series 65
American dollars held by banks in other countries, especially in Europe.
The term" eurodollars "refers to:
treasury strips
are guaranteed by the US government so there is no chance of default. They are zero-coupon bonds and offer no current income, which is appropriate for a client who wants 100% return paid at a future date for college expenses.
4 primary requirements of CIP
are the individual client's name, physical address, DOB, and SSN. Although current employment status would be asked as part of opening a new account, that is not a CIP requirement.
t bills
bear no stated interest rate. They are sold at a discount through weekly auctions and are actively traded in the money market. Treasury notes and Treasury bonds both carry stated interest rates.
surrender
charges never apply in the case of a death benefit. There may be a surrender charge in the case of early surrender of a variable annuity, taking out the cash value of a variable life policy, or redemption of Class B (back-end load) mutual fund shares.
There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.
an equity- or index-linked note (ELN or ILN)
debt instruments where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index. Some—but not all—are exchange traded, and those that are can be referred to as exchange-traded notes (ETNs).
investment policy statement
delineates the allocation percentages for each asset class and the expected returns from each class, and outlines strategies that may be used for timing the market and choosing specific investments within each class, but fees the adviser may earn are not included in the policy statement; they are disclosed separately. Reference: 20.4.1.2 in the License Exam Manual
universal life
features flexible premiums that add to the cash value account although there are no guarantees and the cash value can disappear if insufficient premiums are paid. There is no guaranteed minimum death benefit as there is with fixed (scheduled) premium variable life. The assumption that level annual premiums are to be paid throughout the insured's life is associated only with ordinary whole life and scheduled premium variable life policies.
The hypothecation agreement
gives permission to the broker-dealer to pledge a customer's margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer on the basis of the loan value of these securities.
term life insurance
has a level face amount, no cash value and, because the premium is based on the attained age, the premium increases each year on the renewal date.
subjective information
is that which cannot be quantified. The investor's attitude is an example of this,
cpi
is the average cost of goods and services (market basket) purchased by consumers as compared to those same goods and services purchased during a base period. The CPI compares price inflation in one country and does not reflect the relative price changes of goods and services in one country with those of another. CPI measures retail prices not wholesale costs.
capital needs analysis
is used to help determine the proper amount of life insurance that will provide for the family's needs in the event of premature death of the primary breadwinner. The agent would factor in the client's projected earnings until retirement and, in order to do that, would need to know the current age. In addition, to be sure to allow for enough to keep up with the rising cost of living, the projected inflation rate is needed. However, market volatility does not impact the analysis because the amount of the selected death benefit will remain constant, regardless of changes to the market.
current offer/ask
lowest price dealer will sell/ customer would pay to buy shares
a universal life policy
may lapse if the accumulation fund drops below a specified level and an additional premium is not paid.
duration
measures a bond's price volatility by weighting the length of time it takes for a bond's cash flow to pay for itself.
sharp ratio
measures risk adjusted return. 3 components are the actual return minus the risk free rate (90 day t bill rate / standard deviation) Beta is not part of this.
The correlation coefficient ranges from -1.0 to +1.0 and reveals the degree to which two or more variables relate to each other. A high degree of correlation means that the portfolio is not well diversified. Well-diversified portfolios contain some elements of negative correlation. Although a bond portfolio will frequently be diversified by including bonds of varying duration, this question specifies an equity portfolio so correlation is the appropriate choice.
most likely be used to determine the degree to which a specific equity portfolio is diversified?
to determine a taxable bond's after-tax rate of return
multiply the coupon rate by the compliment of the client's marginal federal income tax bracket.
t strips have
no reinvestment risk
on a zero coupon bond
the annual imputed interest is reported for tax purposes. Because this income is not actually received annually, it is referred to as phantom income. Conversely, because nothing is paid until maturity, the issuing corporation cannot deduct the interest until it is paid at maturity.
are run by centralized management. A REIT may not pass through losses to its investors, and it is not a limited partnership. A DPP cannot be easily traded in the secondary market.
