#s you need to know 65
the 3 core considerations in assessing whether an account has been churned are:
1 Turnover Ratio 2 Cost-to-Equity Ratio 3 In-and-out trading
indexed annuities can measure the movement of the index in 3 distinct ways:
1. Anual Reset 2. High Water Mark 3. Point-to-point
In any disciplinary PROCEEDING where denial/suspension/revocation of registration occurs, Admin is required to provide:
1. Appropriate prior notice 2. Hearing opportunity 3. Written findings of fact/conclusions ONLY WITH PROCEEDING NOT WHILE AN INVESTIGATION IS TAKING PLACE
IAs: cannot borrow money or securities from a client UNLESS the client is a: 1. 2. 3.
1. BD 2. affiliate of the IA or 3. financial institution engaged in the business of loaning funds
Dow Jones Composite Average - made up of ________________
65 stocks from the industrial, transportation, and utility sectors
If the IA is required to register with a State, that registration with be accomplished by the filing of ______ with___________
Form ADV with the State filing a copy with the SEC is not required
Buy stop order is used to __________ on a ______________ position Sell Stop order is used to _______________ on a ______________ position
buy protect profit on SHORT stock position Sell protect profit on LONG stock position
Series of periodic payment paid to someone for life for retirement income or for beneficiary
annnuity
SEC Filing Requirements IAs must file: Electronically - initial, amended, and ___________ brochures which are then publicly available through the SEC Website - annual amendments (Part 1A and 2A) must be filed when?
annual brochures within 90 days of the fiscal year end
Current Yield on Bond Formula
annual interest / current market price
Inverse ETFs and Leveraged ETFs are reset/rebalanced how often?
daily
Money Market funds credit dividends to customer accounts ________ and pay them out __________
daily, monthly
IRS rules state that investors must report amounts received from money market funds as ________
dividend income
reinvestment risk - risk that interest and (principal payment/dividend income) from (future/existing) investments may not be able to be reinvested in a way that will earn the same rate of return
dividend income from existing
what class would dividends payable go under on the balance sheet? what are dividends payable?
dividends that have been declared but not yet paid Current Liabilities
according to EMH, stock prices (do/do not) depart from the justified economic values that investors have calculated for them
do not
investing method that involves investing a set or fixed sum of money at regular intervals in specific investments, regardless of the market price
dollar cost averaging
internal rate of return is also called?
dollar weighted return
Measures the changes in the dollar value of a portfolio to total return
dollar-weighted return
Rule of 72 is used to find the amount of time it would take to ____________ one's investment
double
net worth (assets less liability) of a person at any point in time
estate
non-managed wrap fee is when ___________ and the client typically pays a ____________________________
no investment advice is given and the client typically pays a set annual fee to perform transactions instead of paying commissions on each trade
Annual Updating Amendment required to Form ADV
no later than 90 days after end of fiscal year of IA Firm
if the correspondence does not make any financial or investment recommendation or promote a product or service of the firm, does it need principal approval?
no
is a bona fide pledge or loan of securities considered a sale?
no
is it considered an offer to buy/sell when a newspaper or other publication is published in a state buy has had more than 2/3 of its circulation outside of the state during the past 12 months?
no
sales which appear to be a gift such as a gift of assessable stock
purported gifts
common stock pays dividends how often?
quarterly
business risks, regulatory risks, political risks, and liquidity risks are categorized as what?
unsystematic risks
C Corporations Net capital losses may be carried forward to offset capital gains for how long?
up to 5 years
definitions related to brochure rule "entering into" in reference to an advisory contract, does not include an extension or renewal _____________________ of any such contract which is in effect immediately before such extension or renewal
without material change
Form 8-K must be filed when?
within 4 business days of the occurrence of the material or corporate event
Orders may be appealed in court within what time after the issue?
within 60 days after issue
registration by coordination with the SEC and several state Admins would or would not require coordination with FINRA NASAA or MSRB under USA regulations?
would not require them
XYZ Convertible bond is trading at 95. Its conversion price is $25. XYZ shares are currently trading at $42. How many shares of XYZ common stock will the shareholder receive if the bond is converted?
1000/25= 40 shrs
federal covered advisor includes any IA who is an adviser to a registered investment company or manages a n investment portfolio with AUM of _____________
100Mill + : may register with SEC 110Mill + : MUST register with SEC
Investor buy 5% bond for $970 and 1 year later sells bond for $1010. What is the total return in dollars?
1010-970=40 .05*1000=50 40+50=$90 total return
All cash dividends of common stock and preferred stock are fully taxable at _________
15%
comprehensive report of a company's performance that must be submitted quarterly by all public companies to the SEC firms are required to disclose relevant information regarding their financial position
10-Q Form
bonds trading at par means its trading how much? typically paying interest rates _______
1000 equal to market rate
current assets = any asset that is likely to be converted to cash when?
within the next 12 months ex: cash, mkt value of securities held, accounts receivables, inventory
the administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant from employment if he finds that it is in the public interest and the the applicant/registrant has willfully violated any securities or commodities when?
within the past 10 years
negotiable CDs minimum deposit
$100k
legal and taxable entity separate from its owners
"C" Corporation
corporation where income "flows through" to the shareholders and is taxed only once
"S" Corporation
Defined Benefit Plan - income or other benefits employee will receive after leaving employment are _______
"defined by the plan"
estate if there is no will, the distributions of assets to beneficiaries will be made by who? appointed by who?
"intestate" administrator appointed by probate court
_________ term sometimes used in wills to describe how property will be distributed when a beneficiary with children dies before the "testator" or maker of the will
"per stirpes"
CMOs Debts can be combined into a pool and used to collateralize the issuance of new securities that are sold to the investing public, including pension plans, investment company portfolios, etc. When mortgages, student loans, auto loans, or credit card debts are collateralized to create these securities, the debts are said to be ___________
"securitized"
cash dividends paid to investors are fully taxable at the fed, state, and local levels generally at a rate of
15%
Fee charged to investors when they redeem their shares. SEC limits redemption fees to ________
2%
the net asset value of money market fund shares normally remains priced at _____
$1/share
1 point on a T Note or T Bond is equal to ___ and quotes in _____
$10 and 32nds
accredited investor is any trust with total assets of _________
$10 million or more
one point on a bond is equal to ___
$10 or 1% of $1000
if current annual interest rates are 6% and an investor invested $10,000, at the end of 5 years what would that investment be worth?
$10,000(1+.06)^5=$13,382.26
M is Roman numeral for ?
$1000
a convertible bond has a conversion PX of $50. How many shares of CS are produced if the bond is converted?
$1000/$50=20shrs
Any person who violates the Investment Act of 1940 or any SEC rule or regulation is subject to a dine not exceeding _________, imprisonment for ________, or both
$10k, 5 years
maximum gift tax exclusion for gifts in a single year to one person = married couples may give = how are gifts and transfers between spouses taxed? how much can spouse give?
$15,000 $30,000 NOT taxable unlimited
exception to pay to play 2 year time out rule for contributions of ______________ per election, per covered associate, for any election in which that covered associate is not entitled to vote
$150 or less
If ABC had sales of $2,000 and net income of $200 and paid a tax expense of $150, how do you calculate the pre-tax margin?
$200+$150=350 350/2000=17.5%
Minimum deposit to open a margin account is ____________
$2000
net losses may be written off against ordinary income up to a maximum of ________________ per year
$3,000
exception to pay to play 2 year time out rule for contributions of ______________ per election, per covered associate, for any election in which that covered associate is entitled to vote
$350 or less
financial firms that transfer funds, including wire fund transfers of _______________, must collect, retain, and record certain info
$3k or more
SIMPLE PLANS: Employees are eligible to participate if ... receive ____________________ during what time?
$5,000 more more during each of last 2 calendar years and are reasonably expected to receive $5,000 or more during the current calendar year
Suspicious Activity Report should be filed for any transaction conducted through a Financial Firm involving (separately or aggregate) funds or assets of _________________ where the Financial Firm detects any known or suspected Federal Criminal Violation
$5,000 or more
most money market minimum withdrawals are set at ______
$500
Regulation A+ Offering - the total amount of the offering to the public is ____________________ in any ______________ period - ___________ registration statement used instead of a normal registration statement - ______________ is distributed to the public instead of a prospectus
$75 million or less in any 12 month period - short reg - offering circular
XYZ Corp declares a quarterly dividend of 15 cents per share. the current market price is $20. What is the dividend yield?
(.15*4)/$20= 3% current yield
NAV =
(assets-liabilities)/outstanding shares
a block trade is a trade of ______________ or more shares of common stock or securities with a market value of ____________, whichever is (smaller/greater)
- 10,000 or more shares - $200,000 market value - whichever of those 2 is greater
Sharpe ratio formula
(return of portfolio - risk free return)/ standard deviation
defined benefit plan - who can make contributions? - how are benefits determined? - typically used by what type of companies? - what type of participant benefits the most? - how are distributions taxed? - what are benefits based on? - do they get reviewed regularly by an actuary?
- - predetermined formula - typically used by government employers and large companies - benefits high salaried employees near retirement the most - taxed as ordinary income - based on compensation, years of service, and age - yes to make sure that they will meet future benefit payment obligations
accredited investors have - net worth over _______ excluding individual's primary residence or - earned income that exceeded ___________ in each of the last 2 years and expect the same for this year or _________ for married couples - Individuals who have the following licenses: ______ & remains for ________ after their licenses are terminated - Family offices with at least ___________ AUM - If offering concerns investing in a private fund, ______ - LLCs not formed 4 investing and have more than __________ in total assets - - entities not formed 4 investing but own more than ________ in investments
- $1 million - exceeded $200k, $300k for married - Series 7 (General Secs), Series 65 (IA), Series 82 (Private Secs Offering Rep) 2 yrs after licenses terminated - Family offices w/ 5 million AUM - employees of the private fund - LLCs with over 5 million in total assets - Rural Business Investment Companies - Entities more than $5 million in investments
married filing jointly - how many returns filed for both spouses? - what is combined? - can this be used if one spouse has no income? - can be used if one spouse died when?
- 1 return for both - combine income and expenses - yes - if died during last tax year
Part-time Employees 401K - Employees at least __________ years old who worked at least _____________ per year for _______________ years are now eligible for a company's 401K plan. As a result, employers must maintain 401K plans for employees who qualify under either of the following eligibility requirements: 1. Complete a _______________ (the existing ______________ requirement OR 2. ___________________during which the employees complete at least ______________
- 21 - at least 500 hrs/year for 3 consecutive yrs 1. complete a 1yr of service 1,000 hour requirement 2. 3 consecutive yrs at least 500 hrs of service
ABLE Program - established under what section of internal revenue code? - set up for what individuals? - contributions are used to acquire what? - are contributions tax deductible? - how are earnings taxed? - how are qualified distributions taxed?
- 529 A - disabled - units in a state trust usually muni fund securities - not tax deductible - earnings are tax free - distributions are tax free from beneficiary's taxable income
Keogh Plan - distributions can begin when without a penalty? - are distributions ever mandatory? - what happens if dont take distributions? - how are distributions taxed? - can distributions from a Keogh be rolled over into other accounts? what are they if so? when must rollovers be completed?
- 59.5 - RMDs begin no later than April 1st after tax year turn 72 or get 50% penalty tax - taxable as ordinary income - yes into another Keogh plan or into other types of IRAs or qualified plans - within 60 days must be rolled over
Traditional IRAs - distributions may begin when without a penalty tax? - funds withdrawn before the eligible age are subject to _________ penalty tax except for what? - distributions are mandatory at what age? - Required Minimum Distributions must begin no later than ____________________ - withdrawals are taxed how?
- 59.5 age - 10% penalty tax - except for death, disability, medical expenses, 1st time home purchases, higher edu costs, and medical insurance premiums - 72 - April 1st following calendar year that turned 72 - taxed as ordinary income
403B/ TSA - distributions can begin when without penalty tax? - RMDs? - Can RMDs be delayed? - distributions are taxable to plan holders how? - are rollovers allowed? if so to what type of plans?
- 59.5 can begin without 10% penalty tax - yes RMD April 1st following calendar year turn 72 - if dont take RMD then get 50% penalty tax - RMDs can be delayed until RETIREMENT if the person is still employed by the plan sponsor after age 72 - taxed as ordinary income with a cost basis of ZERO - Yes can rollover into another TSA plan or into other types of retirement plans like IRAs or qualified plans
Mutual Funds Investment Income or Dividends - Are they taxed?
- ALWAYS taxed as ordinary income whether they choose to take them in cash or shares
Money Purchase Plan - what type of plan? - requires _____________ to be contributed annually by __________ - plans are for what size of business? - designed for individuals with ___________________ earned on (full time basis? part time basis? either?) - who contributes? - is the retirement benefit certain? - what happens if the company does poorly or really well? does this affect the amount contributed to the plan?
- Defined Contribution Pension Plan - requires fixed percentage of compensation to be contributed to each eligible employee, annually by EMPLOYER ONLY - any size business or - individs with self-employment income from either a full or part time basis - employer and or employee contributions - retirement benefit is uncertain - contribution by employer is a known and fixed amount that doesn't change if the company does well or poorly
Contributions for 529 Plans - Investors making contributions to 529 Plans generally use the annual gift tax exclusion of ________________ or can aggregate the gift tax exclusion to contribute ______________ in one year to kickstart the program - if the aggregate gift tax is used, no further gift tax gifts are allowed for ___________ - married couples may contribute up to ______________ for each beneficiary as long as no further gifts are made to that beneficiary for the next _________
- Investors making contributions to 529 Plans generally use the annual gift tax exclusion of $15,000 or can aggregate the gift tax exclusion to contribute $75,000 in one year to kickstart the program - if the aggregate gift tax is used, no further gift tax gifts are allowed for 5 years - married couples may contribute up to $150,000 for each beneficiary as long as no further gifts are made to that beneficiary for the next 5 years
inflation/ purchasing power risk - especially true of ST or LT bonds? - fixed or variable annuities are extremely susceptible to this type of risk? - what type of asset does well in times of inflation?
