Series 65 Securities
inertial inflation
economic condition where the rate of price increases reaches a stable equilibrium and stays there until a shock to the system occurs, at which time, the rate of inflation changes
If spread gets wider between bonds and treasury
economy weakening -getting out of bonds and into treasuries
feasible set
efficient portfolio is a feasible portfolio that provides the greatest expected return for a given amount of risk, or equivalently, the least risk for a given amount of expected return
defined benefit plan who bears risk?
employer
who bears the investment risk of a defined benefit plan
employer
Each client must receive the brochure no later than the
entry into the advisory contract.
parity
equal
churning
excessive trading of assets in a client's brokerage account in order to generate commissions.
Employee contributions
excluded from taxable income at the time of contributions, which exempts them from income tax, but not from payroll taxes.
Municipal bonds are _____________ from federal income tax.
exempt
transactions between issuers and broker dealers are....
exempt
CFP, CIC, ChFC, PFS, CFA
exempt from exam
Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of
the Investment Company Act of 1940 & the Uniform Securities Act
A benefit of active investment in real estate that is not available to purchasers of REITs is
the Section 1031 exchange privilege.
The most common way in which to distinguish whether social media content is static or interactive is
the ability for others to change it
registration of a security becomes effective
20 days after filed
IA's must disclose if fined over
2500
Adding leverage means moving it by
2x or 3x
max amount of shares investment company can own of another
3%
change of residence
30 days
explain extraordinary items such as the sale of a subsidiary.
Footnotes
f a married couple establishes a JTWROS account with a balance of $25 million and the wife dies, what is the husband's estate tax liability?
He pays no estate tax.
derivative
Hedging to reduce the impact of adverse price movements (e.g., by buying put options or selling futures contracts). Anticipating future cash flows. Asset allocation changes. Income (selling options).
growth style of investing is
High P/E ratios are one of the keynotes of growth investing-Growth managers focus on the denominator in the P/E ratio, searching for firms and industries where high expected earnings growth will drive the stock price up even higher.
Who regulates Invesment Advisors?
I A Act of 1940
selling shares from its proprietary account to an advisory client
IA would have to disclose as actining in principal capacity
Rules for promoters for IAs
If the compensation exceeds a de miminis amount, there must be a written agreement between the investment adviser and the solicitor. IA must be registered While the sales script used may be written by the promoter, making sure that its content is fair and reasonable is the responsibility of the investment adviser.It is important to note that compensation is defined as more than $1,000 over a 12 -month period.
An advantage of structuring a business operation as an S corporation rather than a C corporation would be
avoiding double taxation-s is taxed like a partnership-everything flows through
value investors look at
balance and income sheet
prepaid expenses are on
balance sheet as an asset
Cash flow is
basically net income plus depreciation
what is considered substantial prepayment
be more than $500 for 6 or more months in advance
S Corp benefit over Corp
benefit of flow through income and losses
systematic risk is measured by
beta...CAPM uses it
Contributions to a 457 plan _____________________________ with other retirement plans.
do not have to be aggregated
Customer ID Program (CIP)
dob, visa, address, (NOT SEX)
durable power of attorney
document that allows an agent to represent a patient
dollar _______, exports________, trade ________
down, up, surplus, up, down, deficit
Intestate
dying without a will
common stock fights
inlfaction
strong form efficiency
inside info doesn't work-stock prices fully reflect public & private info
Accredited Investor
institutional investors, people with over $1M in net worth, venture capital firms, trusts/corps with assets over $5M in worth,
A measurement of investment return that takes the time value of money into consideration is
internal rate of return (IRR)
yield to maturity =
internal rate of return, takes into consideration time value of money, discounted rate that equates a bond's cash flow to current price
interest rates and bond prices have a _____ relationship
inverse
dollar cost averaging
investing a set amount of money each interval
laddering
investing at same time, different maturities
if wrap fees must be
investment advisor
The Uniform Securities Act requires that a consent to service of process be filed for the registration of
investment advisors and broker-dealers
transactions recommended to the client are inconsistent with those for the IAR's own account
must disclose
hedge funds typically offer ____ to managers
performance based fees
Testimonials promoting investment advisers' services are
permitted under the SEC rule. The rule distinguishes between a testimonial and an endorsement. The former is from a client and the later from someone who is not a client.When accepting a testimonial, the fact that the person is a client must be disclosed. Disclosure is also required if any compensation is being paid. Advertisements are not filed with the SEC.
convertible bonds are good for
person seeking max current income
Revocation of the registration of an agent's broker-dealer will result in
placing that agent's effective registration in suspense.
The standard of prudence applies to
portfolio as a whole
emh strong
tech, funda, insider won't work, random walk will
emh weak
technical analysis won't work-fundamental analysis and insider info will
semi strong
technical or fundamental doesn't work
Section 529 plans are
technically considered municipal fund securities.
what are tax deffered, different sub accounts, can move assets, but more expensive than mutual fund
variable annuities
money market mutual funds are
very liquid
effective date of a registration is noon of the 30th day after the filing of a complete application.
when agent becomes registered with Admin
forward pricing rule
when investor redeems open-end shares-they recieve NEXT computed net asset value (forward pricing)
Under the Uniform Securities Act, registration by coordination becomes effective
when the registration with the SEC becomes effective
matched order
when trades are coordinated for the purchase or sale of a security. Essentially an order is placed with the knowledge that another order (or orders) of substantially the same size, at substantially the same time, and at substantially the same price, has been or will be entered. The effect is to cause an appearance of market activity and price movement that is not market driven.