A REIT and a direct participation program are similar because they both:
3.5%. Treasury Inflation Protected Securities (TIPS) adjust the principal value each 6 months to account for the inflation rate. Therefore, the real rate of return will always be the coupon.
A client has a TIPS with a coupon rate of 3.5%. The inflation rate has been 4% for the last year. What is the inflation-adjusted return?
declining
A corporation is likely to call eligible debt when interest rates are:
issuer
A high-coupon bond is selling at a premium. Call of this bond is most beneficial to the:
liquidity risk. A stock that is not readily convertible into cash has a high degree of liquidity risk.
A stock that has no ready market is said to have a high degree of
plan participant. In a 401(k) plan, a plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules.
An employer whose 401(k) plan complies with ERISA Section 404(c) is placing investment risk with the:
interest rates increased causing the bond price to decrease. Total return is computed by adding together the income received plus any capital gain or loss. Since the bond is purchased at par, selling the bond at a loss is the only way the investor's total return could be less than the coupon rate. When interest rates go up, bond prices go down.
An investor buys a 5% AA-rated corporate bond. After 1 year, if his total return on the position is 4%, the most likely explanation for this is:
current yield
Annual interest payment divided by current dollar price of a bond is the
An investor diversifying a corporate bond portfolio does NOT consider:
Domicile, or geographic location of the investor, is not relevant in diversifying a corporate bond portfolio. For example, it is irrelevant if the client is located in Michigan or New Jersey or any other state; that will have no impact upon the risks facing the issue. This could be a factor for municipal bond investors due to the possibility of avoiding state income tax. A corporate bond portfolio can be diversified by issuer, quality (rating), domicile of the issuer and maturity.
trustee and beneficiary
One of your clients approaches you about setting up a trust. If your client assumes the role of grantor, what additional roles may be taken?
the present value was insufficient to meet the objective. Present value is the amount deposited to meet a future goal based on an expected rate of return. If the return is lower than expected, the amount deposited will not grow to the required amount (a bad thing).
Present value is a computation frequently used to determine the amount of deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8%, but the actual return over the period is 6%,
earnings per share
The dividend payout ratio of common stock is found by dividing the annual dividend per share by the
price to book value ratio
The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is the:
the capital appreciation plus the dividend yield over the period. To compute holding period return, you calculate the total return for that holding period. Total return combines any dividend income plus appreciation (or minus depreciation).
The holding period return (HPR) on a share of stock is equal to:
beta
The measurement that compares a stock's price history to the movement of a total market index for the same period is known as:
the bond with the lowest coupon will always have the longest duration.
Assuming all of the following mature at about the same time, which of the following bonds should experience the greatest price decline if interest rates rise by 1%?
Proponents of which of the following technical theories assume that small investors are usually wrong?
odd lot are usually traded by small investors; some analysts believe small investors are generally wrong.
bid price. If you want to sell, the dealer will pay you his bid price. Had the question said the client wanted to buy, the quote would have been the offer (ask) price.
An investor owns a long-term US Treasury bond with a 6% coupon and 21 years to maturity. The client wishes to sell and receives a quote from a dealer of 96.13. This number represents the
If the yield curve is currently inverted: long-term rates are lower than short-term rates.
A normal yield curve reflects short-term rates below long-term rates. An inverted or negative yield curve reflects the opposite. This usually occurs during a period of tight money.
An issuer would like to register its new offering in the state. Which of the following is not required in order for the registration to become effective?
A rating in one of the three highest grades by a recognized rating agency. ratings are not required
A unique requirement for those investment advisers who maintain custody of customer assets is the filing of the:
ADV-E The Form ADV-E is used as the cover page for the annual surprise audit performed by the independent accountant on all IAs who maintain custody of customer assets.
the benefits of diversification increase.