- LT bonds - fixed annuities - tangible assets like gold coins
Traditional IRAs - How much of your contribution can you deduct if you are not active in a retirement plan at work? - How much of your contribution can you deduct if you ARE active in a retirement plan at work?
- NOT ACTIVE = deduct all of their contributions up to contribution limits - ACTIVE = possibly be able to deduct contribution depending on your income limits based on your tax filing status and your AGI
Roth IRA - are contributions to a Roth IRA tax-deductible to the owner's gross income? - when can you withdraw without a penalty tax? - upon retirement, qualified withdrawals of contributions are taxed how? qualified withdrawals of earnings are taxed how? - what type of individual would this benefit most? - Roth IRA owner required to begin distributions at what age?
- NOT tax-deductible - after tax $ - can withdraw any time - contribs and earnings are tax-free - high tax bracket - not required to begin distributions at a certain age
- is a rollover from a Roth IRA to a qualified plan allowed? - Is a rollover from a qualified plan to a Roth IRA allowed?
- Roth IRA -> Qualified is NOT ALLOWED - qualified -> Roth IRA is allowed
High Frequency Trading Firms (HFT) - most orders are for LT or ST trades? - utilize _______________ and __________ methodologies to maximize the speed of their market access and trading strategies - some are hybrids acting as _______________ & ______________ - some strategies may take ______________ approaches to the market which means they end each day in a flat position - some are not and take net long or short positions overnight
- ST trades - quantitative and algorithmic methods - hybrid = proprietary traders & Market Makers - "delta-neutral" approaches to market so end each day in a flat position
What can Keogh plans invest in?
- Stocks - Bonds - Treasury Bonds - Mutual Funds - Variable Annuities - Unit Investment Trusts
Can contributions to an IRA be invested in: (Y/N) - Stocks - Bonds - Mutual Funds - Life Insurance - Certain US Gov or State Issued gold, silver, platinum, and palladium coins and bullion - collectible items like rugs paintings diamonds and stamps - real estate
- Stocks Y - Bonds Y - Mutual Funds Y - Life Insurance N - Certain US Gov or State Issued gold, silver, platinum, and palladium coins and bullion Y - collectible items like rugs paintings diamonds and stamps N - real estate Y
UGMA & UTMA differences - __________ law allows virtually any kind of asset, including real estate, to be transferred to a minor - __________ law limits gifts/transfers to bank deposits, securities including mutual funds, and insurance policies - __________ terminates when minor reaches age of majority (18 for most states) - ___________ allows states to set a later transfer age
- UTMA = any kind of asset - UGMA limits - UGMA = majority age - UTMA = states set later age
contingent immunization strategy - is the portfolio actively managed? - what happens if returns in the portfolio fall below a certain level? - what is immunization of a portfolio and wen does it happen?
- actively managed - if falls below, active management ends and immunization of the portfolio occurs - when the duration of the portfolio's assets = duration of portfolio's liabilities
Revocable Living Trust - can assets be added? - can it be terminated? if so, by who and when? - is there a gift tax due on property transferred or contributed into the trust by the grantor?
- added at any time - terminated by grantor at any time - NO gift tax
Roth 401(k) plan - contributions are after tax or pretax? - distributions are taxed how?
- after tax - qualified distributions are tax free
coverdell - How are distributions taxed?
- after-tax contribution portion = tax free - earnings portion of distribution that is not used for edu is subject to ordinary income tax + 10% penalty tax
direct investments in real estate primary residence - get any deductions? - exclusions from taxes on _____________ on sale of the home ______________ for single filers and ___________ for joint filers if the owner has lived in the house for _______________. - liquid?
- annual income tax deductions (interest on mortgage payments - realized-LT capital gains - $250,000 for single - $500,000 for joint - for 2 of last 5 years - illiquid
variable universal life insurance - fixed or variable level of premium? - fixed or adjustable DB? - cash surrender value based on what? is there a guaranteed rate? how often is it calculated? - do policyholders choose the investments/ bear investment risk? - is this a security? does it need a prospectus? - how can lapsed policies be reinstated?
- flexible premium payments - variable DB - variable CSV - premiums and DBs fluctuate based on performance of separate account - no guaranteed CV - only guarantee is Rate of Mortality - good choice for a high risk tolerance - it a security
Who can participate in private non-governmental 457 Plans?
- for hospitals, unions, and charitable organizations - generally limited to a select group of management or highly compensated employees
2 categories of assets on balance sheet and what they include
- invested asset: mutual funds, over investment accounts at their market value (not original value) - Personal Property or Use Assets: cars, computers, household goods
Open-end investment companies - stand ready to issue and redeem shares how often? - shares are issued and may only be redeemed to who? - price of open-end investment company shares has what relationship with NAV?
- issue and redeem daily - only back to issuing investment company - directly tide to NAV of fund + sales load
BD exclusions (aka these are not bds): these people are not considered persons so wouldn't need to register as a BD if only worked with :
- issuers of secs - other BDs - banks, saving institutions, trust comps, insurance comps, and investment comps - pension/profit sharing trust - other financial institutions or institutional buyers (all institutional clients)
Financial Futures are standardized for: - - - -
- quality - quantity - delivery time - location of commodity
inverse ETFs
- seek to deliver the opposite of the performance of the index or benchmark that they track
variable life insurance - charges - fees
- surrender charges - management fees
qualifying widow(-er) with dependent child(-ren) - who can file this? - when can they file this? - allows who to use _____________ and the ______________
- surviving spouse can file - for 2 years after filing a joint return for the year of the spouse's death - allows surviving taxpayer to use joint return rates and the highest standard deduction
401k - can employers provide matching incentives in the plan? - can these plans have profit sharing programs attached? - how are the contributions taxed? - How do contributions and earnings grow? - can you make a rollover from a 401k to a Roth IRA? - who can make contributions? - distributions can begin when? - if withdrawn before age _______ then get a penalty tax - distributions are mandatory when? - Required Minimum Distributions are included in plan? - What if you don't take out your RMD? - can RMDs ever be delayed? - How are distributions taxed?
- yes - yes - grow tax deferred - yes - employees can also make after-tax contributions but those would not be deductible - distrib mandatory at age 59.5, or get 10% penalty tax if take out before - RMD start April 1st after calendar year that turn 72 - if take out after, then get 50% penalty tax - delayed until retirement if youre still employed by the plan sponsor after 72 and you dont own more than 5% of the company - taxed as ordinary income
Transfer On Death - do beneficiaries have to pay estate taxes or income tax on the transfer?
- yes estate taxes - no income tax on the transfer
All records must be preserved for a period determined by the State Administrator or Federal Law which for IA is ___________
5 years
Functions of Federal Reserve System
-auditing member banks -lending to commercial banks -acting as an agent for the US treasury -regulating bank credit -being a lender of last resort
an investor buys a taxable bond with a coupon of 4% at par The bond is exempt from state tax and the investor has a 28% marginal tax-rate. What is the after-tax yield?
.04*.72=2.88%
30% of her portfolio in Equities and an expected return of 10% 30% of her portfolio in Fixed Income and an expected return of 8% 20% of her portfolio in Global Funds and an expected return of 7% 20% of her portfolio in Money Market and an expected return of 3% what is the overall total expected return of her portfolio?
.3 x .01= .03 .3 x .08=.024 .2 x .07=.014 .2 x .03=.006 .03+.024+.014+.006= .074 or 7.4%
if IRR = required Rate of Return, NPV of investment = ________
0
For a no load mutual fund, 12b-1 fees or separate shareholder fees cannot exceed ________ of the fund's average net assets per year
0.25%
agent does not include an individual representing an issuer in effecting exempt transactions such as
1 isolated non-issuer trans 2 trans in certain covered secs 3 trans with investing employees, partners, or directors of the issuer if no commission or other $ is paid
coincidental indicators - move coincidental to economy
1 manufacturing 2 personal income 3 industrial production index 4 retail sales 5 GDP 6 Non-farm payroll workers
As of 2015, the IRS will only allow how many rollovers per year?
1 per year no matter how many are owned by an individual
LT Capital gains = capital gains where the security was held for how long?
1 year + 1 day
all private foundations are _________________ under the IRS tax code
501 (c)(3) organizations
lawyers accountants and broker dealers acting beyond the scope of their brokerage business do not qualify for the exclusion from registration if they
1) advertise themselves as advisers, AND/OR 2) Charge a separate fee for investment advice
Maturities of TBills
1,3,6,12 months
gain from sale of main home you live in, you may qualify to exclude from your income: 1. ____________ if file as single 2. __________ if file a joint return with your spouse Mary bought her home 20 years ago for $120,000 and sells it this year for $400,000. What is the taxable gain?
1. $250,000 2. $500,000 $400,000 sale -$120,000 orig =$280,000 adjust -$250,000 deduct =$30,000 taxable gain
mutual funds are subject to the regulations of:
1. '33 2. '34 3. '40
Corporate SEC Filings 1. 2. 3.
1. 10-Q 2. 10-K 3. 8-K
conditions that may have to be satisfied in a notice filing 1. engaged in business in US for ______________ 2. securities held by ______________ 3. total net worth of ____________ of total net worth of ________ and ______________
1. 36 consecutive months 2. 500 or more ppl 3. 4 mill or 2 mill and net pre-tax income from operations before allowances for extraordinary requirements for at least 2 of 3 previous fiscal years
1. How many commissioners are there of the SEC? 2. Who are they appointed by? 3. Can they have other business or outside employment? 4. Can they trade the markets which are subject to their regulation? 5. What are their terms? 6. can they be reimbursed by the SEC for their expenses?
1. 5 2. President 3. no 4. no\5. staggered 5-yr terms 5. yes
BDs cannot conduct BD services on the premises of a financial (bank) institution where retail deposits are taken unless the BD complies with the following rules:
1. BD in diff location than where financial institution's retail deposits are 2. written agreement with responsibilities and compensation of both parties 3. @ or b4 the BD needs to disclose that the securities products : a. NOT FDIC insured b. NOT obligations of financial institution or guaranteed by the financial institution c. subject to investment risk 4. promptly notify financial institution if any agent is fired by cause
When computing Total Return on a mutual fund that provides for reinvestment of dividends and capital gains distributions. the calculation would consider:
1. Beginning Price 2. Beginning Number of Shares 3. Ending Price 4. Ending Number of Shares
All of the following signatures are required on a registration statement for a security with the SEC: 1. 2. 3. 4.
1. CEO 2. CFO 3. CAO (Chief accounting officer) 4. majority of BOD
ETNs are issued on 4 basic sectors:
1. Commodities 2. Currencies 3. Emerging Markets 4. Strategy/Index (like S&P 500 Index)
Market Capitalization equity assets are classified 1. Micro Cap 2. Small Cap 3. Mid Cap 4. Large Cap
1. Micro Cap = mkt value <$250mill 2. Small Cap mkt val btwn $250mill-$2bil 3. Mid Cap mkt val btwn $2bil-$10bil 4. Large Cap mkt val greater than or equal to $10 billion
listed forms of income on income statement: 1. 2. 3. 4.
1. Normal income from employment 2. Alimony 3. Realized Capital Gains 4. Dividends and Interest
Common ETFs 1. 2. 3. 4.
1. SPDR 2. DIAMONDS 3. QQQ 4. HOLDERS
If a project has an IRR of 7.5%, then: 1. Project would be profitable and have a positive NPV if 2. Project would lose money and have a negative NPV if
1. cost of capital (what its going to cost to borrow money aka discount or hurdle rate) was less than 7.5% = positive 2. cost of capital was more than 7.5% then would be negative
HSAs have triple tax benefits: 1. deductible contribution limits of _________________ for individuals and _____________ for families + an additional _____________ catch up contribution for ppl _________ and older 2. Earnings? 3. Within limits, money can be used when?
1. deductible contribute: - individuals = $3600 - families = $7,200 - $1,000 catch up for 55 and older 2. Tax-Deferred Earnings 3. anytime for qualified medial expenses and is tax free when used for such purposes
3 classes of commodities
1. energy 2. metals 3. agricultural products
administrator may by order revoke/deny certain exemptions:
1. exempt transactions 2. exchange listed securities 3. securities of non-profit organizations 4. investment contracts issued by employee benefit plans
3 types of investment companies
1. face amount certificate companies 2. UITs 3. Management companies
SIMPLE IRA Employers may choose to make what types of contributions 1. OR 2.
1. matching contributions based on the elective contributions made by employees of up to 3% compensation 2. Non-elective contributions of a straight 2% of compensation to each eligible employee
Tax Filing Status Head of Household 3 requirements for this status are: 1. 2. 3.
1. unmarried on last day of the year 2. taxpayer paid more than 1/2 of the cost of maintaining a home 3. qualifying person lived with the taxpayer for more than 1/2 the year
permanent life insurance types: 1. 2. 3. 4.
1. whole life 2. universal life 3. variable life 4. variable universal life
if a GM 30-yr bond has a yield of 5% and the 30-yr T Bond has a yield of 3.5%, what would the credit spread be?
1.5% aka 150 BPs
- What happens if you dont rollover an account within 60 days?
10% penalty tax
NASAA Brochure rule requirements Annual Delivery: an investment adviser must deliver within _________________, an updated brochure and related brochure supplements which include or are accompanied by a summary of material changes OR Deliver a _________________
120 days of end of fiscal year for free summary of material changes that includes an offer to provide a copy of the other stuff
IAs requiring prepayment of more than _________ in fees per client 6 months or more in advance must provide in the brochure an audited BS for most recent fiscal year = Federal NASAA Rules, or specific State registered IA firm, or USA, then more than _______-
1200 fed 500 USA NASAA etc
Letter of Intent 1. Allows investor a ___________ period to reach the breakpoint amount
13 month period
Investment 1: purchased for $1,000, held for 6 months, then sold for $1,050 Investment 2: purchased for $2,000, held for 1 year, then sold for $2,200 Investment 3: purchased for $1,500, held for 2 years, then sold for $1,750 Find the return % on investment Then calculate the estimated total return
1: 50/1000=.05 or 5% *2=10% annual 2: 200/2000=.1 or 10% and 10% annual 3: 250/1500=.167 16.7% /2=8.35% annual
if real estate owned by the person filing chapter 7 bankruptcy is sold, who is paid?