With HFT, it is the smaller investors U22LO7 q90
who lose out because they don't get access to the information as quickly. perks-liquidity, arbitrage, lower cost institution purchases
investment advisor must deliver brochure
within 120 days of the end of its fiscal year a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes. if no update, no brochure required
If an agent chooses to appeal an Administrator's order, the agent must file for review of the order with the appropriate court
within 60 days of order entry
Do EIAs (equity index annuities) have caps
yes
is a firms internal research considered inside information
yes
are REITS traded on secondary market? can hybrids own property?
yes, yes
if you own securities you recomment to client
you must disclose
if you have a place of business in state
you must register
In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over
an equity portfolio of at least $100 million in 13(f) securities
The SEC is required by the Investment Advisers Act of 1940 to either grant an adviser registration or begin proceedings to determine whether the registration should be denied within .
45 days application
if changing jobs how long do you have to do a lump sum distribution from qualified plan
60 days
Contracts between funds and their advisers may not be terminated with more than
60 days' written notice, and these contracts must—not should—be in writing
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?
7 days
commercial paper must mature in ____ months or less
9
variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is
9%
inverted yield curve
A downward-sloping yield curve indicates that short-term interest rates are generally higher than long-term interest rates.
LEAPS (long term equity anticipation securities)
A long-term option on a security that has an expiration of up to 39 months.
Open ended investment company
A mutual fund; an investment company from which investors buy shares and to which they resell them
structuring
A pattern of currency deposits designed to avoid currency reporting requirements is termed
8-k
A report filed with the SEC by a public company to update investors of any material event.-4 business days
A market maker's quote always reflects the price he is willing to pay (the _______) and the price at which he is willing to sell (______). The difference between these two is the _________.
bid, offer, spread
income payments are more reliable for a
bond
a convertible security
bond, preferred stock, or debenture exchangeable at the option of the holder (for common stock of the issuing corporation) is
selling short
A short sale of SSS stock has unlimited loss potential. Selling a put obligates the customer to buy the stock at the strike price in return for premium. A short sale coupled with a sale of a put is equivalent to selling an uncovered call and creates the most risk.
Russell 2000
A small-cap index
order of claims
bonds, debentures, stock
when banks borrow from fed what is rate
discount rate
IRR
discount rate that, when applied to the cash flows of an investment, equates the net cash inflows to the net cash outflows
what do bond investors use to translate future cash flows?
discounted cash flow
An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered ________________________________ from the registration and advertising filing requirements of the act.
an exempt transaction
12b-1 fees
annual fees charged by a mutual fund to pay for marketing and distribution costs
yield to maturity
discounted rate
registration of a broker dealer automatically constitutes registration of
any agent who is a partner, officer, or person occupying similar status
How long can a contract be for?
any length of time
antifraud can be enforced by
anyone
Who can open IRA
anyone with earned income, but child support is not earned income
performance based fee requirement
anyone with qualifying net worth over 2.2 mil OR 1.1 mil under management
In the case of a wrap fee program, where on ADV
appendix 1 of the Form ADV Part 2A.
total return
appreciation plus dividend
The simplest model for valuing equity
dividend discount model
two widely accepted forms of common stock price valuations using dividends
dividend discount model and the dividend growth model.
Any order ticket submitted by an agent for
at a broker-dealer will always include the agent's name and that of the BD. All order details must be listed (e.g. the number of shares, limit or market, etc.), but the current market price is never included.
Section 529 plans
are securities
structuring
attempt to fall under 10k limit to avoid CTR filing
Federal Substantial Prepayment
$1,200 6 or more months advance
Under current regulations, the maximum contribution to a Coverdell Education Savings Account is _____________ annually.
$2,000
Cloverdell
$2,000, similar to self directed IRA, (lots of investment options) can tranfer to new beni if fam, treated as gift and eligible for annual gift tax
what can admin do-jail time and fees?
$5k and 3 years jail
Quick Asset Ratio
(Current Assets - Inventory) / Current Liabilities
CAPM (Capital Asset Pricing Model)
(current rate of return -risk free rate) x BETA=_____ +risk free rate
investment constraints
+Liquidity +Time horizon +The tax treatment +Legal and regulatory constraints +Ethical or personal preferences
lower the coupon on the bond
, the longer the duration
what are 2 things on investment policy statement prepared for clients
-% for each asset class & expected return -strategies for timing and choosing inves -NO FEES
in order to act as agent (2 things)
-client receives fulll written disclosure, consent of client
exemptions to brochure delivery rule
-impersonal advice of less than $500 a year -qualified clients
Simple Trusts vs Complex Trusts
-simple trusts MUST distribute all income earned during the year received -complex trusts may accumulate income, permitted deductions for distributions
Growth stocks
are stocks of companies that plow their earnings back into further product development. They sell at a high price-earnings ratio and pay out little or nothing as a percentage of their earnings in dividends. U20LO5
Prepaid expenses, such as rent, insurance, and postage, are considered
as a current asset on the balance sheet.
balance sheet shows company's
asseets-liabilities (owners equity)
stock brings in new capital in the form of cash. This raises the
assets & net worth
balance sheet shows
assets and liabilities , NOT income and expenses
washed trade
attempt to manipulate a security price by creating false interest
Market Efficiency
assumes active port mgmt can't help earn abnormal risk adjusted returns
Automatic reinvestment is always
at NAV
State-registered investment advisers who have custody of clients' securities are required to provide
audited balance sheets to their client
Capital Needs Analysis
-used to determine how much life insurance is necessary to meet future needs -need to try and protect future earnings, then -estimate life expectancy and account for inflation, then -look at protecting existing assets -should provide for: a. payoff mortgage and other debts, b. income for survivors, c. college tuition, d. estate taxes if taxable estate will exceed 5.25 MM
proscribed
/Prohibited actions
Large cap, mid caps and small caps
0-2, 2-10, 10+
The Administrator maintains jurisdiction over a license that has been withdrawn for a period of
1 year
a full-time employee is defined as one working at least how many hours per year
1,000
JUMBO CDS minimum
100,000
private fund must have less than
150 mil AUM
Modern Portfolio Theory
1st want highest returning, if same next is lowest risk
recession
2 consec. quarters of economic decline
viatical
2 years left to live
usual fee for hedge fund manager
2% assets 20% profits
estate planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes. Because incidents of ownership remain with the grantor, all income is taxed to the grantor.