As the correlation between any two assets decreases:
What is the term used to describe a common stock issued below its par value?
Assessable stock is a stock that is issued below its par or stated value. The issuer and/or creditors have the right to assess the shareholder for the deficiency. All stock issued today is nonassessable.
If a U.S. corporation wishes to issue Eurodollar bonds, which of the following statements are TRUE?
Because Eurodollar bonds are denominated in U.S. dollars, a U.S. corporate issuer will not be subject to foreign exchange risk, regardless of the country of issuance. In addition, because the bonds are issued outside the U.S., the issue is not registered with the SEC.
Which of the following vehicles make use of the unified estate tax credit?
Both the bypass trust and the generation skipping trust are tools used by estate planners to reduce estate taxes. They do so by passing the amount in the unified credit (currently $5.34 million for 2014) to heirs other than the spouse, usually grandchildren in the case of the GST.
market maker
dealer who holds himself out as being willing to buy or sell a security at a quoted price on a regular and continuous basis.
ESA coverall
Contributions to an _______ are not tax deductible.
Which of the following items would be included in a current ratio computation? Accounts payable, wages payable, and short-term debt
Current ratio is computed by dividing current assets by current liabilities. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, wages payable, dividends payable, and short-term debt. Equipment is a fixed asset, and shareholders' equity is net worth.
If the coupon rate on a bond increases, the duration of the bond will
Decrease The higher the coupon, the shorter the duration. The bond with the lowest coupon will have the longest duration.
A bond analyst who determines the value of a debt security by adding the present value of the future coupons to the present value of the maturity value is using which of the following valuation methods?
Discounted cash flow There is a second answer that could be correct, but is not scored as such. In this example, a case could be made for present value, but the better choice is discounted cash flow;
market value of the securities on the date of gift. If a gift tax is due, it is paid by the donor and based on the gift's value on the date it is given.
If a father makes a gift of securities to his 10-year-old daughter, gift taxes would be based on the:
The investment adviser is required to notify the Administrator promptly. In the case of an investment adviser representative with a federal covered adviser, the representative is the only one responsible for notifying the Administrator because the firm has no relationship with the state.
If an investment adviser representative transacting business in a state terminates employment with a state-registered investment adviser, which of the following statements is TRUE?
remain the same. Since the portfolio of a UIT is fixed, the income generated by that portfolio will not change. Remember, a UIT does not have a portfolio manager.
If general interest rates increase, the interest income of a bond unit investment trust will probably
Regarding open-end investment companies, which of the following sales charges is based on the NAV per share? Redemption fee
If the fund has a redemption charge (CDSC), it is based on the NAV per share, not the public offering price (POP). That is, if the client liquidated shares when the NAV was $10 per share and the POP was $10.50, the CDSC would be charged based on the $10 rather than the $10.50. Commission is not a term used with mutual funds. The 12b-1 fee is a charge against overall assets of the fund; it is not considered to be a charge related to the buying or selling of fund shares.
The expected return on an equity investment is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% = 7%).
If the return on Treasury bills is 3% and the equity risk premium is 4%, the expected equity returns should be:
Which of the following expounds that including non-correlated assets in a portfolio can reduce certain risks? Modern portfolio theory (MPT)
Instead of emphasizing particular stocks, modern portfolio theory (MPT) focuses on the relationships among all the investments in a portfolio. This theory holds that specific risk can be diversified away by building portfolios of assets whose returns are not correlated.
Which of the following would lead to a credit to our foreign account balance?
Interest received on money loaned to foreign business enterprises. Our foreign accounts balance will be credited whenever "foreign" money comes in rather than going out. Interest received from foreigners represents money coming into the U.S. while the other choices represent money going out.
Which of the following actions should be taken by an agent when a client decides to open an options account?
It is imperative that suitability and risk be addressed with the client before allowing option trading to take place. The ODD must be delivered no later than with account opening, and the options agreement must be returned no later than 15 days after the account opening. An options account must be approved by a designated supervisor prior to any trading takes place in the account.