1st = mortgage holder 2nd = any excess funds are paid to creditors and all other claims by the court appointed bankruptcy trustee
Any loss that exceeds the $3,000 write-off allowance must be carried forward to next year. the loss carried forward is then 1st 2nd then can be written off against ___________ up to a maximum of __________ for individuals
1st offset against net gains in that year 2nd written off against ordinary income up to a max of $3,000 for individuals
Recovery period shows an increase in the GDP for at least __________
2 consecutive calendar quarters
Maturities of T Notes
2 to 10 years
Pay to Play rules: ____________ prohibition on any advisers providing compensated services to a government entity following a political contribution to certain officials of that entity
2 year
each CMO tranche will have an average life expectancy anywhere from ____________
2-20 years
if a newspaper is published in state A but this newspaper is intended to be directed toward other states with _________ or more more of its audience outside of State A, then it is not an offer
2/3rds or 66.7%
Investor bought 100 shrs of ABC for $20k on 1/1 then on 12/31 shares worth $23k and during the year, the investor received a dividend check for $500. What is the investor's HPR?
23k-20k=3k+500= 3500/20000= 17.5%
correspondence includes any written including electronic communications to ____________ within ____________
25 or fewer retail investors 30 calendar day period
S&P 500 index is 2500 at the beginning of a given year, and it is currently at 2750. What is the difference between those 2 points? what percent of the starting index value is this difference?
250 points or 10% of starting index value
commercial paper is issued for a specific amount and has a set maturity of _________--
270 days
Structured Products Liquidity risk: is a 2ndary market guaranteed? are structured products designed for LT or ST?
2ndary market not guaranteed LT trading instruments not designed for ST investors should be willing to hold note till maturity
NASAA Rules and Custody Would NOT constitute custody: Receipt of checks drawn by the client and payable to a third party if forwarded within _______________
3 business days
Safe Harbor 404 C Provisions - under these guidelines, plan participants must have the ability to choose between _____________________ which are diversified. Must differ when it comes to _____________
3 categories of investments risk levels and expected return
If a Financial Firm becomes aware of a suspicious transaction the firm must file a SAR within how many days?
30 days
administrator may not institute a stop order because of a fact known to the Administrator when registration became effective unless within _______________.
30 days
when does withdrawal from registration become effective?
30 days after receipt of application for withdrawal or sooner if determined by the administrator provided that no proceedings are pending
an IA registered as a BD is exempt from the disclosure/consent requirement if the BD is acting as an adviser by means of: 1. Public Distribution of oral statements distributed to __________ persons who (do/dont) not pay for material. 2. 3.
35 or more do have to pay 2. written/oral statements that dont meet investment objectives of individuals or accounts 3. issuance of statistical info that doesn't contain opinions of certain securities
LEAPS - Long-term Equity Anticipation Securities have a maximum expiration of _________ from the time that they are created
39 months
Plan that allows a worker to save for retirement by having a portion of their salary deferred into a retirement account
401K
what type of retirement plan is also called a CODA plan? - cash or deferred arrangements of cash accumulation plans or capital accumulation plans?
401K
Tax-Sheltered Annuity Arrangement is also called by what?
403 B
SEC generally grants registration of a Federal Covered Adviser within ________ of the filing of the ADV
45 days
type of deferred compensation plan for employees of a state or local government or tax-exempt organization
457 B Plan
Record Keeping Rules for IAs All books and records must be preserved in an easily accessible place for not less than ______ years from end of fiscal year, during which the last entry was made on record and the first _______ years in the principal office of the IA
5 2
Money Laundering Abatement Act imposes customer identification requirements of financial firms including: Verification of the identity of any customer seeking to open an account within ____________
5 business days
The '34 act requires that those persons who become the owner of more than _______ of the outstanding stock of a stock listed on a national securities exchange must file a report with the SEC within ______
5% , 10 days "insider" = own 10%
15 yr loans with 180 monthly payments @ IR of 5%, amount borrowed will be approximately ________ of total paid @ IR of 7.5%, amount borrowed will be approximately ________ of total paid @ IR of 10%, amount borrowed will be approximately ________ of total paid
5% = 70% 7.5%=60% 10%= 52%
a bond with a duration of 5 will have a price movement of _________ for every _______ movement in interest rates
5% price movement for every 1% of movement in IR
30 yr loans with 360 monthly payments @ IR of 5%, amount borrowed will be approximately ________ of total paid @ IR of 7.5%, amount borrowed will be approximately ________ of total paid @ IR of 10%, amount borrowed will be approximately ________ of total paid
5%= 52% 7.5%= 40% 10%= 32%
in a no load mutual fund: 1. there is generally an expense ratio of ___________ 2. are you allowed to charge 12b-1 fees?
50 basis points (0.50) yes
Common and preferred dividends received by a corporation from another corporation are ___________ excluded from _________ would income from REITS qualify ?
50% excluded from taxable income only 50% of income is subject to tax NO
in a margin account how much does an investor usually have to deposit
50% of the purchase price
annuity payout option Joint and Last survivor annuity - the payment may be ______ to _______ of the original amount paid depending on the plan
50%-100%
recession definition: - mild consecutive _________ decline in stock prices, business activity, and employment. - ________ of negative (declining) growth in GDP
6 month 2 consecutive quarters
A blotter is a record of the daily activities of each branch of a BD. BDs must retain blotters and other records of original entry for how many years?
6 years
If the R-Value of a portfolio is .80 then the R^2 value is 64%. So if a portfolio with a 64% R^2 value rises 10%, you can conclude ___________
6.4% of that 10% rise can be attributed to the rise of the benchmark index
not more than _______ of a mutual fund's BOD may be considered "Interested persons" (employees officers etc)
60%
- Cost of Living Adjustment is applied to the social security benefit from age ___________
63 on
If NPV = 0 and hurdle rate is 7.5%, what is the IRR=
7.5%
72 rule formula
72/interest rate = number of years to double your investment
What report do you have to file if you have acquisitions, bankruptcy, or a change in the fiscal year
8-K
report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the SEC
8-K
FINRA limits sales loads to ________
8.5%
A Tradition or Standard option contract has maximum expiration of
9 months
if an investment had total returns of 12% and the inflation rate during that time was 3%, the real return would be what?
9% Real Return = income return + realized capital gains return - inflation
An IA registered or required to register that has custody or discretionary authority over client funds or securities or that requires pre-payment of fees is required to maintain a minimum net worth at all times and to file a balance sheet with the state securities Administrator within ____________ following the IA's fiscal year
90 days
money market portfolios have an average weighted maturity of ________
90 days or less
If a Federal covered advisers AUM falls below _________- the adviser must withdraw its federal registration unless an exception exists
90 million
Regulated Investment Companies are funds which pay out at least ___________ of its net investment income annually
90%
Mutual Funds Investment Income or Dividends -- How much do Funds have to pay out to qualify as a Regulated Investment COmpany?
90% under sub chapter M of IRS Code - exempt from paying tax on divs distributed but is taxed on divs not distributed = Conduit/Pipeline Theory
money market funds have at least ______ of the fund's total assets invested in securities related in the top two categories by a NRSRO
95%
Beta = 1.0 what does that mean? Beta > 1.0 what does that mean? Beta <1.0 what does that mean?
= 1.0 means stock would be as volatile as index and would fluctuate the same rate as the index Beta>1.0 means expect this stock to be more volatile than the index and fluctuate in price more than the index Beta<1.0 means expect this stock to be less volatile than the index and fluctuate in price less than the index
AGI Includes Income from: A. Salary and/or commissions from gainful employment B. Interest payments from tax-exempt investments such as municipal bonds C. Unrealized capital gains D. Alimony or child support E. Investment income such as capital gains and dividends and interest payments
A. Salary and/or commissions from gainful employment E. Investment income such as capital gains and dividends and interest payments NOT FROM B. Interest payments from tax-exempt investments such as municipal bonds C. Unrealized capital gains D. Alimony or child support
used to determine some of the personal itemized deductions on a schedule A filing
AGI
Accredited Investors are natural persons with earned income of ___________ in each of the prior _________ and reasonably expect the same for the current year OR has a net worth of __________ either alone or together with a spouse
Accredited Investors are natural persons with earned income of _over $200,000_ in each of the prior _2 years_ and reasonably expect the same for the current year OR has a net worth of _over $1 million either alone or together with a spouse
Formula: AGI =
Adjusted Gross Income = gross income - adjustments
Agency CMOs - are backed by what? - GNMA Agency CMOs are made up of what? backed by what?
Agency CMOS are GUARANTEED and or issued by FNMA, FHLMC, & GNMA - GNMA pass-through secs are made up of FHA and VA mortgages that are GUARANTEED against default
Agency Cross Transaction
Agency Cross Transaction
certain taxpayers obtain tax advantages which reduce or eliminate tax liability. __________ is designed to recoup some of these advantages by imposing tax on certain tax preference items
Alternative Minimum Tax (AMT)
American Style Options can be exercised when? European Style Options can be exercised when?
American = anytime at discretion of the buyer European = only at Expiration
Is the Bid or the Ask the higher price?
Ask is always higher
Thelma opens account in 1/2018. Buys 200 shares of ABC paying $25/share. 8/2018 received qualified dividends of $1.50/share on ABC 2/2019 sells 200 ABC at $35/share. Current federal income tax rate = 28% and LT Cap Gains rate = 15% what is after-tax return?
B- 25*200=5000 S+ 35*200=7000 =2000*.15= 300 2000-300=1700 after tax gains 1.5*200=300 300*.15=45 300-45=255 after tax gains 255+1700= 1955 after tax gains divided by initial investment of 5000 = 39%
An investor buys 1 soybean futures contract at $0.45. Later, the investor sells the futures contract at $0.43. A soybean future has a contract size of 5,000 bushels. What is the result of this transaction?
B- .45 S+ .43 = -.02 x 5,000 = $100 Loss Gain or loss x contract size = total gain or loss
Types of Firms : B/Ds Employees Services Compensation
BDs Employees: Registered Reps (Fed), Agents (state) Services: Brokerage Activities (New Issues, 2nd Mkt Trans) Compensation: commision
broker or call loan rate is the rate at which
BDs borrow from banks to cover margin loans to customers
Basic Breakeven on Equity Options: Buy a Call = Sell a Call = Buy a Put = Sell a Put =
Basic Breakeven on Equity Options: Buy a Call = exercise price + premium paid Sell a Call = exercise price + premium received Buy a Put = exercise price - premium paid Sell a Put = exercise price - premium received
provides us with a measure of the volatility of this particular stock's price in relation or comparison to a benchmark such as an index or the market as a whole
Beta
price a market maker will buy from a customer
Bid
BD/Agent cannot transact business in a state unless who is registered
Both the Agent and BD
US dollar-denominated bonds issued by Latin American countries that are collateralized by US Treasury zero-coupon bonds
Brady Bonds
Part 2A of Form ADV
Brochure - description of IA's business practices - conflicting interests in client transactions and personal trading - must be written and in Plain English
Part 2B of Form ADV
Brochure Supplement - disclosures about individuals who provide the investment management - edu and experience over last 5 years - disciplinary actions over last 10 years - additional compensation from other sources for investment services rendered
yield to call is affected by: 1. 2. 3.
Call Premiums Time to Call date Price paid for the callable bonds
if the IA is required to register with the SEC, that registration will be accomplished by filing ______
Form ADV with the SEC
when assessing the safety of a bond issue, an analyst would use which of these? I. cash flows II. Profitability ratios III. Revenue to assets IV. Leverage ratios A. I. & III. B. II. % III. C. I. III. IV. D. I. II. III. IV.
C. would not use profitability ratios
Dividends: - "Cash" dividends are taxed how? when? - "Stock" dividends will affect the investor how? affect cost basis how? - Qualified dividends are taxed how? represent what dividends? - Non-qualified dividends are taxed how? include what? taxed more or less than qualified?
Cash - ordinary income to investor in year received regardless of reinvestment Stock - increase # of shares owned - decrease cost basis Qualified - taxed as ordinary income at reduced tax rate of 15% - represent most QUARTERLY dividends - CS and PS Non-Qualified - taxed at individ's ordinary income tax rate - paid by REITS, master limited partnerships, money market accounts - taxed more than qualified
if an individual files for bankruptcy under this, the individual agrees to repay all or some of their debt generally over a __________ period. To qualify, must have a steady income
Chapter 13 filing 3-5 year period
if a person files ____________ their property and debts are in the hands of the bankruptcy court
Chapter 7
Fiscal Policy of the US Government is set by _______ and deals with ___
Congress Gov Spending, Taxes, Welfare where all our tax dollars get spent
imaginary barrier between the investment banking department, research dept, and trading/mkt making dpt.
Chinese Wall or Information Barriers
HOLDERS stands for / represents what?
ETF - Holding Company Depository Receipts - reps 16 trusts related to largest Euopean companies traded on NYSE, Amex, and NASDAQ
DIAMONDS stands for / represents what?
ETF - represents Dow Jones Industrial Average
QQQ stands for / represents what?
ETF Reps NASDAQ 100 Index
SPDR stands for / represents what?
ETF Standard and Poors Depository Receipts - represents S&P 500 Composite Index
Do ETNs or ETFs have tracking errors?
ETFs have tracking errors
Primary Difference btwn ETF and index fund =
ETFs issue shares of common stock and those shares trade in the marketplace like common stock which is completely different than a mutual fund which trades once a day and is redeemed by the fund
term insurance can be for a Level death benefit: meaning DB stays the same, or increases, or decreases? the amount of premium paid for the policy may stay the same, increase, or decrease?
DB stays same premium can stay same for a specific period of time or increase over time
ETN (Exchange Traded Notes) are
DEBT instruments issued by banks
In a 401K Plan - ____________ requires that a plan administrator must furnish investment-related information for each option offered under a plan to plan participants _______________________ and ___________ thereafter? - does this information need to be filed with FINRA?
DOL (Department of Labor) - prior to or on the date the participant directs their investment and at least annually thereafter - dont have to file
agents of BDs must renew their registration by when?