A GRAT is an
a Totten trust.
A Totten trust allows for the transfer of ownership of a bank account to a beneficiary or beneficiaries after the owner's death.
call vs put
A call option gives the holder the right, but not the obligation, to buy an asset at a specific price during a specific period. Although it would be possible to purchase a stock right in the open market, it is unlikely to ever find one with an expiration date more than 45 days from issuance. Selling a put creates an obligation on the seller to buy the stock if the option is exercised and there are no forward contracts on stock.
A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2019 without having to pay gift taxes?
A special rule under Section 529 allows the donor to load front-end load contributions and avoid paying gift taxes. Five years' worth may be used under this method (5 × $15,000 = $75,000)
stock split and p/e ration
A stock split does not change the P/E ratio because both the stock's price and its earnings decline by the same proportion. In this question, after the 7.5 to 1 split, the market price will drop to $30 per share ($225 ÷ 7.5) and the earnings per share are now $2 per share ($15 ÷ 7.5). That 30:2 is still a 15-to-1 P/E ratio.
Preorganization Subscription
A transaction used by struggling companies to acquire additional capital. This type of transaction is exempt and can not be sold/marketed to more than 10 subscribers/investors.
When discussing employment and production, which of the following industries are typically more affected by a recession?
Capital goods-good used to produce other good Consumer durable goods-don't wear out quickly
municipal bonds
dividends don't have federal tax, but do pay capital gains
Registration in state happens when
Admin says so
from operations is the sum of net income plus non-expended business expenses such as depreciation.
Cash flow
ADRs
American Depository Receipts. Certificates issued by a bank stating that a specific number of a company's shares have been deposited with them. These certificates are denominated in dollars and traded on the American exchanges as if they were American securities. However, they normally represent stock in companies outside America. LARGE DOMESTIC COMMERCIAL BANK AND FACILITATE AMERICANS TRADING FOREIGN SECURITIES
American vs European style options
American-any day before expiration European-last trading day before expiration
when can you withdraw from roth with no tax penalty
An individual can always withdraw the initial principal in a Roth without tax or penalty - it is only the earnings that will be subject to tax if not meeting the requirements of the Internal Revenue Code. In order for withdrawals of earnings from a Roth IRA to be free of any tax, there are two primary requirements: The first is that the owner be at least 59½ years of age. The second is that it is at least 5 years since the first deposit to a Roth IRA in the individual's name.
injunction
An order which legally prevents something-only court can
Current Yield Formula
Annual Dividend / Current Market Price
dividend payout ratio
dividends paid/net income
highest rating of a junk bond
BB
sovereign debt securities, denominated in U.S. dollars (USD), issued by developing countries and backed by U.S. Treasury bonds.
Brady bonds are
used to protect against loss or preserve the gain on a short position.
Buy stops
shares have a front-end load, but their operating expense ratio is usually lower than that of any other class
Class A
Broker Dealer advertising is regulated by
FINRA
considered serious enough to warrant a revocation
Failure to supervise the activities of investment adviser representatives
Responsible for administration of the Bank Secrecy Act?
Financial Crimes Enforcement Network (FinCEN)
506c vs 506b
C-can be advertised exclusive to accredited investor B can't be advertised and noncredited investors can part
accounts for the impact of systematic risk (as measured by beta) only and does not take into consideration unsystematic risk,
CAPM
CFP®— CIC— ChFC®— PFS— CFA®
CFP®—CERTIFIED FINANCIAL PLANNER™ CIC—Chartered Investment Counselor ChFC®—Chartered Financial Consultant® -can be exempt from exam PFS—Personal Financial Specialist CFA®—Chartered Financial Analyst® (
Fiscal vs. Monetary Policy
Fiscal: gov't decisions about taxation and spending Monetary: decisions about printing/circulating money and interest rates, used to control inflation The 2 main tools available for a gov't to manage an economy and to interfere with domestic economy Ex: EU, the member states have individual fiscal policies but many of them have a common monetary policy because they share the Euro currency.
What form must be filed within ______ after first sale of _______.
D, 15 days, security
tax preference items
Deductions taken for accelerated (but not straight-line) depreciation; Excess intangible drilling costs; Capital gains on incentive stock options; and Otherwise tax-exempt interest from specified private activity bonds.
erisa
Employee Retirement Income Security Act-reallocate plan assets, through internet trading or other methods, at least once every 3 months.
TIPS bond
If the inflation rate is 4% for 5 years, the principal value of the bond increases semiannually by that inflation rate. Allowing for compounding, the best choice would be the $1,219. This is computed by multiplying $1,000 by 102% 10 times. The License Exam Manual (LEM) contains a step by step example of how this computation works.