When does a customer have to receive the OCC Options Disclosure Document?
It may be done before or at the time the broker-dealer approves that customer's options account or accepts the customer's first order to trade the listed options covered by the ODD.
It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?
Life stage. Retirement savings. when it comes to seniors, it is felt that life stage (including whether the customer is employed, retired, or nearing retirement) and current retirement savings relate particularly to seniors.
Which of the following would appear as assets on a corporation's balance sheet?
Prepaid expenses, such as advertising, rent, or insurance, are listed as assets on the balance sheet. All receivables are assets, while payables are liabilities. Under current accounting practice, deferred tax credits are treated as a liability.
A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's: support level.
Sell stops are entered below the market. They are used to turn an order into a market order if the current market value falls below the stop level. In technical analysis, support levels are theoretical levels where the market supports the stock price (keeps it from falling below the stated level). A technical analyst who makes investment decisions by watching the technical graphs and numbers would enter a sell stop below a support level in order to sell out if the support level is breached. A breakthrough of a support level is believed to forecast a major market price decline.
A measurement of investment return that takes the time value of money into consideration is IRR
The internal rate of return compounds returns and takes into consideration the time value of money. Real rate of return considers the inflation rate and risk-adjusted return is another way of stating the Sharpe Ratio.
A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When taking distributions from the IRA:
The portion of the distribution that is nontaxable must be prorated with amounts that are taxable. For instance, if the individual contributed $2,000 in after-tax amounts and $8,000 in pretax amounts, a distribution of $5,000 would be prorated to include $1,000 after-tax and $4,000 in pretax assets.
Which of the following assets will have the greatest effect on minimizing financial assistance when an individual is applying to college and using the FAFSA application?
UTMA
To secure the debt that a subsidiary is offering, a railroad holding company transfers to a trustee the common stock of another subsidiary. The offering is one of:
When a company uses the securities of one subsidiary to collateralize a bond issue of another subsidiary, the bonds are known as collateral trust certificates.
Which items change when a company pays a cash dividend? Total assets and liabilities
When a dividend is paid, total assets are decreased as are total liabilities. The liabilities were increased at declaration time and are now decreased to reflect the payout. The two accounts affected would be decrease cash and decrease dividend payable.
Which of the following best defines a derivative?
an investment whose value is based upon another asset. Derivatives derive their value based on some other asset. Options are one form of derivative securty and may be used to hedge a position, but neither term specifically defines a derivative.
How often must an investment company file reports with the SEC as required by the Investment Company Act of 1940?
annually
A mutual fund's expense ratio is found by dividing its expenses by its:
avg annual net assets
A bond investor's portfolio is structured so that a number of the holdings are maturing this year. If interest rates continue to rise and the investor reinvests the proceeds, the effect will be that the investor's
cash flow from interest payments will increase. This is an example of bond laddering. Because interest rates in the market are rising, each reinvestment of an older maturing bond will generate higher interest payments.
Stock prices in the over-the-counter market are determined by: Stock exchange = auction
negotiation
The dividend payout ratio of common stock is found by dividing the annual dividend per share by the
earnings per share.
If the yield curve is positive (sloping upward), this means that long-term interest rates are:
higher than short-term rates. A yield curve shows the relationship between short-term and long-term interest rates. When the yield curve is positive, it slopes upward. This means that long-term interest rates are higher than short-term rates.
When an investor's original value is subtracted from the ending value, and then has the income received over that time period added to it which is then divided by the original cost, the result is:
holding period return.
A client calls to say he has just read about a European option and doesn't know what it is. You would explain that it is a derivative because:
its value is based on some underlying asset. Although the unique characteristic of a European option is that it can only be exercised on its expiration date, that doesn't answer this question.