December 31st
Form ADV (application form filed with SEC) Part 1:
Detailed info about IA for SEC including direct owners and executive officers of the IA but not require a list of the IAs clients
means of evaluation of securities, portfolios, or projects, collectively known as "investments" using the concept of discounting (present value)
Discounted Cash Flow DCF
Primary benefit of ________ for individual investors is that allow investor to participate and access markets and sectors which were previously unavailable to them or may have been unsuitable
ETNs
when doing capital needs analysis you would not consider: A. client's expected income B. # of dependents C. Savings D. Current rate of inflation E. Stock market fluctuations
E. Stock market fluctuations
net income on the income statement is also known as
EAT earnings after taxes
Operating Profit on the Income statement is also known as
EBIT Earnings Before Interest and Taxation
use a variety of environmental social and governance criteria to make investment selections that aim to create both competitive financial return and positive impact on society
ESG Funds = environmental social governance
a notice of withdrawal from registration as an IA
Form ADV - W
similar to normal index funds with a portfolio that mirrors a specific index or industry sector basket of securities
Exchange Traded Funds (ETFs)
CAPM expected return formula and what does it stand for
Expected Return = Risk-free Rate of Return + [Beta x (Market Return - Risk-Free Rate of Return)] Capital Asset Pricing Model
BDs must register with ____ and are regulated by _____________
FINRA FINRA and SEC
Discount rate is the rate charged by
Fed Reserve to banks to cover their temporary reserve needs
regulations. | Federal | State Law ____________ | __________ Regulators. _____________. | __________
Fed | State Law | Investment Act of 1940 | Uniform Secs Act Regs. | Secs Exchange Commi | State Secs Admins
Monetary Policy is set by ___________
Federal Reserve
form of registration used by Federal Covered Securities or established company with registration statement on file with the SEC
Filing or notice filing
Bureau of the US Department of the Treasury mission is: - to safeguard the financial system from illicit use - combat money laundering - promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities
FinCen = Financial Crimes Enforcement Network
Provide opportunity to invest in "bonds" without investing directly in one particular bond
Fixed Income Bond ETFs
NASAA Custody Requirements Notice must be given to Administrator if an IA has custody of client funds with what form
Form ADV
Registration as a Fed Covered Adviser is accomplished by filing _________-
Form ADV
If the BD changes its name or location, it must promptly file an amended __________ showing the changes
Form BD
these forms provide simple easy to understand information about the nature of the customer's relationship with their financial professional
Form CRS BD Form ADV Pt 3 IA
SEC Best Interest (Reg BI) Customer Relationship Summary since enactment of Reg BI, the SEC requires registered IAs (and BDs) to provide retail investors only with ______________ for BDs ______________ for IAs
Form CRS=BDs Form ADV Part 3= IAs
ABC: YTM=9%, Price=$950 DEF: YTM=10% Price=$875 GHI: YTM=11% Price=$825 if investor wants to have the highest return on investment which bond should he choose? What will he receive on that investment at maturity?
GHI because has highest YTM $1,000 Par - $825 Price= $175 Discount and get this at maturity
company that combines limited liability with pass-through taxation. Owners are called members.
Limited Liability Companies
Out of Growth Stocks, Blue Chip Stocks, and Utility Stocks, which have the highest and lowest retained earnings
Growth has highest because dont pay out dividends Blue Chip Stock has a dividend payout ratio of 50% so has 50% left as retained earnings Utility stocks have lowest retained earnings
If an RR is concerned that a client may have diminished mental capacity or dementia, the RR should contact a family member to determine if they have a ____________ for the client
Guardian Appointment
a divorced parent with custody of young children should file under what tax filing status?
Head of Household
proprietary trading firms that use high speed systems to monitor market data and submit large numbers of order to the markets
High Frequency Trading Firms (HFTs)
federal covered adviser is one that is registered under the
IA Act of 1940
IA Act of 1940: All books and records of an IA must be maintained in a readily accessible location for ________________ Under USA:
IA Act of 1940: 5 yrs from end of fiscal yr in which entry was made USA: determined by the administrator or by Federal Law
estate Federal Estate Tax return form = ______________ Must be filed when? by who?
IRS Form 706 within 9 months after decedents death by the estate's executor
IRS and taxation of ETNs
IRS has not made a final ruling on treatment of ETNs
convertible bond price : common shares received =
Par Value/Conversion Px
Investment Advisers Employees: Services: Compensation:
Investment Advisers Employees: IARs Services: Advisory Activities (Financial Planning, Managed Accounts) Compensation: fees
Investment Grade on S&P's Ratings = Speculative Grade on S&P's Ratings = What is used to show a high vs low relative standing for S&P? Investment Grade on Moody's Ratings = Speculative Grade on Moody's Ratings = What is used to show a high vs low relative standing for Moody?
Investment Grade on S&P's Ratings = AAA-BBB Speculative Grade on S&P's Ratings = BB-DD + =. high - = low Investment Grade on Moody's Ratings = Aaa-Baa Speculative Grade on Moody's Ratings = Ba-C 1 = high nothing for low
usually a husband and wife. upon the death of the husband, his interest passes automatically to his surviving widow and vice versa
Joint Tenants with a Right of Survivorship (JTWROS)
qualified, tax deferred retirement plan for self-employed individuals that can be set up as a defined contribution plan or a defined benefit plan and are more complex to set up than SEPs but have higher contribution limits than SEPs
Keogh Plan or HR-10 Plan
The BD will generally approve the account for options trading based on the suitability level of the investor. those levels are:
L1= covered call writing of equity options L2= L1+ buying calls and puts +writing cash covered puts +purchases of straddles or combos L3=L1+L2+spreads +covered put writing L4= L1,2,3+ uncovered writing of equity options +uncovered writing of straddles/combos +convertible hedging L5= L1,2,3,4 +uncovered writing of index option +uncovered writing of index options
LT goals = Medium Term goals = short term goals =
LT = >10years Med = 3-10 yrs ST = <3 yrs
Russell 1000 is what segment of the Russell 3000 Index?
Large Cap Segment
PPI (Producer Price Index)
MONTHLY measure of change in producer (wholesaler) prices of industrial and farm commodities like foods, lumber, oil, and gas - changes in this are an indication of upcoming changes in CPI
CPI (Consumer Price Index) aka Cost of Living index
MONTHLY measure of the change in the price of the average goods and Services bought by wage earners in select US cities - measures inflation
When evaluating bonds held in a portfolio, we would include what? A Maturity Date B Current Market Price C Coupon Rate D Par Value
Maturity date, coupon rate, and par value only
Defined Contribution pension plan which requires a fixed % of compensation to be contributed to each eligible employee, annually by the employer only. For businesses of any size, or individuals with self-employment income, earned on either a full- or part-time basis
Money Purchase Plan
simulation that runs thousands of chance scenarios to provide probable outcomes involving a number of random variables
Monte Carlo simulation
municipal yield -> corporate yield formula (corporate bond would have to yield you the corporate equivalent yield % to give you the same muni yield you get from buying the straight municipal bond)
Muni Yield/(100%-investors tax rate) = corporate equivalent yield
Ask on open end investment comp =
NAV + Maximum Sales Load = offering price
offering price =
NAV + Sales Charge
Bid on open end investment comp =
NAV = Redemption Price
can investment club qualify for a quantity discount by using an LOI?
NO
should you compare hedge funds performance figures against each other?
NO
Are alimony payments and child support payments... - taxable to the recipient? - tax deductible to the payer?
NO and NO
Can private funds advertise?
NO but direct marketing to specific potential investors is allowed
when tracking an index fund, should there be a deviation between the fund's performance and the benchmark?
NO if there is then it is a tracking error
Are investment company shares exempt from registration with the SEC under the '33 Act?
No
are clients allowed to buy on margin for new issues by members of the UW Syndicate?
No
No person can sue after __________ of the contract sale or investment advice, or ___________ after the discovery of facts of violation (whichever occurs first)
No person can sue after ____3 years ______ of the contract sale or investment advice, or _2 years_ after the discovery of facts of violation (whichever occurs first)
Are IAs required to provide discounts for multiple accounts from the same family or household?
No, however if such discounts are available, IAs must disclose the discounts to all clients
initial delivery NASAA Brochure rule requirements for IAs: An investment adviser shall deliver the Part 2A brochure and any brochure supplements required to a prospective advisers client when?:
Not less than 48 hours before entering into any advisory contract with such client or prospect OR at the time of entering into any such contract, if the advisory client has a right to terminate the contract w/o penalty within 5 business days after entering into the contract
who is allowed to make withdrawals from 529 plans?
ONLY THE OWNER
all securities trades that takes place off floor of exchange
OTC market
when a broker dealer is a primary distributor of a 529 Plan, the BD must receive and provide to investors ________________ which must be filed with ______________ and are available to who? which includes 1. 2. 3. 4. 5. 6. 7. 8.
Official Statement or Plan Disclosure Document - filed with MSIL - Muni Secs Info Library - available to public 1. information concerning opening an account 2. fees 3. costs 4. risks 5. investment performance 6. plan governance 7. administration 8. tax considerations
Once a private fund hits __________ investors and ___________ in assets, it is subject to reporting requirements of the Sec Exchange Act of 1934 and effectively is no longer a "private fund"
Once a private fund hits _500 or more_ investors and _More than $10 million_ in assets, it is subject to reporting requirements of the Sec Exchange Act of 1934 and effectively is no longer a "private fund"
Indication of what the market version as the earnings potential of a given company
P/E Ratio
Form ADV is used to register IAs with the SEC and the state. Part I provides: Part II provides:
Part I provides info on the IA and Part II provides the disclosures that will be made to the clients
who do variable annuities register with?
SEC pursuant to the Investment COmpany Act of 1940
typically non-qualified plans that allow an employee to voluntarily elect to have their employer take deductions (after-tax) from their paychecks to fund insurance, healthcare, or other items
Payroll Deduction Plan
overall return on a diversified portfolio formula =
Portfolio % x Expected Return = weighted value then add all weighted values together to get the overall total expected return
Client wants a minimum of 5% return on investments in preferred stock. Client discusses preferred stock which have fixed dividends of $1.50/shr/yr. At what market price of the preferred stock would this customer be able to achieve their desired rate of return?
Price = $1.50 annual dividend/ .05 required rate of return price = $30/share so if priced below $30 then have a rate of return that exceeds 5% at $30 = RofR=5% >$30 = RofR less than 5%
Pre-organization subscription transactions which are used by _______________ who intend to incorporate in order to acquire capital. Conditions which must be met to make a pre-organization subscription exempt from registration are:
Pre-organization subscription transactions which are used by ____fledgling companies: means growing companies__ who intend to incorporate in order to acquire capital. Conditions which must be met to make a pre-organization subscription exempt from registration are: 1. subscribers cannot exceed 10 2. no commission may be paid 3. payments may only be made after the security is registered 4. advertising is acceptable
____________ is used to determine Social Security Benefits - SS uses __________ to calculate the monthly benefit, so working (longer/shorter) may extend the monthly benefit but working after the full retirement age (will/will not) increase or decrease the benefit
Primary Insurance Amount (PIA) - uses 35 years of earnings to calculate - working longer may extend - working after full retirement age will not increase or decrease
Most Private Funds will have a: and must file a ______________ with _____________
Private Placement Memorandum, Subscription Agreement, and a copy of the organizational agreement Form PF with SEC
Promissory Notes, Commercial Paper, or Bills of Exchange issued in denominations of ______________________ are exempt from state registration and filing advertising and sales literature. These products are an obligation to pay _________ within ________________ of the date of issue and must be rated in ___________________ by a nationally-recognized rating organization. Promissory notes ___do/dont?____ have to be issued by a Federally Chartered Bank.
Promissory Notes, Commercial Paper, or Bills of Exchange issued in denominations of ___50,0000 or greater___ are exempt from state registration and filing advertising and sales literature. These products are an obligation to pay ___cash______ within ___9 months___ of the date of issue and must be rated in __1 of the top 3 categories__ by a nationally-recognized rating organization. Promissory notes ___dont____ have to be issued by a Federally Chartered Bank.
established to protect investors and interest in a trust or fiduciary relationship. requires practical approach to investing trust assets.
Prudent Investors Act
Qualified Purchasers include a married couple or individual with ___________ in investments and ownership by __________ related natural persons; a person (such as an institutional investor) who owns and invests (on a discretionary basis) ____________ in investments; or a trust not formed for the specific purpose of acquiring securities
Qualified Purchasers include a married couple or individual with _over $5million_ in investments and ownership by _2 or more_ related natural persons; a person (such as an institutional investor) who owns and invests (on a discretionary basis) at least $25 million_ in investments; or a trust not formed for the specific purpose of acquiring securities
Retirement Plan established and maintained by a private employer that meets the requirements of the Employee Retirement Income Security Act
Qualified plan
statistical measure of the correlation coefficient of a series of data points squared
R-Squared
Value represents the percentage of change in portfolio return that can be explained by a relationship with a benchmark
R^2
LIBOR
Rate international banks charge each other
maintains the stock record book and must account for all shares
Registrar
overall profitability of the company after expenses, interest, taxes, and dividends have been paid
Retained Earnings
permitting a reduced sales charge on new purchases when the total value of already-held shares + additional amount to be invested > sales charge breakpoint
Rights of Accumulation
Rollovers Roth IRA - can a rollover between a Roth IRA and another Roth IRA be done? How is it taxed? - can a Traditional IRA be rolled over into a Roth IRA? How is it taxed?
Roth IRA-Roth IRA = can be done tax-free Traditional IRA-Roth IRA = certain restrictions and taxable was income to the owner
rule is useful when attempting to give estimates of how long it will take an investor to double their money, given a specific rate of return on the investment
Rule of 72
yankee bonds must be registered with who?
SEC
IA must either register with ______ or register with ___________
SEC (Fed Covered Advisor) or with State where they have a place of business or any states where they have 6+ retail clients
Who regulates 1 registration of investment companies 2 disclosure documents like prospectus 3 proxies 4 annual reports
SEC ONLY not the states
investment companies must file reports with the SEC when? reports must be sent to shareholders at least ___________ which includes the 1. 2. 3.
SEC annually shareholders semi-annually 1. BS 2. IS 3. list of secs owned by the investment company
barbell portfolios are made up of what?