Form ADV Part 1A
In order to maintain SEC registration, an investment adviser must maintain assets under management of no less than $90 million. The annual updating amendment is used to disclose this information.-will verify IA still qualifies for SEC registration
It is only the ____________________where the employee can possibly receive capital gain treatment
Incentive stock option (ISO)
A European corporation seeking a short-term loan would probably be most concerned about an increase to:
LIBOR stands for London Interbank Offered Rate and, for the rest of the world outside of the U.S., is the standard upon which short-term rates are based.
LLC (Limited Liability Company)
Limited liability, pass through income taxation, flexibility
is to give clear instructions regarding end-of-life decision
Living will
value stock
Low price-to-book, low price-to-earnings ratio
For partnership returns (including LLCs with more than 1 member) and S corporation returns, the due date
March 15
What do insurance, retirement plan, collectibles, commodity futures, commodities, condo as personal residence, currency have in common?
NOT securities
Time period involved Account value at the end of the period Anticipated rate of return of the portfolio
Needed for Present Value Computation
is the difference between the initial cash outflow (investment) and the present value of discounted cash flows
Net present value (NPV)
In the case of NSOs, ___________ the difference between the exercise (or strike) price and the current market value is _______________
Non Qualified Stock Option , employee compensation
call options are only issued through
OCC
Portfolio Optimization
One of the primary concepts of asset allocation is that the performance of a portfolio can be enhanced while also reducing the associated risk. This is accomplished through a proper allocation of assets, among many different asset categories, to establish a portfolio suitable for the investor's risk tolerance and desired performance. This model portfolio would lie on the efficient frontier, thus representing the optimal portfolio for the client-maximum return with the least risk.
securities exchange act regulates
PERSONS involved in secondary market
Totten trust
POD refers to an account similar to the TOD designation used by broker-dealers
Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements?
Payroll deduction plan
are transactions resulting from offers to no more than 10 noninstitutional persons (retail clients) in 12 months for investment purposes only. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions
Private placements
10-Q report
Quarterly report
prime rate
Rate of interest banks charge on short-term loans to their best customers
Under the provisions of Regulation S-P, a person who has an investment advisory contract with a registered investment adviser is known as
Regulation S-P uses two terms: customer and consumer. The customer is one with an ongoing relationship, such as would be the case with an advisory contract. A consumer is basically a one-shot deal.
10-K report
Required annual report filed with the SEC by publicly held firms
Section 28(e) safe harbor
Research reports,Software used to analyze securities-whatever benefits client
Keough Plan
Retirement plan for the self employed
Who regulates Broker Dealers and agents?
Securities Exchange Act of 1934
The market price of which of these is likely to have the smallest movement when there are changes to the discount rate? Short or long term
Short term
Registration of IRA's is done at
State Level
Close ended compnay shares price is deteremined by
Suplly and demand
portfolio manager looking to create alpha
Tactical asset allocation
market timing strategy
Tactical asset allocation, which attempts to capitalize on short-term market swings
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio?
Tangible assets
legal arrangement most commonly used for ownership of real property (real estate).
Tenancy by the entirety
A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients.
The Administrator may request that the court appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000, and the maximum prison term is 3 years.
variable annuity
The death benefit insures that the investor will never receive back less than the original amount contributed to the account. Unlike life insurance proceeds, with annuities, anything above the cost basis is taxed as ordinary income. Receiving the benefit as a lump sum is only one of the options available to a beneficiary of a variable annuity death benefit. There are others, such as annuitizing the benefit.
zero coupon bond
The discount is in lieu of periodic interest payments.
internal rate of return
The internal rate of return of a bond is the interest rate that makes the NPV (NET PRESENT VALUE) of the investment equal to zero
risk-free rate of interest?
The rate of interest earned on the 91-day U.S. Treasury bill
net change in the cash position of the firm for the reporting period
The total of the cash from operations, investing, and financing, as reported on the statement of cash flows
a testamentary trust
The type of trust created by a will that becomes operative at death is
While UGMA only permits gifts of cash and securities, other property, such as real estate and limited partnership interests, may be held in_________________accounts.
UTMA
ADV-E
Under Rule 206(4)-2 covering advisers that take custody of client funds, such advisers must submit to an annual surprise audit by an independent public accountant that verifies the funds and securities held in custody for customers. After completing the examination, the auditor must sign and file Form ADV-E (as in "Exam") with the SEC within 120 days.
Rule of 72
Under the Rule of 72, we can determine an earnings rate by dividing 72 by the number of years it takes for money to double. In this case, the money had quadrupled. That means it has doubled twice in 12 years or, every 6 years. Dividing 72 by 6 years results in an annual return of 12%.
Under the _____________________, if an IA receives a check made payable to an unrelated third party, it will be considered custody unless forwarded within three business days of receipt. Third-party checks are never considered custody under federal law.
Uniform Securities Act
a unit investment trust.
Unit investment trusts are registered investment companies with a fixed portfolio
indexes represents the largest portion of the domestic stock markets?
Wilshire 5000
Is a 529 plan a security?