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be:
selling at a discount. With the market rate of return at 6%, a 4% bond just isn't as valuable so, the only way investors would be interested is if they could acquire it at a discount. That discount would work out to be a figure that would work out to a 6% return for the purchaser. Remember, as interest rates go up, bond prices go down and vice versa.
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser
shall obtain client consent before completion of the transaction. there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act, Consent of the client
Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any income to the trust will be taxable to
the grantor. In most cases, the income received in a revocable grantor trust is taxed to the grantor (Ebony). If the income is distributed, then it will be taxed to the beneficiary.
Present value is a computation frequently used to determine the amount of deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8%, but the actual return over the period is 6%,
the present value was insufficient to meet the objective. Present value is the amount deposited to meet a future goal based on an expected rate of return. If the return is lower than expected, the amount deposited will not grow to the required amount (a bad thing).
A portfolio manager, putting most of his focus on the financial statements of the companies he is analyzing, is most likely using which management style?
value investing Value managers seek to find companies that the market has ignored and primarily rely on information found in the financial statements of those companies.
The YTC computation involves knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price. With a 15-year call, there are only 30 semiannual interest payment periods, not 50. The present value is $1,300 and the future value is $1,080
A bond with a par value of $1,000 and a nominal yield of 6% paid semi-annually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor?
partially a tax-free return of capital and partially taxable.
A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are:
complex trust------- bc Simple trusts may not make charitable contributions, and provide no discretion on income distribution.
A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use?
a credit to that nation's trade account balance. an increase in that nation's exports. When a currency is devalued by a country, it means that foreigners will find their money has more buying power in that country. Therefore, it would be expected that foreigners would buy more goods produced in that country causing an increase in exports. Those exports result in a credit to the country's trade account balance.
Among the effects of a country devaluating its currency is that there will probably be:
not have to be registered as an agent of the broker-dealer. Agents of broker-dealers are in the business of securities-related transactions on behalf of clients of the firm. A free market report is not a security, so this individual is not soliciting securities business.
An individual has been employed by a broker-dealer to solicit new subscriptions for the firm's free monthly stock market report. The individual is paid a salary plus bonus based on his success rate with signing up subscribers. Under the USA, this person would:
investors buying long-term bonds and selling short-term bonds.
An inverted yield curve results in part by:
an investment constraint. Investment constraints are limitations on the ability to make use of particular investments. They can be liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances (ethical objectives or social responsibility considerations). The easiest way to determine if it is a constraint or a capital need is if a dollar amount is stated. When a specific sum is mentioned, it is a capital need.
An investment adviser representative meets with a couple who explains that they wish to be able to pay for their daughter's college education. The IAR is told that the child will be starting school in five years. This 5-year time period would be considered
a short stock position. When an investor sells short, stock is borrowed and sold with the anticipation that it will later be replaced at a lower price. However, the investor will lose money if the stock goes up instead of down. Since there is no limit to how high the stock's price can go, one can protect against that unlimited loss by entering a buy stop order at a specified price above the current market. It is true that all short sales must be made in margin accounts, but that is not nearly a descriptive enough answer because there are both long and short margin accounts and a long position cannot be hedged with a buy stop order.
An investor would enter a buy stop order to hedge against a loss in
An efficient portfolio is one that offers the most return for a given amount of risk, or the least risk for a given amount of return. The collection of efficient portfolios is called the efficient set or efficient frontier. This efficient frontier is plotted as a curve.
If the risk and return profiles of all the possible risky portfolios were plotted on a graph, those portfolios that would be the most attractive to investors would lie on
ABC Large-Cap Growth Fund; DEF Long-term Investment Grade Bond Fund; GHI Money Market Fund
In order to qualify for the safe harbor under 404(c), the portfolio selections must include at least three different asset classes, such as equity, debt, and cash equivalent. All equities or all debt won't qualify.