ST and LT bonds
the employer is not going to be responsible for losses in the employees accounts if the employee had a self-directed IRA and made the decisions themselves
Safe Harbor 404 c Provisions
protection from liability given to the employer/sponsor or self-directed plan if the employee/participant makes imprudent investment decisions and loses money
Safe Harbor 404C Provisions
mutual fund fees and expenses _______ are generally fees imposed on investors who buy their fund shares from a BD
Sales Loads
clients must receive a WRITTEN statement containing _______________ when a wrap fee is charged
Schedule H of Form ADV
Mutual Fund Fees and Expenses All fund fees and charges are identified in a fee table in the front of the fund's expenses under the heading _________
Shareholder Fees
helps differentiate whether returns are due to intelligent investment decisions or excessive risk
Sharpe ratio
Russell 2000 is what segment of the Russell 3000 Index?
Small Cap Segment
Federal insurance program that provides benefits to retired people and those who are unemployed or disabled
Social Security
As a general rule, if you are married, you are eligible for a _______________ Benefit of Social Security
Spousal
Calculating Investment for Desired payout in Perpetuity Elderly Client wishes to establish an account that is to provide their children with monthly income of $2,500 in perpetuity. The expected Rate of Return on the investments held within the account is projected to be 6%. What amount must be invested in order for each child to receive the monthly payout of $2,500 if perpetuity?
Step 1: Take your expected RoR of 6% and divide it by the number of payments in a year (monthly, so 12) 6%/12=.005 Step 2: Divide the monthly requirement by the monthly expected return as calculated in step 1 (.005) to find the required investment. $2,500/.005= $500,000 The elderly client must invest a total of $500,000 per child
When securities are purchased in a margin account, the securities will be registered in whose name?
Street Name so in name of BD
Cash Settlement for CS
T
T Notes, Bonds, TIPS regular way settlement in the secondary market aka buy from another investor
T+1
Reg way settlement for common stock
T+2
Settlement for ETFs is
T+2 Business Days
T Notes, Bonds, TIPS regular way settlement in the primary auction market aka buy from the government
T+3
occurs when an original trust transfer is made to more than 1 person, and at least 1 of the persons is a skip person and at least one other person is a non-skip person.
Taxable Termination
Roth IRA was established by what Act?
Taxpayer Relief Act of 1997
Brady Bonds are collateralized by what
US Treasury Xero-coupon bonds
Dollar Cost Averaging or Constant Dollar Plan
Total $ amount invested / Total Shares Purchased
Basic Balance Sheet Equation is:
Total Assets = Total Liabilities + Net Worth
debt to equity ratio formula is a measure of _______
Total Debt/ Total Net Worth (which is just shareholders equity) financial leverage
standard form of identifying the price earnings of a company and is calculated using the recent earnings of the company, generally when?
Trailing P/E past 12 months
upon death on an individual investor, or the last surviving account owner in a joint account, the assets in the account are passed on to the beneficiaries eliminating the need for probate
Transfer on Death (TOD)
similar to Sharpe ratio in that measures the risk adjusted return of a fund but uses Beta instead of SD as the denomination
Treynor Ratio
If the SEC issues an order against an adviser and the adviser wants to appeal, an appeal may be filed with ________
US Court of Appeals
Though investment companies create diversification they: 1. Do not __________ 2. Will not __________ 3. DO not _____________
X eliminate risk X reduce risk associated with currency fluctuation X eliminate tax liabilities
Can ETFs be purchased on margin?
YEs
Primary difference between current yield and YTM is that
YTM considered time remaining until maturity and current yield does not
US dollar-denominated bonds issued in the USA by foreign companies or governments
Yankee Bonds
Is an agent of a BD allowed to split commissions with other agents at the BD?
Yes but no outside agents. you dont need to notify the client beforehand if its split with another agent at your firm
An IA acts as a broker for both the advisory client and for another person on the other side of the transaction
agency cross transaction
Value Line Index is what?
a broad large cap index
12B-1 Fees are annual fees charged by _____________ against the fund's assets to cover sales and marketing expenses of the fund
a fund not by an IA
top-down investing starts with what?
a global outlook and then moves down
Fiduciary - if a guardian wants to open an account, the firm must obtain
a new account report form + a guardian Appointment Certificate issued by a court
If a client of an IAR becomes unable to make decisions, the IAR could only accept instructions from who?
a person with a written durable power of attorney
the performance of the ETN is linked to what?
a specific index or a specific strategy of investing
Palladium
ability to withstand extreme temperatures used for water purification and refining oil
callable bonds are normally issued with a call price that is (above/below) the par value of the bond (Call Premium)
above
Bonds trading at a premium have a market value of what?
above $1000
growth investors - focus on companies with __________ - generally have (higher/lower) than average future earnings potential and therefore generally trade with a (high/low) P/E ratio
above average earnings higher than average future earnings and trade with a high P/E ratio
fee charged to investors for maintenance of their accounts
account fee
What happens if the student decides not to pursue an eduction and they have a 529 plan?
account holder can request a refund and the refund will be subject to the plans policy on refunds and the earnings will be subject to federal income tax and a 10% federal penalty
Hedge fund investment is limited to what?
accredited investors, qualified investors, and semi-affluent investors
quick ratio
acid test ratio = current assets - inventory / current liailities
refers to active "stock picking" and market timing to constantly rebalance the portfolio to attempt to obtain returns in excess of a specific benchmark or expected return
active asset allocation
custody under NASAA
actual possession or authority to obtain possession
if youre an agent or an IA do you have to disclose your personal securities transactions to the client?
agent no IA has to disclose if their personal securities are consistent, inconsistent, or not executing transactions, with the advice given to clients
Proof of power of attorney only functions when the client is dead or alive?
alive
NYSE Composite index is made up of
all common stock on the NYSE including ADRs and REITs
inn context of settling the estate of a deceased person, the estate consists of:
all property real and personal owned by person - their liabilities at the time of death
what is the purpose of the consent to service of process?
allows the Admin to be served with legal documents when the applicant is being sued. Serving the Admin with legal documents would be as binding as serving the applicant
_________ is often referred to as the excess return relative to the performance of a benchmark index
alpha
gives investor an idea of how an investment performs relative to the amount of risk taken
alpha
stock is being compared to s&P 500 which is assumed to have a beta of 1.0. The market had returns of 11.25%. Our stock has a beta of 1.2 and the investor has realized returns of 16.5%. What is our alpha in this case?
alpha = 16.5% - (11.25% * 1.2) = 3% meaning that our stock returned 3% over the level of risk taken
All rules and forms of the Administrator shall be published and can they be amended? if so when?
amended only when changed
Alternative Minimum Tax would have to be paid if
amount of AMT exceeded the investor's regular tax after credits
term insurance can be for a decreasing death benefit meaning that amount of premium paid each year stays the same, increases, or decreases? the amount of death benefit will stay the same, increase, or decrease?
amount of premium paid stays same DB decreases each year
a sale is
any contract of sale or contract to sell a security FOR VALUE
what is considered a solicitation under the definition of solicitation for investment company shares
any oral, written, or other communication used to offer or sell investment company shares
USA: any person who willfully violates any provision of the act shall, upon conviction, be fined not more than ______________ or imprisoned not more than ______________ or both. No indictment or information may be returned more than ___________________ after the alleged violation. No person may sue more than ___________ after the contract of sale or the rendering of investment advice, or ________________ after discovery of the facts constituting the violation, whichever occurs first.
any person who willfully violates any provision of the act shall, upon conviction, be fined not more than _$5,000__ or imprisoned not more than _3 years__ or both. No indictment or information may be returned more than __5 years__ after the alleged violation. No person may sue more than __3 years_ after the contract of sale or the rendering of investment advice, or __2 years__ after discovery of the facts constituting the violation, whichever occurs first.
state
any state, territory, or possession of the US including Puerto Rico and District of Columbia
when can ETFs be bought and sold?
anytime during normal market hours
trading strategy attempts to lock in profit from a momentary difference in the price of a security between 2 or more financial markets
arbitrage
In 401k plans, income taxes (are/are not) deferred on contributions until distributions are taken from the plan. What tax do all plans have to do
are deferred - still subject to social security, medicare and state and federal unemployment tax
In today's market most equity indexed annuities (are/are not) considered securities must be registered with who?
are not considered must be registered with each state's insurance commission
how long must the surety/fidelity bond remain in force?
as long as the registrant is in business and for 3 years thereafter
distributions from 403B TSA plans are taxed how?
as ordinary income with a cost basis of 0
Retail customer (reg BI) defines a retail customer
as someone who receives investment advice and uses the advice NOT for commercial use
price customer will pay when buying
ask
price market maker will sell to a customer
ask
class of stock in which the issuing company has the ability to impose future reviews on stockholders for additional funds is
assessable stock
According to the Department of Education, a 529 plan is treated as an asset of the parent or the beneficiary for the federal financial aid qualification purposes? - assets in the child's name are assessed at a rate of ____________ for the ________________- as opposed to the parent's assessment bracket of ___________. - is it a good idea to make contributions to a 529 Plan when it comes to qualifying for financial aid?
asset of the parent - Childs name = 20% for Expected Family Contribution (EFC) - parents assessment bracket of 5.64% - YES good idea
IRR - assigns present values to future cash flows? - assign future values to present cash flows? - sets these cash flows (greater than/less than/equal to) the cost associated with the investment? - when the result is (zero/positive/negative) that rate is the IRR
assign present values to future cash flows sets them EQUAL TO the cost associated with the investment when the result is ZERO
transfer of rights and duties of a contract to another party
assignment
All required, kept records may be examined by the Administrator when?
at any time
dividends paid by REITs are taxed how?
at individual's ordinary income tax rate which is more than dividends usually paid to investors 15%
Program Trading involves how many different stocks with a total value of what?
at least 15 diff stocks total value of $1 million
Record Keeping Rules for IAs IA must preserve partnership agreements/incorporation articles for how long
at least 3 years after closure of the IA
exempt transactions: non-issuer transactions by registered agents at registered BDs if: (b) security is senior in rank to the common stock of the issuer and has been outstanding for ___________________________
at least 3 years without default
IA must review and modify as needed policies and procedures of security and cybersecurity to ensure the adequacy of the security measures and effectiveness of their implementation how often?
at least annually
NASAA Custody Requirements IAs must send account statements to clients how often?
at least quarterly
If the IA fails to maintain net worth requirements, the IA must notify the State Administrator when? And shall also file a report with the Administrator of their financial condition including: 1 2 3 4
at the close of business on the next business day 1. Trial balance of all ledger accounts 2. Statement of ALL client funds which are not segregated 3. Computation of aggregate amount of client ledger debit balances 4. Statement of number of client accounts
mutual funds are only priced when?
at the close of the market
income of an irrevocable trust is taxed how
at the trust's tax rate
solicitor is a person who
attempts to sell advisory services for an IA or refers clients to an IA for a fee
Fed Funds Rae is the rate that
banks charge each other for overnight loans
portfolio of bonds with concentrations of short and long term maturities but very few mid-range maturities - adjusted to maintain the long and short distributions
barbell portfolios
Structured Products Performance Risk: structured products pay a return based upon _________________. However, the performance of the structured product may not match the underlying asset if _______________
based on performance of underlying asset(s) may not match underlying if the structured product contains a cap on performance
SEC Delivery Requirements of a Current Brochure or Brochure Supplement(s): An IA must deliver to a client or a prospective client the IA's current brochure when? AND IA must deliver to each client when?, without charge, if there are material changes in the brochure since the last updating amendment: 1. 2. (a) (b) (c) (d) AND Deliver to each client or prospective client a current brochure supplement for a supervised person when?
before or at the time the IA enters into an advisory contract with that client annually within 120 days after the end of the IA's fiscal year 1. current brochure OR 2. summary of material changes (supplement) to the brochure accompanied by: (a) website address (b) email address (c) telephone number to obtain current brochure (d) website address for obtaining information about the IA through the IAPD system at the time that supervised person begins to provide advisory services to the client
portfolios that measure (above/below) the efficient frontier are considered sub-ideal portfolios that measure (above/below) the efficient frontier are considered ideal
below above = ideal
price customer will receive when selling
big
ascending, normal, or positive yield curve - would bond buyers want to buy ST or LT maturities? - what period of business cycle does this indicate? - investors will take on what risk? - are ST or LT yields lower? - ST Secs or LT secs have lower IRs?
bond buyers may want to buy longer-term maturities because thats where get best yield - indicates short term secs have a lower interest rate than long term securities - normal indicates economic expansion - ST yields substantially lower than LT yields - investors will take on credit risk
flat yield curve... if interest rates rise, the yield curve would do what?
bond buyers should consider short and intermediate maturities bc lots of uncertainty - indicates economic uncertainty "steepen"
if an IA receives notification that a client has died, the IA should do what?
cancel any open orders and contact the attorney or executor handling the client's estate for directions on how to handle the account
evaluates the expected return of an asset/investment by setting it equal to the risk-free rate of return plus a risk premium assuming that investors demand higher returns for greater risk
capital asset pricing model CAPM
If an investor only just recently bought shares of a fund and are paid capital gains distributions would they be long term or short term?
capital gains distributions are always long term to the investor regardless of how long the shares have been held
use ____________ to determine the amount of life insurance needed to fund future goals should they pass away sooner than expected
capital needs analysis
used to determine if an individual has enough life insurance to fund their future financial goals
capital needs analysis
Personal Property on an individual's BS would include
cars, computers, and household goods, but NOT mutual funds or other investments
IRR determinations are dependent on what?
cash flow
gives investors an idea of the company's cash flow over a specified period of time
cash flow from operations
record of the cash or cash equivalents coming into the company and leaving the company
cash flow statement
generally used by a business rather than an individual and allows the business to reorganize and pay its creditors
chapter 11 Filing
excessive trading for the purpose of generating excessive commissions or fees is also referred to as
churning
handle the processing of settlements of securities trades
clearing agencies
when investment company shares are selling at a discount to the NAV
closed-end investment company
Prime rate is the best interest rate charged and set by ________ on loans to ____________. Normally the __________
commercial banks their creditworthy commercial customers highest rate of all IRs
When compared to other types of securities, ______ typically keeps up with the rate of inflation best
common stock
does preferred stock and or common stock have voting rights?