Yes
Direct Participation Program (DPP)
a business entity, maybe a limited partnership, that passes through all gains and losses to investors, therefore avoiding double taxation of earnings. Passive losses can be used to offset passive gains. Highly illiquid and generally suitable for sophisticated investors. VENTURE CAPITAL
exchange specialis
a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks
Relatively high portfolio volatility is most tolerable to investors with
a long-term time horizon
advertisement that reflects past performance must show
a minimum period of 1 year, All investment advisers' advertising must reflect deduction of fees; disclose the specific group of clients to which it applies, if applicable; and state actual market conditions during the referenced period.
who can not take a short position?
a mutual fund cannot
when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is
a nonexempt transaction
defined benefit pension plan
a pension plan that provides an annuity to eligible employees upon their retirement with the final salary at retirement and the length of service at the employer are most commonly used to calculate the total benefit
exempt from state registration of security
a state or Canadian province is an issuer of exempt security
alpha is
a term used in investing to describe an investment strategy's ability to beat the market,
block trade
a transaction involving over 10,000 shares
Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate Persons being compensated for assisting employee benefit plan administrators in selecting investment managers for the plan's assets
added in Oct. 1987 to definition of IA
in a trade, the agent determines ____ and the client determines _______
agent-time and price client-asset, action, amount
qualification to claim exemption from registration with the state because it is an adviser to private funds.
all investors must be qualified clients-net worth of at least $2.1 million dollars or at least $1 million in assets under management
In an efficient market
all participants have equal access to information and, therefore, stock prices reflect that equality almost immediately.
etf tracking index is not an
alternative
ETF & ETN
alternative investments
Modern Portfolio Theory (MPT)
an approach to portfolio management that uses several basic statistical measures to develop a portfolio plan-efficient, capital asset, feasible set
One of the characteristics of __________________________ is that their surrender charges tend to be higher for a longer time than other insurance company products. When you see Class B shares on the exam, it will be referring to mutual funds, not insurance company products.
bonus annuities
is a gift of assessable stock an offer or sale?
both
The Uniform Securities Act requires that a balance sheet accompany an adviser's
brochure when the adviser maintains custody of client assets or accepts substantial prepayments of fees.
record keeping
broker dealer-3 investment advisor 5
egardless of the security, the best way to protect a long position is
buy a put,
what management style would a equity fund index use
buy and hold style
Inflation is measure
by CPI
standard deviation
calculates the dispersion of a security's return from its own average return or mean.
dollar amount over the par value of a callable debt security that is given to holders when the security is redeemed early by the issuer.
call premium
A rule of thumb is that those who are long a stock will sell ______ for income while those who are short a stock will sell ______ for income.
calls, puts
unsystematic risk
can be effectively eliminated by portfolio diversification.
REIT
can qualify for special tax treatment, may loan money for construction, generates $ from rental, mortgage interest, and operating expenses
Investment advisers ________________recommend cross transactions to both buyer and seller, even if written consent is given.
cant
The primary function of the Federal Reserve System (the Fed) is to
carry out monetary policy
The currency reporting threshold
cash and equivalent instruments is over $10,000. These transactions must be reported on a CTR (Currency Transaction Report) (FinCEN Form 112). The Form 112 is electronically filed with the Department of the Treasury.
______ is shown on an income statement
cash flow
A principal benefit gained by investing in physical real estate is
cash flow.
traditional assets vs alternative assets
cash, bonds, & stocks VS real assets, hedge funds, private equity, and structured products
demand deposit account
checking account
discretion
choose security, amount of shares, and buy/sell
IA's are exempted from federal registration req's (4)
clients all in one state, principal office in that state, clients not furnished advice on exchange traded security, or private funds under 150mil
A ______________makes an initial public offering of stock, and once those shares have been purchased, no more shares are available from the company until it offers a new issue. Investors may purchase shares of a closed-end investment company on an exchange or over the counter at whatever price the market demands. This price may be more or less than net asset value. Investors may not buy or sell fractional shares but may trade only in full shares.
closed-end investment company
when do RMDs
commence no later than April 1 of the year following the year that the owner turned 72 years old
3 types of brokerage account fees not included in fee disclosure
commissions, markup/down, advisory fees
prospectus
communication made in writing or radio or tv
A similarity between the capitalization of closed-end and open-end management investment companies is that both
compute net asset value per share.
The primary requirement to be excluded from registering as broker deal in state is
confine trading to financial institutions or other broker dealers
Footnotes to Financial Statements
contain information that doesn't have a place in the main body of the financial statements
What can admin require of federally covered advisor
copy of IA's ADV, filing fee
nominal yield is =
coupon yield
current ratio
current assets divided by current liabilities
A company's current ratio is 0.5:1
current assets divided by the current liabilities-trouble paying bills
Surrender charges won't cause reduction to
death benefit of variable life insurance
In bankruptcy, the most junior debt
debentures
A corporation generally calls in its debt when interest rates are _________ , in order to replace old, higher interest rate debt with new, lower interest rate issues.
declining
if dividends are distributed to shareholders funds assets wil
decrease and value per share will fall
Credit risk
default risk, is the risk that a company may have financial issues that lead to default on its debt obligations, bankruptcy, or both.
Adoption
defined as a firm's endorsement of the content of a third-party site
FinCEN Form 112, the Currency Transaction Report, is filed with
dept of treasury
forward who is it between?
direct commitment with buyer and seller
any question dealing with charts, formulas, and tables will always be looking for two points
disclose the difficulties and the limitations
CAPM (Capital Asset Pricing Model)
expected return = risk free rate + beta (market risk premium) - describes the relationship between systematic risk and expected return for assets, particularly stocks uses standard deviation
Alpha
extent to which a security's performance exceeds (or falls short of) that of the market compared to what would be expected based on its beta. stock with a beta of 1.4 would be expected to perform 40% better in an up market than the marketXYZ with a beta of 1.0 gained 12%, ABC should return 140% of that or 16.8% (12% × 1.4).
discounted cash flow
fair value of a security
Regulation D Securites
federal covered securities
banks borrow from another bank rate is?
