

This allows the business owner to make pre-tax contributions for herself and any eligible employees.Twenty-five percent of wages can be contributed to an employee's SEP. Contributions are made by the business, not eht employees.

Ordinary Dividends

This are taxed at ordinary income tax rates.. REITs, whick kick out 90% of their earning pre-tax to share holders in order to act as a conduit to the investors, pay ordinary dividends.

You have been watching several thinly-traded stocks. Today, activity in trading on one of those stocks spiked. You review the activity and see that buy and sell orders were being entered at the same price simultaneously for the same quantity of securities. This has generated the appearance of an active market in this security. The scenario listed above describes which of the following prohibited practices

This is a form of market manipulation "Painting the Tape" is a form of market manipulation which occurs when an investor or firm buys and sells the same security to create the appearance of an active market, which can drive the price of a security up

Over-the-counter

This market is sometimes called second market. It is not a physical market. It is also known as negotiated market. Over-the-couner stocks have more than three letters in their symbols. People trade this stocks by computer rather than gathering at a big building inWall Street. The "big guys" of the OTC market are quoted all day through an electronic quotation system known as NASDAQ.

What does it mean when a security is registered with a State under the Uniform Securities Act

This means that the securities of the company can be legally sold in the State

Semi-Strong Efficient Market Hypothesis

This one claims that only information that is not publicly available can benefit investors seeking abnormal returns. All other information is reflected in the current market price of the security.

Debt to Equity Ratio

This ratio shows us how leveraged the company is. Total Liabilities divided by Shareholders Equity.

Working Capital

To find working capital you need to reference the balance sheet.

Regulation T (REG T)

To purchase stock on margin, the broker-dealer follows Regulation T., which stated that a listed stock can be pledged as collateral by the customer in exchange for a loan from the broker-dealer up to a maximum percentage of its value, usually 50%.

STRIPS

Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) permit investors to hold and trade the individual interest and principal components of eligible treasury notes and bonds as separate securities. STRIPS are guaranteed by the U.S. Government and sometimes called "zero-coupon" securities because the investor only receives a payment at maturity. The Treasury does not issue or sell STRIPS directly to investors, STRIPS are purchased through financial institutions and broker/dealers that separate the original security into the two parts.

Treasury Stock

Treasury Stock is stock which has been issued and repurchased by a corporation. Once it is repurchased, it does not receive dividends or voting privileges. Appears on the balance sheet as a deduction from issued stock

General Partnership

Two or more persons ownthe business jointly and are sill subject to creditors and lawsuits personally. They do not shield themselves personally from debts or liabilities of the business. But the income and expenses do flor through directly to the partners, rather than eing tazable to the business.

Record Keeping

Un less stated Otherwise broker dealers must maintain ther records for 3 years and Investment Advisors for 5.

situations would an investment adviser be required to file the appropriate audited financial statements with a state Administrator

Under NASAA Financial reporting requirements every registered investment advisor who has custody of client funds or securities or requires payment of advisory fees six month or more in advance and in excess of $500 per client shall file with the Administrator an audited balance sheet as of the end of the Investment Advisors fiscal year

Under the Uniform Securities Act

Under the Uniform Securities Act (State Law), an individual that willingly violates the Act can face up to a $5,000 fine and 3 years in prison (or both) if convicted. If the individual proves that they had no knowledge of the rule or order they may not be imprisoned. After 5 years have passed, no indictment may be returned on past violations. A person convicted of violating the Investment Advisors Act of 1940 (federal), may receive a penalty up to $10,000 in fines and 5 years in prison (or both).

Warrants

Warrants are long term securities issued by some corporations that give the investor the option of buying shares at a later date at a fixed price. They have an expiration date. Warrants are purchased in the open market and sometimes attached to other securities.

Mr. Smith is short 100 shares of ABC common stock when ABC pays a 10% stock dividend. On the morning of the ex-date Mr. Smith would

When a customer is SHORT stock and a stock dividend is paid, the investor would OWE the additional shares to the firm that they borrowed the stock from, therefore Mr.Smith would owe 10 additional shares of ABC common stock.

UGMA or UTMA

When opening an account make sure there is just one adult as custodian and one minor child per account. This is highly testable. If you s see...."Michelle and Javier as custodians....."sot right there. You can't have two adults as custodians.

Relationship of yields

When the bond is price is price at its par value of the yields are the same. (Nominal Yield, Curren Yield, Yield to Maturity, Yield to call).

Roberto tells you that he has $10,000 in short-term capital gains from the sale of common stock this year. He also mentions that he has $18,000 in long-term capital losses from the sale of a technology mutual fund in the same year. If Roberto has no other gains or losses for the year, what will be the net effect on his taxes?

You can tell Roberto that his short-term capital gain of $10,000 can be applied against his long-term capital loss of $18,000, which leaves a net $8,000 long-term capital loss. For any given tax year, up to a $3,000 capital loss can be claimed on your taxes, the remaining $5,000 loss can be carried forward to the next year to help offset capital gains.

Zero Coupon Bonds

Zero coupon bonds do not pay interest paid to the investors.The interest rate is received when the bond matures at par. When interest rate rise, zero-coupon bonds will fal dramatically.

REITs can pass through all of the following to investors except:

[A] dividends [B] capital losses [C] capital gains [D] interest Since REITs trade like a corporate security, there is no pass through of losses; losses are treated as capital losses .

Qualified Dividends

are ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate.

The Uniform Securities Act allows an Administrator to examine an investment advisor's business records

at any time, even across state lines

The four phases of the business cycle are:

expansion, peak contraction and trough

Global Funds

generally include securities issued by both foreign and U.S. companies, whereas international funds include foreign securities only.

countercyclical stock

is a stock whose price tends to move in opposition to the overall business cycle. When the market rises, the stock price falls, and when the market falls, the stock price moves higher.Gold mining and silver mining companies are companies would likely remain stable or perform better during a down economy

Strong Form of efficient Market Hypothesis

it proposes that all information in a market, whether public or private, is reflected in the stock's price. Not even insider information could give an investor an advantage.

Standard Deviation

measures the degree of variation of an investments returns when compared to the mean return on the investment

Normally a stock will begin trading ex-dividend on the

stock will begin trading ex-dividend on the second business day prior to the record date.

According to NASAA Statements of Policy, when is it necessary for a registered investment adviser (IA) to notify the State Securities Administrator that their net worth has fallen below the minimum required? Notification must be given by the end of the day on

the business day following the occurrence.