common stock only
dividend discount model is used to determine ______
common stock values
risk that a company will fail to keep up with competing firms and new developments in the industry or sector or could go the other way if a company jumps ahead of other companies and expects to capture market share with new products
competitive risk
technology company expects to capture market share with a new product has what type of risk?
competitive risk if the product fails
cash fee may be paid to affiliated solicitors of the adviser if ___________
complete disclosure of relationship with the IA is made to the client
Conservative capital structure vs speculative capital structure has
conservative = large% common outstanding small% bonds outstanding speculative = large% bonds outstanding small% common outstanding
A person offering/selling securities by untrue statements or omission of material fact is liable. Buyer can sue to recover what?
consideration paid plus interest and reasonable attorney's fees - less any income received
discretionary income
consumer income spent after essentials like food, housing, and utilities have been paid key economic indicator because spending this money can boost the economy
Mutual Funds Investment Income or Dividends -- if the investor decides to reinvest the dividends, how will this effect the investor's cost basis
cost basis will go up
Tax Preference Items Subject to AMT Incentive Stock options - value of incentive stock options at time of purchase for a taxpayer is generally the difference between _________________
cost of stock purchased on exercise and the market value of the stock on that date
ETN have what type of risk that an ETF doesn't have
counterparty risk because the liability of the ETNN rests with the issuing bank and there are no actual products backing the ETN (unsecured). For this reason, if the bank goes bankrupt or defaults, the holder of an ETN will become a creditor of the bank
nominal yield of a bond is the
coupon rate/ interest rate of the bond
S&Ps anf Moody's evaluate the ______________ of corporate, government, and municipal bonds and emphasize the ________ risk associated with the bonds
credit quality default risk = Interest & Principal risk
difference between 2 bonds of similar maturity, generally a corporate bond and a treasury bond
credit spread
equity indexed annuities interest rate caps the cap on increases is 5%. If the index goes up by 10%, then the equity indexed annuity is
credited with the cap of 5%
US balance of payments deficit improves due to
credits to balance of payments, money coming into US 1 New foreign investment in US 2 commodities being exported 3 spending by foreign tourists or entities in US 4 repayment of loans made to US 5 increased dividends and income earned on foreign investments
current ratio formula = standard minnimum is : most accurately describes the company's _______
current assets/current liabilities min = 2:1 ratio liquidity
Electronic trading platforms run by large investment banks and hedge funds for institutional investors to trade stock privately and anonymously off the floor of an exchange to obtain price improvement if a large block of stock is being traded - alternatives to stock exchanges - provide huge amount of liquidity for block trades
dark pools
ex date for cash transactions is when
day after the record date
As the CPI rises, purchasing power ____
declines
annuity payout option annuity whose contract provides that payments be postponed until a number of periods or years have elapsed
deferred annuity
income payments do not start until a later date in the future usually when the annuitant retires
deferred annuity
zero coupon bonds are also referred to as
deferred interest bonds
If you are an Active Participant in a Retirement Plan at Work in regards to deducting contributions for an IRA, what type of plans could you fall under? ___________________ = individ who is not excluded under eligibility provisions of plan is considered active participant if he/she is eligible to participate for any part of the plan year ending with or within the tax year, even though the individual has not elected to do so, failed to meet min requirement etc _______________________ = individ is considered an active participant if contributions or forfeitures are allocated to the individual';s account for the plan year that ends with or within that tax year
defined benefit plan defined contribution plan
what type of plan is a 401K retirement plan?
defined contribution plan
contract that is valued based on the value of an underlying asset, index, or security
derivative
Earnings from REITS come from
difference between rental income and interest paid on borrowed money
point-to-point means that the level of credited interest is based on __________________
difference or percentage of the difference in an index value over some period of time
access persons
directors, officers, and partners, and its supervised persons who have access to non-public information regarding securities transactions
illustrates a statistical range of potential returns for an investment or a portfolio's returns tool to help measure the risk of an investment
dispersion
provides a tool to determine the price at which a common stock should be trading considering the discounted value of potential future dividends
dividend discount model
measure of the sensitivity of a bond's market price to changes in interest rates
duration
IA must amend Part 2 information how often to provide a current brochure?
each year within 90 days of fiscal year end
Total Income on the income statement is also known as
earnings after taxes
Brochure Supplement - disclosures about individuals who provide the investment management - edu and experience over last _______________ - disciplinary actions over last _______________ - additional compensation from other sources for investment services rendered
edu = 5 years disciplinary actions = 10 years
in modern portfolio theory represents a set of or group of portfolios that will provide the highest return at each level of risk incurred
efficient frontier
modern portfolio theory - what is the founding principle?
efficient frontier
investment theory that states it is impossible to consistently "beat the market" because in an informationally-efficient stock market, current share prices always reflect all relevant information
efficient market hypothesis
savings account containing funds which would cover 3-6 months of living expenses
emergency fund
403B / TSA Plan - who can contribute?
employer: - non-elective contributions employee: - elective salary contributions - after-tax contributions
purpose of a surety or fidelity bond
ensure that registrants have sufficient funds to cover losses to customers resulting from theft or other dishonesty for which they are legally liable
market orders are entered when? do they have priority?
entered at the opening on an exchange always have priority
zero coupon bonds duration always = __________________ coupon bonds always have a (higher/lower) duration vs zero coupon bonds?
equal to its maturity coupon always lower because bonds pay interest whereas zero coupon has no interest payment
capital appreciation strategy would have a portfolio consisting mostly of ________
equities
provided payments linked to a specific stock index like the S&P 500 annuity
equity indexed annuity
In connection with the solicitation of investment company shares, stating/implying shares are sold w/out commission, are "no load", or have "no sales charge" is illegal if associated with the purchase of the shares there is: a SEC Rule 12b-1 fee or a service fee if such fees in total ____________________
exceed .25% of average net fund assets per year
Alternative Minimum Tax (AMT) include: For Oil and gas Programs: 1. excess of (straight line/accelerated depreciation) over (straight line/accelerated depreciation) is a tax preference item. (straight line/accelerated depreciation) takes equal amounts of depreciation over the life of an asset whereas (straight line/accelerated depreciation) takes large amounts of depreciation in the early life of the asset 2. The excess of _________________ over the _____________ 3. Amount by which (tangible or intangible?) drilling costs in a tax tear exceed ___________ of taxpayer's net income from oil and gas properties
excess of accelerated over straight line straight line is equal amounts of depreciation over life accelerated depreciation is large amounts in early life of asset 2. excess of % depletion over the adjusted basis intangible drilling costs in a tax year exceed 65% of taxpayer's net income
court appointed representative of the estate who is responsible for the administration of the estate
executor
the exception to the 10 day rule that investment advisers must abide by in regards to discretionary power over a client's account is
exercising discretion as to time and price only does not require authorization
business cycle order
expansion/recovery, peak, contraction/recession, trough
Modern Portfolio Theory Portfolio Examination ____________ is the calculation generally used when making this determination
expected return
the Final Prospectus must be received by customers purchasing new issues when? The Administrator may require that a prospectus be sent when in regards to the sale of a security?
final P must be received not later than with their purchase confirmation Admin may require that a prospectus be sent before the sale of a security
Equity-Linked Notes (ELNs) - debt security but differs from the traditional fixed-income security in that the ______________________________. - Can issuers ever put a limit on how much return the investors can receive? - what can they include?
final payout is based on the return of the underlying equity (which could be a single stock, index, or basket of stocks) - Yes. can include a cap on the return - limited to equity only
analysis focusing on company's financial statement, management, and profitable
fundamental analysis
review of factors that could affect the value of a company including the overall financial health of the company, the competency of its management, and economic and market conditions
fundamental analysis
For debt securities, in calculating DCF, the future cash flows are referring to _________________
future coupon payments and the final principal payment
calculations are generally used to determine what the value of a fixed sum of money invested today at a specific IR will be worth at a future date taking into account reinvesting and earning interest on interest
future value & compounding
legal binding contract made on the trading floor of an exchange to buy or sell a specific commodity or financial instrument at some point in the future
futures contracts
Unconsolidated Subsidiary - Parent company's financial statement would carry the unconsolidated subsidiary's __________________ as an ______________ and would be found in the footnotes of the parent's balance sheet
gains and losses as an investment
will - does not indicate which part of the property should be taken by whom
general bequest
type of average of a set of positive real numbers when averaging interest or growth rates
geometric mean
___________ fund includes both foreign and domestic issues
global
for non-qualified distributions from a Roth IRA Account, - portion of the distribution may be included in the account owner's _______________ - amount included will generally be subject to ________
gross income and be subject to 10% penalty tax on early withdrawals
Structured Products Principal Risk is guaranteed by ___________ and only if ____________.
guaranteed by the issuer only and only if note is held to maturity
tax-advantaged medical savings account set-up with a qualified trustee, such as a bank or insurance company
health savings account (HSA)
in a client's advisory contract is a disclaimer and is intended to relieve the advisor from liability for conduct where the client may have cause under state or federal law. ILLEGAL
hedge clause
many investors use inverse funds for what purpose? inverse funds can also be leveraged and are sometimes called ___________
hedging purposes Short ETFs
A HIGH Treynor Ratio means that a fund will have (high/low) historical returns when compared to market-related risk
high
Variable annuities have high or low levels of expenses and fees compared to investment company shares with similar features to the annuity?
high
a (high/low) P-B could indicate a growth stock a (high/low) P-B could indicate an undervalued stock
high P-B = growth stock low P-B = undervalued stock
does a high SD or a low SD means it is riskier?
high SD = riskier
A (high/low) cost basis results in a lower capital gain.
high cost basis = low capital gain
when compared to other types of securities, _____ typically maintain price and provide the best returns during periods of deflation and during extended recessions
high quality bonds
cost-to-equity ratio measures what
how expensive the trading in the account has been
A tenancy by entirety is a form of concurrent ownership that can only exist between a _________
husband and wife
written agreement needed to pledge a customer's securities for a loan in the customer's margin account
hypothecation agreement
how does an inverse ETF profit?
if an index declines and loses money if the index rises
if an investor is considering investments A and B, the opportunity cost would be what?
if choose A -> lost opportunity of investing in B
mutual funds that have a portfolio that mirrors a broad based index portfolio purpose is to keep up with the index, not beat the index
index funds
IMF - International Monetary Fund is funded by ________ and its purposes are to promote ____________ in ________
industrialized nations monetary and exchange stability international trade
after annuitant has deposited their single premium payment, the income payments to the annuitant begin immediately after the start date and are paid for a specific period of time or life of annuitant
immediate annuity
annuity payout option annuity contract bought with a single payment and a specified payout plan begins right away
immediate annuity
definitions related to brochure rule _______ is investment advisory services that do not purport to meet the objectives or needs of specific individuals or accounts general statement/advice
impersonal investment advice
if mortgage rates decline significantly in the next few months, a customer who owns a CMO would be most concerned with what type of risk?
implied call risk -> as mortgage rates fall, many current mortgage holders will refinance their mortgages at lower rates and the CMOs will be prepaid before the expected maturity date
variable life is convertible to whole life when?
in 1st 2 years of policy
fixed assets are not expected to be converted to cash, or at a minimum, are not expected to be converted to cash when?
in next 12 months
Safe Harbor 404C provisions is in what type of plan? refers to the protection from liability given to the employer/sponsor of a _______________ plan if the employee/participant makes imprudent investment decisions and loses money
in qualified plan - self-directed plan
buying and selling the SAME security repeatedly within a short period of time
in-n-out trading
IMF - International Monetary Fund. This organization is funded by _________________________ and its purposes are to _________________
industrialized nations promote monetary and exchange stability and international trade
tendency of an inflation rate to remain constant or consistent unless there is a demand shock or a supply shock
inertial inflation
risk that the return from an investment will not cover the loss in purchasing power caused by inflation
inflation risk
dollars received in the future will buy less than in the present
inflation risk/ purchasing power risk
the internal rate of return expressed as a % represents where the _______________ for the project or the investment being analyzed
inflows = outflows
If someone died and these securities were left for you in a will, these are considered a
inheritance
NASAA delivery of the brochure and related supplements may be made electronically if the investment adviser: in the case of an initial delivery to a potential client, ________ other than initial delivery,
initial delivery = verifies that copy of brochure and supplements got to client other than initial = gets each client's consent before sending the brochure and supplements electronically
risk that fixed income investment's value will change due to a change in interest rates
interest rate risk
business cycle
interests rates follow whatever it does
equity indexed annuities participation rates if the index goes up by 10% and an investor's participation rate is 80%, then investor's equity indexed annuity __________
is credited with 80% of a 10% increase, or is increased by 8% (.8*.1)
Rollovers - rollover to Roth IRA is or isn't allowed? - do you have to pay income tax on the distribution before you roll it over into the Roth account?
is permitted have to pay income tax first
Qualified Domestic Relations Order (QDRO) - issued by who? - part of what division in a divorce or legal separation? - divides/ splits a _______________________ by recognizing ____________________ in the plan
issued by a State court - property division - retirement plan or pension plan - recognizing joint marital ownership interest
Certificate of Deposit (CD) - is issued by who? - debt/equity? - fixed/variable interest rate? - set maturity date/no set maturity date? - can you withdraw funds? - considered a liquid investment?
issued by a bank debt instrument fixed interest rate and a maturity date - can withdraw but will have to pay a penalty - not considered liquid
outstanding shares formula
issued stock - treasury stock = outstanding stock
annuity payout option income payments are made while both annuitants are alive, and then the survivor continues to receive payments after the death of the other annuitant
joint and last survivor annuity
annuity payout option payments last as long as both annuitants are alive and stop upon the death of either annuitant
joint life
strategy which involves the purchase of fixed income securities with different coupon rates and different maturities to reduce interest rate risk and re-investment risk
laddering
the administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant from employment if he finds that it is in the public interest and the the applicant/registrant has been convicted of any misdemeanor involving securities when? has been convicted of any felony when?
last 10 years anytime
function of fed reserve : lender of __
last resort
divorced spouse qualifies for spousal or survivor benefits if the marriage lasted ________________ based on ___________________.