federal fund rate
federal vs state securities registration
federal=Securities Act of 1933 state=Uniform Securities Act
USA Exempt Transactions
fidicuaries, institutions, unsolicited
Section 404 (c) of ERISA
fiduciary responsibilities
life insurance proceeds
free from income tax and estate taxes
Quick Ratio (Acid Test Ratio)
gauges company ability to meet short term obligation
The hypothecation agreement
gives permission to the broker-dealer to pledge a customer's margin securities as collateral
4 precious metals
gold, silver, platinum, palladium
GTC
good till cancelled order
gauranteed
guarantee of interest, principal, or dividends by a party other than issuer
In the Uniform Securities Act,__________________ means _____________ as to payment of principal, interest, or dividends by some third party other than the issuer.
guaranteed means guaranteed
If a person who is not an agent or broker-dealer makes a false statement of material fact in connection with the sale of a security, that person
has violated the antifraud provisions of the Uniform Securities Act
Going long a call means that you
have bought it. Only sellers of options generate income. If you wish to hedge your long stock position, you buy a put, not a call.
agents _______ delivery of customer securities
have no responsibility of , only broker dealers do
In order to qualify as a REIT,
he REIT must distribute at least 90% of its taxable income
Conversion Ratio Formula
he conversion ratio always uses the par value ($1,000), never the current market price. With a par value of $1,000 and a conversion price of $50 per share, this bond is convertible into 20 shares ($1,000 / $50)
A fundamental analyst is concerned
he economic climate, the inflation rate, how an industry is performing, a company's historical earnings trends, how it is capitalized, and its product lines, management, and financial statement ratios, such as the P/E ratio
alternative asset classes
hedge funds, equity, commodities
a 529 plan
high contribution levels, no income limitations, no age restriction
only use bonds when
high tax bracket or tax free income
Concerning index annuities and their method of crediting interest, what is true
high water mark with look back offers best return
the higher the sharpe ratio, the higher the alpha, the
higher the stock is returning
marginal tax
highest rate you will pay on your income
When an investor sells an option, put, or call, it generates
immediate income
The Form 8-K is used to announce
important company events such as a name change, a change in management, or a merger or acquisition.
As an IAR with a federal covered investment adviser, Daphna only has to register _________________________________________________That means registering in States D and E. The number of clients is irrelevant.
in those states in which she maintains a place of business.
total return on a bond
income plus gain
net income is found on the
income statement
what can strenthen weaked dollar
increase in interest rates
most passive investment style
indexing
ADV-E
indicates custody
lagging indicators (3)
indicators that seem to lag behind changes in overall business activity-average prime rate, duration of unemployment, CPI
coincindental indicator
industrial production
fixed income security risk
inflation
purchasing power
inflation
real interest rate of fixed income
inflation adjusted
1st step with new client
information
Under Section 28(e) of the Securities Exchange Act of 1934, what is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions?
investment benefit that accrures directly to client (not advisor) so custodial services-
esigned to describe the plan's investment goals and investment strategies. It typically identifies levels of risk acceptable in the construction of a portfolio. An IPS establishes the strategic framework utilized by the fiduciary to manage a portfolio.
investment policy statement
affinity fraud
investment scheme preying upon members of identifiable groups by using their affiliation with the group
Covered call writing
is a strategy where an investor sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium -A covered call is simply defined as an investor owning 100 shares of the underlying stock for each option written (sold). The premium received is not only a source of income, but also serves to provide downside protection to the extent of the amount received.
universal life policy
is a variation of whole life insurance. Features: a death benefit + a savings components, but offers consumers a great deal of flexibility in how their premium is applied. More options on interest rates for savings, loans, and repayments Invests in mutual funds
standard of prudence
is now applied to any investment as part of the total portfolio rather than to that investment individually.
In most cases, stock subject to Rule 144
is stock that cannot be immediately resold. That is why it is known as restricted stock.
Reinvestment rate risk
is the risk that proceeds available for reinvestment might be reinvested at a lower rate than that of the investment vehicle that generated the proceeds.
warrants
issued with exercise price above market so only time value
if adjective before fund
it is open ended
Two of the major risks faced by DPP investors are the
lack of liquidity and the possibility of legislative change.
Dow Jones Industrial Avg., S&P 500, NYSE Com
large cap
highest level of diversification=
largest negative number
an irrevocable life insurance trust (ILIT)
life insurant to cover potential estate tax liability
Private equity investments, including hedge funds, are typically structured as
limited partnerships
nasdaq investors not concerned with
liquidity
stock with no ready market has what kind of risk
liquidity
A portfolio of listed common stocks will have little to no
liquidity risk, as listed shares are easily traded.
corporation's capital structure consists of its
long-term debt plus shareholders' equity.
LEAPS
long-term equity anticipation securities
The bond with the ________________ duration is generally going to have the greatest exposure to interest rate risk. Because there is very little difference between maturity dates of 2050 through 2052, the bond with the_________________coupon will have the longest duration.
longest, lowest
One business succession issue that applies to virtually all investment advisers is
loss of the designated regulatory contact person
high unemployment rate
lowering of inflation
sales lit misleading if
market conditions aren't mentioned & if only set group of people
close ended funds
may move independent of NAV
Positive margin
means that you were successful in your use of the leverage afforded by using margin (borrowed money).
standard deviation is
measure of volatility/Approximately two-thirds, or 68.26%, of observations will be within one standard deviation on either side of the mean. Approximately 95% will be within two standard deviations and approximately 99% will be within three.