Establish an emergency fund. There are many questions on the exam where you will be forced to choose between two possible answers, only one of which is correct. In many cases, it is strictly a matter of opinion, but only NASAA's opinion counts. This is one of them. Goal setting is important, but the regulators feel that the first step in any plan is making sure that there is a "rainy day" fund.
The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000 and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner?
must file 8k
when control of the company changes, a significant amount of assets is disposed, or when one or more members of the board of directors resigns because of a disagreement over an operational matter. A news release by an overseas subsidiary would not require the filing of Form 8-K because that is a foreign entity and Form 8-K only deals with domestic companies.
Buy 100 XYZ at market; cancel buy 100 at 82.50 stop GTC. To change an open order, the open order must be canceled and a new order must be entered. In this case, Mr. Donaldson wants to cover it immediately, which means at the market regardless of the price. As such, he would not enter another stop order; he would enter a market order and cancel the existing stop order.
Mr. Donaldson is short 100 XYZ at $80 and has entered a buy stop XYZ at 82.50 GTC. The current market value for XYZ is $76. A favorable report is released, and XYZ starts to rally. Mr. Donaldson wants to cover immediately. The order ticket should be written as:
Unlike options contracts, where only the seller of the option is obligated to perform (if the option is exercised), both parties to a futures contract are obligated to fulfill the terms.
One way in which futures contracts differ from options contracts is that
Monte Carlo simulation.
The statistical method used to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values based on the risk and return characteristics of the securities themselves is known as the:
iRR
The time value of money is part of the computation for the:
Eligibility. Pension plans must have a uniform nondiscriminatory eligibility program. All employees must be covered when they become eligible, which means reaching 1 year of service working full-time and age 21.
What term is used to describe which employees will be covered by a pension plan?
buy stop. Buy stop orders are placed above the market and as prices increase, the stops are hit creating additional buying.
Which of the following could accelerate a rise in a bull market?
A limited liability company is
a company with tax consequences similar to a partnership
In general, the most common form of organization chosen by hedge funds is
limited partnership
credit agreement. sometimes referred to as the margin agreement, which authorizes the broker-dealer to use the value of the account as collateral for the margin loan. The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. It is the credit agreement that, in addition to all of the other terms of the loan, contains the stipulation that the broker-dealer may use the client's margin securities as collateral for the loan that it makes to the client. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement.
A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Which of the account documents authorizes the use of the account as collateral?
the most return for a given amount of risk.
Under modern portfolio theory (MPT), the optimal portfolio has:
Dilution of equity occurs when stockholders experience a reduction in their percentage ownership of the company. If bonds are converted, more common shares are issued and the shareholder's equity is diluted. A stock dividend or stock split does not change a stockholder's percentage of ownership. Refunding debts has no effect on stockholders.
Under what circumstances will a dilution of equity occur?
the corporation is obligated to make annual contributions at the rate stated in the plan. The employer must make a contribution to the plan each year for the plan participants. With a money purchase plan, the plan states the contribution percentage that is required. For example, let's say that the money purchase plan has a contribution of 5% of each eligible employee's pay. The employer needs to make a contribution of 5% of each eligible employee's pay to each employee's account. A participant's benefit is based on the amount of contributions to her account and the gains or losses associated with the account at her retirement.
When a corporation establishes a qualified money purchase plan,
the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants. When a will calls for a per stirpes distribution of assets, it provides that if any named beneficiary predeceases the testator (the maker of the will), surviving children of that individual share in the share that the individual would have received. For example, if the testator had three children and one of them died first, any children of the deceased would share in their parent's portion (they would split one-third of the estate between them).
When a will calls for property to be distributed per stirpes, it means that
(NAV) of those shares. This is known as the forward pricing rule.
When an investor redeems (or purchases) open-end investment company shares, the investor receives the next computed
Employees must be covered under a Keogh plan if they are at least 21 years old, have been employed a minimum of one year, and work full-time (at least 1,000 hours per year). Keogh plans do not include employees who are under 21 or have just started working with the employer.