lasted 10 years or more based on the ex-husband or ex-wife's social security earnings record
annuity payout option annuitant will receive regular payments until death, but if the annuitant dies before a chosen period has expired, the beneficiary will receive payments until the period certain ends
life annuity-period certain
annuity contracts are issued by ___________
life insurance companies
order to buy or sell a security at a specific price or better
limit order
_______________ is the primary vehicle used for Direct Participation Programs
limited partnership
real estate partnerships, oil and gas programs are investments which allow the investor certain tax advantages
limited partnerships
risk that an investment will not be able to be sold quickly enough to prevent a loss
liquidity risk
the best upside protection with options would be _________
long call
are annual expenses on ETFs generally high or low
low
Changing the primary reserve requirement maintained by member banks: _________ the reserve requirement would pump more money in the credit system thereby stimulating the economy. Inflation is not a near threat
lowering
lump sum vs installment taxed
lump sum = tax exempt installment = interest = taxable
Due to time value of money, it is usually better to take lottery winning as (lump sum now or periodic payments)
lump sum now
Dow Jones Industrial Average is made up of ________________ - considered an indicator for _________________
made up of 30 selected large cap blue chip stocks divided by a constant considered an indicator for large cap stocks
dealers that maintain an inventory of OTC securities and are willing to buy and sell for their own accounts on a regular and continuous basis
market maker
BDs who maintain a firm bid and ask price in a given security by standing ready to buy or sell from their own inventory at publicly-quoted prices
market makers
an order to buy or sell a security at the best price available when the order reaches the marketplace
market order
Semi-Affluent Investors do not meet the criteria of being accredited or qualified but _____
meet minimum investing requirements
unincorporated association - liability?
members have unlimited personal liability for any legal action taken against association
call for an "additional" deposit after a security has been purchased one margin and the market value of the security has declined in value
minimum maintenance margin call
Hybrid REITs =
mix of equity and debt investments
value that occurs most frequently in a series of data points
mode
investment theory that attempts to optimize expected returns for a portfolio for a given level of risk or attempts to minimize risk for a given amount of return
modern portfolio theory
US balance of payments deficit increases due to
money is flowing out of US 1 Increase in US investments abroad 2 US tourists spending abroad 3 US loans to other countries 4 Raising dividends and interest payments on foreign-owned securities of US issuers
hedge funds usually allow for sale or redemption of shares how often?
monthly, quarterly, or annually
Bond ETFs are (more/less) liquid than the bonds themselves
more
do arbs make trading markets more or less efficient? Why?
more efficient because once these price discrepancies are discovered, they are quickly adjusted, as the arbitrage opportunity (disparity) no longer exists
Registration would also be required for interests in limited partnerships and intrastate offerings of corporate securities where ____________ investors will participate
more than 10
CMOs (Collateralized Mortgage Obligations) - Mortgage-backed security that passes through ___________________ from a ________________ to investors how often?
mortgage backed security that passes through interest and principal payments from a pool of mortgages to investors monthly
Real estate prices move how compared to prices of financial assets like stocks and bonds
move in opposite direction
type of technical analysis average price of a security ofver a specific amount of time the price move is smoothed out and helps an analyst identify trends
moving averages
tax minimization = investment objective what should they invest in?
municipal bonds for tax-free income
BDs must provide _______________ on the routing of customer orders and execution quality
must provide quarterly reports
an efficient trading market is one with (narrow/wide) or (big/small) bid/ask spreads
narrow or small big/ask spreads
Earnings Per Share =
net earning/ outstanding common shares
Earning Per Share on Common Stock
net earninngs/ common shares outstanding
if an IA firm is a limited partnership and one of the limited partners or corporate shareholders becomes insolvent or declares bankruptcy, could this be grounds for registration revocation of the firm?
no not grounds for firms registration
sometimes issuers have to file in a state when issuing securities, but would they also have to register as a BD?
no not required
when investigating a potential violation or examining a firm's books and records, does the Admin need to provide appropriate prior notice, hearing opportunity, and written findings of fact/conclusions?
no that only is required in a disciplinary proceeding which only happens once the investigation is complete
does the '40 Act regulate the level of returns made to clients?
no thats a function of management and investments
Spousal IRA: - nonworking spouse.. can be opened in whose name? - what type of IRA is it - how much can be contributed? - how much can be deducted?
opened in the nonworking spouse's name - Traditional IRA - Traditional IRA contribution and deductions
an accounting method which does not include long-term costs, but which does include net earnings plus non-cash expenses such as depreciation and amortization, as well as changes in working capital
operating cash flow or cash flow from operation
category on income statement that shows profitability after expenses, but before payment of interest and taxes
operating profit
Margin of Profit formula =
operating profit/ gross sales
economic term that describes the value of the next best choice that one foregoes as a result of making a decision
opportunity cost
the CSV will be taxable as _____________________ if it exceeds the total premiums paid
ordinary income
category one balance sheet that include intangible items such as intellectual property and goodwill
other assets
alpha of 3% means what?
our investment out performed the amount of risk taken by 3%
permanent life insurance flexible premium payments means the policyholder can either pay premiums __________ or ___________-
out of pocket or have them deducted from the CSV
Annual Fund Operating Expenses are paid how?
out of the fund's assets portfolio rather than a separate fee charged to investors
currency transaction report must be filed for transactions involving currency (cash) of _____________ for 1 person in the aggregate in a _______________.
over $10k in a single business day
modern portfolio theory - places more value on (overall portfolio/ individual investments?) 4 steps/considerations=
overall portfolio 1. security valuation 2. asset allocation 3. portfolio optimization 4. Performance Measure
if grandmas will says 25% to all 4 kids, and will says ____________ Since Vickie passed away, Allie and Katie would then be entitled to split her 25% and will says _____________ since vickie passed away, the other 3 living children would then split the will as 1/3% each and Allie and Katie would get nothing
per stirpes = Allie and Katie split vickie's 25% per capita = Allie and Katie get nothing
Cash Flow Statement - point in time or period of time? - tracks _______________ in order to determine the _____________ - generally show: 1. 2.
period of time - tracks inflows and outflows to determine net cash flow 1. income or sources of cash: salaries, wages, dividends, and realized capital gains 2. outflows or use of cash: rent, utilities, loans, taxes OWED, insurance payments
Tax filing status - types of filings are based on the person's ________________ when?
person's marital status on the LAST day of the tax year
disposable income
personal income remaining after personal taxes can be spent on essentials or nonessentials or it can be saved
Registered IA must establish a code of ethics that requires access persons to report how often their personal securities holdings? and how often their personal securities transactions to the CCO? The information may not be more than _________________
personal secs holdings = annually personal secs transactions = quarterly X more than 45 days old
form of charting where specific entry and exit points are established
point and figure type of technical analysis
in ETN the bank promises to repay ________________ when?
principal amount less investor fees at final maturity
guarantees are guaranteed as to payment of
principal, interest, OR dividends
Qualified Plan - established and maintained by (public/private) employer - meets requirements of what act? - are contributions made by the employer tax deductible or not tax deductible to the employer? - do employees have to pay current income taxes on the contributions made by the employer?
private - are tax deductible to the employer - employees dont have to pay current income taxes on contributions by employer
private sector employees: public sector employees:
private = corps, small bus, bus owners public = fed, state, local govs
do public or private foundations have to pay out a minimum of their assets each year in the form of grants or providing charitable activities?
private foundation
Private CMOs are issued by who
private institutions: banks, investment banks, and home builders
HPR formula =
profit or loss/ investment or cost
plan by which a company shares its profits with employees designed to give employees an incentive to be productive
profit sharing plan
If the IRR exceeds the required rate of return/ hurdle rate then the project is expected to be (profitable or Not profitable?)
profitable
trades based on signals from computer programs usually entered directly from the trader's computer into the market's computer system and executed automatically
program trading
In the US does the progressive tax rate cause the marginal tax rate to increase with increasing salaries? Or does the marginal tax rate cause the progressive to increase with increasing salaries?
progressive causes marginal
changes of material fact (change in ownership, or the filing of complaints) must be reported when to the Administrator?
promptly
BDs can't execute any transaction in a margin account without securing client written margin agreement when?
promptly after transaction
disclosure document that describes a public offering of a new issue
prospectus
can public or private foundations obtain funds from government agencies
public
annual report - public or private companies must provide to shareholders? - chronicles the company's activities over what time period? - contains the company's _________________
public over past year financial statements balance sheet income statement cash flow statement
Are All Administrative hearings public or private?
public unless determined otherwise
Changing the primary reserve requirement maintained by member banks: ________ the reserve requirement would reduce the amount of funds for loans and credit thereby slowing the economy and fighting high or rising inflation
raising the reserve requirement
believes stock market prices are random and not influenced by past events
random walk theory
difference between the highest value and the lowest value in a series of data points
range
types of dispersion:
range, variance, standard deviation, and mean
Indirect investment in real estate - trust or corporation uses investors' money to buy and operate income properties
real estate investment trusts
income investing involves accumulating assets such as _______________ at the highest possible return with lowest possible risk
real estate, stocks, bonds, mutual funds
Long-Term Capital Gains - realized or unrealized profits? - earned on assets held for how long? - gain is taxed at rate of ________ tax liability =
realized - 12 months + 1 day or longer trade date to trade date - 15% tax liability = net LT Gain x .15
capital gains distributions on an investment portfolio are derived from
realized LT gains on the portfolio
switching investments in response to market conditions and interest rates
rebalancing
changes in tax rates is what risk
regulatory risk
Form ADV Part 2
required disclosures about prospective and existing clients aka The Brochure Rule
alpha= 0% means what? alpha<0% means what? alpha>0% means what?
returns received were adequate for the amount of risk taken alpha less than 0 means returns received were not adequate for the level of risk taken alpha more than 0 means returns received were greater than adequate for the level of risk taken
Treynor Ratio Formula =
risk adj return/beta remember that risk adj return = total return of investment - risk free rate of return
as a bond approaches maturity, the interest rate risk (increases/declines) interest rate risk is greater in the (earlier/later) years of a LT bond?
risk declines as approaches maturity risk is greater in earlier
additional return an investor can expect for taking risk above and beyond risk-free investments
risk premium
Sharpe ratio is the _____________ return relative to a portfolio's ______________
risk-adjusted volatility
Traditional IRA holding money from a distribution from a qualified plan or 403B plan
rollover IRA
used as a conduit between retirement accounts
rollover IRA
Fee charged to a customer who buys shares of some mutual funds and normally pays the fee upfront at the time of purchase
sales load
how do you determine the capital gain or capital loss on the investment?
sales proceeds - cost basis
investment strategy where securities are purchased in increments to achieve any overall total goal to attain an average purchase price as the value of the security is declining
scaling in
annuity payout option highest amount of payment to the annuitant
single life or life annuity
annuity contract holder buys contract 2 ways
single premium = lump sum paid to life insurance company periodic premiums = series of installment payments
ETN Characteristics - secured/unsecured? - debt/equity? - principal protected/not principal protected?
unsecured debt securities that are NOT Principal protected
when portfolio managers move from investing in 1 sector of the economy to another
sector rotation
BDs shall not execute any transaction in a margin account without ____________ promptly after transaction
securing client written margin agreement
if you are an investor with securities that have appreciated in value, should you contribute those securities or should you contribute cash to to a charitable foundation? why?
securities because current mkt value of securities = cost basis of the deduction any unrealized capital gain on security = waived
such as Bloomberg and ADP are companies that provide info about securities or quotations on a current and continuous basis - NOT bona fide newspapers, business publication of general circulation, financial institutions
securities info processors
any evidence of an interest in a common enterprise in which the investor expects a profit from the managerial efforts
security
Limited Registration of Canadian BDs and Agents a Canadian BD is registered in Canada and resides in Canada with no office or other physical presence in any State within the US can effect transactions in securities with or for A person who is from Canada and now is a resident of a State in the US whose transactions are limited to those in a _______________
self-directed, tax-advantaged retirement plan in Canada that is administered solely through a Canadian Broker Dealer
open market operations : Fed would buy or sell treasury securities to slow down the economy to fight high or rising inflation
sell
When a BD effects transactions (including private securities transactions) not recorded on the regular books or records of the BD which the agent represents
selling away
Interest on a bond is paid ________
semi-annually
bonds pay interest how often?
semi-annually
principal of the Treasury Inflation Protected Security is adjusted to CPI how often
semi-annually
Fixed Income (Bond) ETFs During slow markets, there is a (sizable/close) relationship btwn market price and the NAV In fast markets, there is a (sizable/close) relationship btwn market price and the NAV
slow = close relationship fast = sizable
a way to "pay" for products/services received from a BD by directing order flow to a BD
soft dollar arrangements services received by the IA could include reports, applications and real time quotes but NOT the payment of the salary of an analyst
Where are REITs traded?
some OTC and some on floor of stock exchange
Structured Products Are structured products callable?
some are
a prospect for variable life should be a person with
some investment sophistication and a tolerance for possible wide fluctuations in CSV
Will - transfers a particular asset to a particular beneficiary
specific bequest
Holding Period Rate of Return = measurement of return of time period _______________
specifically held by investor
an investment adviser that is compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of other IAs in the program
sponsor of a wrap fee program
a measure of volatility of a security or portfolio from the expected return based on past performance
standard deviation
are standard equity indexed annuities principal and credited interest protected?
standardly yes.
bottom-up investing starts with what?
starts with a company-by-company analysis of individual firms
are IARs registered at the federal or state level?
state only
memo order from a customer that becomes a market order if a trade takes place at or through the price stated in the memo
stop order
type of allocation where the assets in the portfolio over the long term are balanced and generally kept at an assigned balance
strategic asset allocation
is strategic asset allocation a form of passive? or is passive a form of strategic?
strategic is a form of passive
equity indexed annuity modern approach - recent developments in equity indexed annuity markets have created new products which are structured like ___________ with a ___________ interest rate, but also have a ___________ interest rate which is linked to an index
structured like fixed annuities with fixed interest rate, but have fluctuating interest rate thats linked to an index
FINRA defines ______________ as securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance, and or a foreign currency
structured products
occurs when an investment manager strays or departs from their normal investment philosophy or style generally seen as a negative and historically has not proven to be successful for the manager
style drift
Structured Products Credit Risk: structured products are subject to the credit risk of who? Is there a government-backed guarantee on structured products? What happens if the issuer is unable to meet its financial obligations?