Core inflation
measured using a price index that excludes food and energy prices.
duration
measures a bond's sensitivity to a change in interest rate
standard deviation
measures systematic and unsystematic risk
who signs a new issue of nonexempt securities
members of the board, as well as by the CEO and the CFO. It is also signed by the lawyers and accountants
Coordination
method used for nonexempt companies that are registered with SEC
S&P 400
mid cap
who is not a person
minors, deceased, mentally incompetent
preservation of capital means no fluctuations so choose a
money market fund
money market funds hold (3 things)
money market instruments like cds, treasury bills, and commercial paper
Ginnie Maes pay interest on
monthly, not semiannually.
government agency bonds are
moral obligations except Ginnie Mae
stripped
more liquidity risk and less interest rate risk
exempt securities under the Uniform Securities Act?
municpal bonds in US or Canada, issued by state or canada, trust, banks, savings institution
QDRO
must be from qualified-paying former spouse part of retirment
S corporations
must not have more than 100 stockholders, and each stockholder must be a citizen or resident of the United States. The corporation can only have 1 class of stock, and no more than 25% of the corporation's income can come from passive activities. If you were not sure of this last fact, a useful test-taking technique is recognizing that all the other choices are correct and there is no way to select them without this one.
if maintaining custody in state
must notify admin in ADV
An individual wishing to register as an agent with a broker-dealer may have to
must pass an examination. Many Administrators require that all agents post a bond
Mutual Funds _____ be redeemed, can redeem in ____ shares, and are handled under ____ pricing.
must, fractional, forward pricing
agents are only
natural person
The OTC market is considered to be a _______________ market in contrast to a stock exchange, which is an _______________ market.
negotiated, auction
Cash dividends are paid out of the company's __________________, so an increase or decrease will not impact that ___________.
net income.
assets-liabilities
net worth
Money may _____________________________ unless something in the question indicates that the client is in the business of lending money or an affiliate of the firm.
never be borrowed
geometric mean can
never be greater than arithmetic mean
Because the 457 plan is technically non-qualified, does it come under the non-discrimination rules of ERISA?
no
Can the SEC set margin requirements?
no
Does Roth IRA have Required Minimum Distribution?
no
are negotiable, jumbo certificates of deposit secured obligations of bank?
no
are variable annuities exempt from registration?
no
do mutual funds do away with market or business risk?
no
if there is a rule barring custody
no custody allowed
A person who only provides advice on commodities is
not a registered investment adviser. To be an investment adviser under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security. U1LO3
an advisor whose only clients are banks is
not exempt from registration
mutual fund commissions are
not negotiable
It is ______________________________________for an investment adviser to recommend that clients acquire shares in a corporation in which the adviser holds a position. However, the adviser should disclose to clients receiving the recommendation that he holds the stock in his account.
not prohibited
marital status is
not required on app
utma
not spent on food clothing shelter
life insurance death benefits are
not taxable
waivers make things
null and void
investment constraint
obstacles or restrictions that must be met in order to meet objectives
Under the USA, the term ________ includes an attempt to dispose of securities for value, or a solicitation of an offer to buy a security.
offer
preemptive rights
offer first dibs on COMMON stock at price below market-timeing and intrinsic value
When the rate of inflation slows and is expected to remain stable, coupons on new issue bonds will
often decline to offer lower yields. The prices of outstanding bonds will go up to adjust to the lower yields on bonds of similar quality.
registration by qualification becomes effective
on a date set by the Administrator
REIT's are traded _____ amd _____ managed.
on exchange or over the counter/professionally
The optimal portfolio for an investor will always lie
on the efficient frontier
When does a broker-dealer lose its exclusion from def. as investment advisor
once it handles wrap fee accounts
Dow Jones averages.
only 65 stocks (30 industrial, 20 transportation, and 15 utility)?
default risk
only applies to debt instruments
index annuity participate in
only participates in gain
two types of management companies
open & closed
close ended trade on
open market
no secondary market trading in
open-end funds
qualified opinion
opinion with reservations
derivative
options, futures, forwards, warrants, stock rights
admin has jurisdiction only on newspaper and radio that
originated in his state
alternative minimum tax
over the regular tax is added to the regular tax amount. The taxpayer does not have the option of paying the alternative tax or the regular tax depending on his tax bracket. The purpose of the alternative minimum tax is to ensure that certain taxpayers pay a tax consistent with their wealth and income.
Securities Act of 1933 is called ______ act and when selling a new offering you must
paper, deliver an effective (final) prospectus no later than with confirmation of the sale
he normal condition and occurs when long-term rates are higher than short-term rates. Buying short-term bonds tends to drive their prices up and their yields down, while selling long-term bonds has the opposite effect.
positive yield curve
price and term on inherited stock
price at death, long term
income statement
profits & dividends
Rule 506(b) of Regulation D
provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors
The Securities Exchange Act of 1934 mandates that
public issuers file annual and quarterly reports with the SEC.
Letters of intent permit investors to
qualify for a reduced sales charge on the purchase of mutual fund shares over time. They are valid for 13 months and may be backdated by up to 90 days to include previous purchases. The investor is not legally obligated to comply with the terms of the letter, so some shares purchased at the reduced sales charge are held in escrow. These shares are liquidated to repay the reduction in sales charge if the contract is not completed.
5 standardized parts to an exchange-traded futures contract:
quantity, quality, delivery price, time for delivery, and location
futures are
rarely executed
Conviction is as read on
record
Standard Deviation
reflects both systematic and unsystematic risk
The only exemptions from the IA brochure rule are
registered investment companies (both open and closed-end) and impersonal advice costing less than $500 per year.