When operating a Keogh plan, a self-employed individual must make contributions for:
current asking price. The ask is the price that investors will pay for purchasing shares and the bid is what investors receive when selling. Investors will also pay a commission as this is what the broker charges for executing the transaction. Shares of open-end investment companies are bought and redeemed based on NAV, but that is not so of closed-end companies.
When shares of a closed-end investment company are purchased by an investor, the price paid is based upon the:
barbell strategy
When viewing a client's bond portfolio, you notice that approximately half of the portfolio matures in the next year or two with the balance in 10-12 years. It would appear that this investor is following
The key word is "declared". Liabilities increase when a dividend is declared, and total assets decrease when it is paid. A declared dividend (but not yet paid) would increase current liabilities (and would therefore decrease working capital). It would increase total liabilities (this is a pending obligation) and reduce shareholders' equity because retained earnings would be decreased by the dividend. Total assets would not be affected until the dividend is actually paid.
Which items would change if a company declared a cash dividend?
The rate of return on the investment exceeds the interest cost on the borrowed money.
Which of the following illustrates an example of positive margin?
time weighted return
Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio?
Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases.
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle?
moving averages. To avoid the volatility frequently present in stock price trends, analysts will frequently use moving averages. These averages reduce short-term distortions to a minimum.
Which of the following is used in technical analysis in an attempt to modify fluctuations of stock prices over the long term into a smoothed trend?
buy stop. For a short sale to earn a profit, the current market value must be lower than the sale price. An investor must buy the stock at a lower price to realize a profit. To protect denotes buying if the market starts to rise. Therefore, a buy stop would be entered above the current market value to protect the profit and trigger a purchase in the event the market starts to rise.
Which of the following orders would be used to protect a short sale profit?
child. UTMA and UGMA accounts are custodial accounts. They are for the benefit of the child and bear the child's Social Security number. Although in practice the taxes are usually paid by the parent or legal guardian, they are the responsibility of the beneficial minor (child).
Who is obligated for the payment of taxes in an UTMA account?
a credit to the current account of the U.S. Whenever money from a foreign source enters the United States, it becomes a credit item in the U.S. balance of payments.
XYZ Aircraft Manufacturing Corporation, based in the United States, announces a multibillion dollar order for its new jumbo jet from Fly Airlines, a Japanese-based carrier. When the sale is completed, there will be
an offer to sell. Under the Uniform Securities Act, the term "offer" is the solicitation of an offer. In this example, the agent is soliciting an offer from the customer to buy a security. A solicitation is considered to have occurred even if the customer fails to act on the solicitation.
You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is:
Managers of bond portfolios who anticipate an increase in interest rates should:
decrease the portfolio duration. A bond portfolio manager who anticipates periods of rising interest rates should decrease the duration of a bond portfolio to minimize the price decline. Duration is inversely related to changes in market and coupon interest rates.
current bid
highest price at which dealer will buy/price that a customer would receive for his shares
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to:
immediately reply to the client in writing. When a broker-dealer receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received.
scheduled premium variable life contract
issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract.
If a client in the 30% marginal income tax bracket can earn an after-tax rate of return of 7% when the estimated inflation rate during the holding period of an investment is 4%, the client's real rate of return is
less than 7% Real return reduces nominal return by an inflation factor. Thus, the client's real return must be less than 7%.
value investors
look for stocks that appear to be underpriced in the market. These stocks are characterized by prices that may be below book value, low P/E ratios, and higher dividend yields.
stock dividends
unlike cash dividends, are not taxable in the year of receipt. Instead, they reduce the owner's cost basis and, when sold at a price above that cost basis, are treated as capital gain rather than ordinary income. Deferred annuities never generate anything but ordinary income, and qualified withdrawals from Section 529 plans result in no taxation on the earnings. If they are not qualified, there is ordinary income tax plus a penalty.