A broker-dealer must be registered in every state it sells or offers to sell securities, unless an exemption is available. If a broker-dealer has no office in a particular state and no business is done in that state other than with institutional clients
registration is not required there
Rule 144
regulates the sale of control and restricted securities, stipulating the holding period, quantity limitations, manner of sale, and filing procedures
Equity securities
represent an ownership interest in a corporation
agent
represents broker dealer selling any security
the price range where a stock appears expensive and initiates increased selling-increase substantially.
resistence level
The CPI only measures
retail prices, monthy , general price level of a basket of consumer goods
The definition of security specifically excludes
retirement plans (the Coverdell was originally known as the Education IRA). technically considered municipal fund securities.
corps can issue
rights and warrants but not call options
what makes something a private placement?
securities offered to 10 or less
time weighted return
sed to evaluate the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals
an agent is there to..
sell securities to clients
investors who are of the opinion that the market price of a stock is going to fall will
sell short
used either when a security is purchased to offer downside protection to preserve a gain that has not yet been realized.
sell stop/stop loss order
What is NOT affected by the issuance of a bond?
shareholder's equity
Money Market Instruments
short-term debt securities issued by governments, financial institutions, and corporations
how are t-bills sold and priced at turn in?
sold on sale, get actual price at turn in
greatest portfolio diversifiction occurs when
some negative correlation
futures contracts have
standardized terms
what is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser?
state licensing fee
an administrator has jurisdiction in...
state offer was made, directed, and accepted.
advertising done by investors prohibits
statement of untrue info and reference only to specific past recommendations
leading indicators-2
stock indices and manufacturing orders
Assessable stock
stock that is issued below its par or stated value
securities (4)
stocks bonds notes certs of interests
defensive stocks
stocks that remain stable during economic declines
When an investor is not sure which direction the market will move but has a strong opinion that there will be dynamic movement, a strategy that might be employed is the purchase of a
straddle
Beta measures
systematic risk
total risk =
systematic risk (market risk) + unsystematic risk (company specific risk)
Beta is a measure of
systematic risk, not unsystematic risk.
A life insurance capital needs analysis
takes into consideration the future needs of the insured and family and then factors in how much needs to be filled in by life insurance.
weak form efficiency
tech analysis doesn't work
emh semi strong
tech and fundamental analysis won't work, insider info will
compares the number of stocks advancing versus those declining, generally on the New York Stock Exchange. Because it uses such a large sample, it is used as an example of the breadth of the market.
the advance/decline index
a fiduciary would not be able to delegate
the amount and timing of distributions
USA PATRIOT Act of 2001
the customer identification program
DPPs include any form of business that allows for
the direct pass-through of tax consequences to participants
When securities are the subject of a gift
the donee (recipient) acquires the donor's cost basis and holding period
When securities are inherited,
the heir receives a cost basis calculated as of the deceased party's date of death.
Median
the middle score in a distribution; half the scores are above it and half are below it
Mode
the most frequently occurring score(s) in a distribution
In order to qualify for the safe harbor under 404(c),
the portfolio selections must include at least 3 different asset classes, such as equity, debt, and cash equivalent AND allow plan chance no less frequently than quarterly
support level
the price range where a stock appears cheap and attracts buyers
Arbitrage
the purchase of securities in one market for immediate resale in another to profit from a price discrepancy
A common stockholder's rights do not include
the right to determine the par value of the stock
the higher a bonds rating the lower
the risk
Max tax rate on estates and gifts is
the same
Under the Uniform Securities Act, a nonexempt transaction may take place in the state only if -3
the security is registered, exempt, or federal covered
If the net present value is greater than zero,
then the internal rate of return is greater than the required rate of return.
If the annuity contract calls for a 75% participation rate with no cap,
then the investor will receive 75% of the performance of the index
When an individual receives compensation for selling employer stock to employees
they are an agent-must register
A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA,
they are taxed on a pro rata basis
bottom-up approach
this approach seeks to identify, usually based on the company's fundamentals, the most attractive individual stocks.
Just as with any other individual, splitting commissions can only be done with U7LO4
those having the proper registration, in this case, that of an agent. Because compensation is determined and processed by the employing broker-dealer, any splitting would need the approval of the appropriate supervisor.
admin can revoke any transaction except
those involved in federal covered securities
discretion does not include
time or price
IRR takes into consideration
time value of money
For state-registered investment advisers, records must be kept for a
total of 5 years. For the first 2 of those years, they must be located in the principal office of the adviser.
Inflation-Adjusted Return formula
total return -CPI/Inflation
exports exceed imports
trade surplus
Odd Lot Theory
trades in less than 100 shares
what transactions are exempt under USA
transactions between issuer and underwriter
trusts or estates last longer?
trusts
bonds present value-2 parts
two future cash flows from a bond. First is the periodic interest payments and second is the repayment of the principal at maturity. The PV of the bond is the sum of the discounted value of both.
A warrant is a
type of derivative ( value based upson some underlying asset)
A unit investment trust (UIT)
type of investment company whose units are sold in the secondary market and is generally unmanaged, or passively managed. The trust manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the UIT terminates.
when is it unethical to borrow money or securities from client
unless the client is a broker-dealer, a bank or other financial institution in the business of loaning money, or an affiliated person of the adviser
As with all securities, total return includes
unrealized gains or losses. In the case of mutual funds, the total return also assumes reinvestment of all dividend and capital gains distributions.
business risk is equal to
unsystemic risk
An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state
upon discovery that the broker-dealer's license had been suspended in another state upon discovery of new facts unknown to the Administrator at the time of the broker-dealer's initial registration
major goal of hedge funds
use long and short strategies to be stable return in any market
Financial leverage is the
use of debt capital.
qualified -2 things
usually employee sponsored and qualifies for tax breaks