subject to credit risk of the issuer no government backed guarantee if unable to meet, investor may lose entire investment
Risk Tolerance is an objective or subjective factor?
subjective
document describing the features of an employer sponsored plan
summary plan description
When options are sold, the premiums received are taxed how?
taxed as capital gains if option expires unexercised
If you are a 1st time home buyer and you want to pull out money from your IRA to help buy/rebuild/build your first home... how will you be taxed on the distribution?
taxed as ordinary income but won't be subject to penalty 10% tax on up to $10,000 of distributions
If you want to adopt a child / you are giving birth and you are age 36 and you want to pull out from your IRA to help cover costs.. how will you be taxed?
taxed as ordinary income dont have a tax penalty for withdrawals up to $5k
analysis focusing non market trends, charts, and market patterns in an attempt to predict the direction of a company's stock price
technical analysis
Interest in property that can be held only between a husband and wife in which each party has a right of survivorship over the property and which neither party can terminate without the consent of the other
tenants by entirety
upon death of one of the individuals involved, that person's interest in the account passes to his or her estate and not to the surviving member of the account
tenants in common
establishes a trust used to transfer an estate to beneficiaries after the death of the testator (person who created the will)
testamentary or traditional will
trust created from a will
testamentary will
who is responsible for termination notification in a state registered IA firm?
the IA is responsible for notification
who is responsible for termination notification in a federal registered investment advisor firm?
the IAR is responsible for notification
if an agent begins/terminates connection with a BD/Issuer or begins/terminates agent activities, the Agent/BD/Issuer must notify who
the administrator
who is responsible for ensuring that agents are registered
the agent's BD
life insurance death benefits may be subject to the federal estate tax if
the estate exceeds the excludable amount and the decedent(person who died) owned the life insurance policy
yield to call on a bond = the expected yield that the investor will receive, assuming that the bond is called on ______________
the first or next available call date
Unconsolidated Subsidiary - Parent company's financial statement would carry the unconsolidated subsidiary's gains and losses as an investment and would be found in ___________________________
the footnotes of the parent's balance sheet
IRR - for purposes of the equation, the inflows of the investment are assumed to be reinvested at __________
the investment's IRR
what would be the time horizon for their retirement investments?
the life expectancy of a retiring individual
DCF valuation approach - estimates the value of a security as ___________________________
the present value of all future cash flows that the investor expects to receive from the security
advertisements may not refer to past recommendations if the advertisement refers to specific recommendations that were profitable unlesss the adviser offers to furnish a list of all recs made within _____________
the previous year
in an attempt to end an inflationary period, the Federal reserve would do what ?
tighten money supply sell government securities raise the discount rate
bonds trading at a par will always have a basis (YTM) which is ____________ the coupon rate
the same as
An investor who is interested in purchasing a bond would use current yield as a means to calculate what?
their actual return would be if they purchased the bond at the current market price (whether at a discount or at a premium)
income/revenues are taxed to each limited partner in a limited partnership based on _______________
their share of ownership and the type of income/gain/loss
equity indexed annuities spread/margin/asset fee The fee is 4% of any gains to the index. If the index goes up by 10%, then the equity indexed annuity
then annuity is credited with 6% while remaining 4% goes toward fees
NASAA Rules and Custody - Would NOT constitute custody: funds inadvertently sent to the IA as long as ___________________
they are returned promptly within 3 business days
when the price of a bond declines, what happens to the current yield and basis?
they both rise
Do ETFs pay dividends?
they can but its not usual
under the 1933 act are listed securities exempt or do they have to be registered?
they must be registered
when there is a devaluation of cash assets, what happens to precious metal prices?
they rise
Why are Brady Bonds issued?
to convert defaulted loans into bonds and thereby reschedule the issuer's debt repayments Ex: had Latin American countries with bond deals due for repayments but didnt have money to pay for them so issue new Brady bonds and to make ppl more comfortable buying them they were backed by US Treasury zero-coupon bonds
investment objective = protection - what should they invest in?
to protect long stock position, buy put options to protect short stock position, buy calls
inflationary period
too much money chasing too few good = rising prices and rising interest rates
cost-to-equity ratio equation
total annual costs/ account's average balance
an investment's performance is best measured by what?
total return
turnover ratio equation
total value of annual purchases made in an account/ account's average monthly balance
in structuring a CMO the issuer distributes the cash flow coming in from the mortgages to a series of different classes of short, medium, and long-term maturities of the CMO which are called __________
tranches
cancel old certificates and issue new ones
transfer agents
HSAs have (single/double/triple) tax benefits?
triple
arrangement in which property is managed by one person for the benefit of another
trust
blank check, blind pool, shell company
typically have no stated investment objective/no intended investments upon formation
subsidiary for a company whose financial statements are accounted for "separately" from its parent company
unconsolidated subsidiary
any person (such as BD) who has purchased from an issuer or sells for an issuer in connection with a distribution of any security
underwriter
group of 2 or more individuals who voluntarily enter into an agreement to form an organization for a common purpose
unincorporated association
How often does an IA need to deliver a privacy policy to a client
upon the IA's engagement by a client and on an annual basis thereafter
alpha is calculated using what to account for the volatility
using Beta
life insurance installment payments are taxed how?
usually have a taxable interest element
Value investors focus on ________ - do they pay dividends? - do they have high or low price/book ratios? - do they have debt?
value stocks which are undervalued companies with low P/E Ratios pay regular dividends have low price/book ratios have little or no debt
This type of life insurance policy has an investment component which allows the policyholder to allocate a portion of the premium paid into an investment fund of stocks, bonds, mutual funds, and other types of investments
variable life insurance
do fixed or variable annuities offer a minimum death benefit?
variable offer a minimum death benefit
type of permanent life insurance that has an investment component which allows policyholder to allocate a portion of the premium paid into an investment fund of stocks, bonds, mutual funds and other types of investments
variable universal life insurance
investor buys life insurance policy from a policyholder with a terminal disease with a life expectancy of less than 2 years at a substantial discount from the DB
vatical settlement agreement
Client objective is speculation what should they invest in?
volatile common stocks, junk bonds, stock options
effecting, alone or with more persons, a series of transactions in any security creating actual or apparent active trading for the purpose of inducing sale of securities by others
wash sales/ matched orders
weak version of EMH semi-strong version of EMH strong version of EMH
weak= mkt prices reflect past prices and trading volumes so HIGHLY unlikely that investors will be able to outperform the market semi-strong = publicly available info is reflected in mkt prices strong = all information, public or private, is reflected in market prices
expected return is the _________________ for all components of the portfolio
weighted average of the expected annual returns
when does registration become effective?
when determined by the administrator but if there are no problems, then the application will automatically effective at noon on the 30th day after filing
registration through qualification becomes effective when?
when the Administrator so orders
annuity payout option in single life or life annuity, what happens when the annuitant dies? are there beneficiaries?
when the annuitant dies, the insurance company keeps any remaining balance and there are no beneficiaries
when does a state registration become effective when it is satisfied through coordination?
when the federal registration becomes effective
when will a BD or an IA not be required to post a surety bond
when they meet minimum net capital requirements or if they deposit cash or securities with the administrator instead
In a Front-end sales load when does the investor pay?
when they purchase the shares
in a back-end or deferred sales load when do investors pay?
when they redeem shares
If you're a federal covered advisor and registered with the SEC when do you have to file a notice with states?
when you have 6 or more clients in that state that you are transacting business with
executor - distributes assets either according to
will ("testate") or state's statutes
low volatility = client investment objective
willing to accept lower than expected market returns in order to have less unpredictability in their investments - bonds, and money market securities - avoid common stocks and equity securities
Investment advisers cannot exercise any discretionary power in placing orders without authority from a client when?
within 10 business days AFTER the first transaction
form of compensation where a client no longer pays fees for specific services, such as commissions on trades, or fees for specific financial advice Instead, the client typically pays a set % of AUM for agreed upon services
wrap fee
Can ETFs be sold short?
yes
what type of bonds are most sensitive to changes in interest rates?
zero coupon bonds because interest payments accumulate and compound at the bonds stated yield vs. bonds that pay semi-annually
are predictionns and projections allowed on Variable annuities?
no
are proxy statements considered solicitations? (definition for investment company shares)
no
are purported gifts bona fide gifts?
no
are reports to shareholders considered solicitations>
no
are shares acquired as a result of a merger or reorganization considered a sale?
no
can members of the UW syndicate pay by installment payments for new issues?
no
can personnel working in a BD's research dept be compensated by firms IB dept?
no
is a stock dividend considered a sale?
no
annuity payout option Annuitants receive regular income payments until they die, regardless of how long they live
single life or life
Per stirpes and per capita in will how are shares split
stirpes : unequal per capita : equal
income statement -> what are dividends on common stocks subtracted from?
Net Earnings
Reasons a company would repurchase their own stock
1 increase EPS 2 finance future acquisitions 3 provide stock for employee stock option plans 4 fight a takeover
if a quote for an investment company shares is (higher/lower) than NAV, the fund has to be a closed-end fund
lower because open end shares are priced at NAV+sales load
Rights of Accumulation explanation/formula=
lower sales charge when tot val of already held shrs + additional amt 2 be invested > sales charge breakpoint
Social Security - benefits are skewed in favor of who>
lower-paid workers
Tbills are in minimum denominations of
$100
The (higher/lower) the IRR, the better the investment
higher the IRR
cash flow statement is categorized into 3 categories:
1. Operations 2. Investing 3. Financing
changing the discount rate: rate charged to member banks which borrow from the Fed to cover temporary reserve needs rate is __________ to stimulate the economy
lowered
example of the time horizon for a child's college fund
number of years until a child FINISHES college
list or log generally of activity which takes place in the branch office of a BD
Blotter or Daily Blotter
an agent may not lawfully offer to sell securities in a ____________ underwriting.
pending. an offer cannot be made until the registration becomes "effective"
which statement is also called the profit and loss statement?
income statement
floating exchange rate is determined by
intervention of central banks and market forces
dividends are normally paid to investors how often?
quarterly
If your spouse dies, you are eligible for a _____________- benefit of social security
survivor
what are the 4 basic elements of an investment contract (which is defined under USA as a security)
1 investment of money 2 a common enterprise 3 expectation of profits 4 management by a 3rd party HOWEY DECISION
lagging indicators - tend to lag behind the economy
1 inventory 2 labor costs 3 existing housing sales 4 capital spending 5 outstanding commercial and industrial loans 6 unemployment rate 7 bank interest rates (prime rate) 8 corporate profits
Institutional Investment Managers managing an account with a value of more than ____________ in securities must file quarterly reports with the SEC
$100 mill
Bonds are issued in increments of _____
$1000
Coverdell EDU Savings Accounts - Total Contributions for an individual beneficiary of this type of account cannot be more than _____________, no matte how many accounts have been established - contributions can be made till when? - assets in account have to be distributed or transferred when? - what happens if not distributed? - Are contributions tax-deductible? paid with what dollars? - How are withdrawals taxed? - what can the benefits be used for?
$2000 aggregate / year - can be made till 18 - distributed or transferred within 30 days of age 30 - 10% penalty tax if not - contributions are NOT deductible, paid with after-tax $ - withdrawals are tax-free for qualified higher edu expenses and qualified elementary and secondary edu expenses Public and Private
General Partnership - how many partners? - how do they share the management, profits or losses, and liabilities of partnership? - offer continuous existence (limited life)? - can you transfer ownership? - startup capital is limited to ___________ - general partners are active or inactive in management and control of bus? - what type of liability?
- 2 or more - jointly - NOT offer continuous existence - can transfer if approved by all general partners - amount put in by each partner - active - unlimited personal liability for any company debts, taxes, or legal liabilities (entire net worth is at risk)
Margin Account - who sets the requirement on new purchases and on short sales in a margin account? - what Regulation requirement is on new purchases and short sales in a margin account? - what is the requirement %?
- Federal Reserve Board sets Reg T requirement on new purchases and on short sales which is 50%
- exchange is ___________ where buyers and sellers meet to execute trades. - _______________ is the key individual on an exchange trading floor. Person who trades securities - securities that trade on an exchange are considered ___________
- exchange = auction market - designated market maker (DMM) - "listed"
if the owner of an IRA dies and the designated beneficiary is: surviving spouse then the - transfer qualifies for what tax deduction? - can the spouse become an owner of the account? - can the spouse make contributions? - can the spouse rollover the inherited IRA? - Does the spouse have to pay taxes on the distribution?
- federal estate tax marital deduction - can become owner - can make contributions - can rollover - have to pay taxes on distribution
program trading - applies to __________________ - process of electronic execution of trading of a basket of stocks simultaneously for _____________, _______________, or _______________ (NASDAQ).
- applies to stocks and to derivative products - index arbitrage, portfolio restructuring, or outright buy/sell interests
ST Cap gains - taxed at what rate? tax liability =
- at investor's ordinary income tax rate = net ST Gain x Investor's marginal tax rate
trust - who drafts trust documents? - security? - trust files what form with IRS? - beneficiaries who receive income from a trust or estate receive what form from the trust or estate for tax reporting purposes? - do assets have to go through probate?
- attorneys NOT IAs - trust file Form 1041 - beneficiaries file Form K-1 - avoid probate
Class B shares - what type of sales load? - do they provide breakpoints? - how do their expense fees compare to other classes?
- back end loaded funds with contingent deferred sales load and is charged on a declining scale so the longer you own shares, the lower the load will be - NO - expense charges are higher than Class A
Short sale - sale of stock by a customer who has __________ - generally expects market price of stock to ________ - what accounts can short selling be conducted in?
- borrowed stock from BD - decline - only margin account
profit sharing plan - determination to contribute determined by who? - size of any annual contributions made by who? - contribution is dependent on what? - all funds are taxed how? - are deductible allowances allowed to be carried over to the next tax plan year?
- both determined by the employer - tax-sheltered - NO
joint account - signatures of who? required to open - who can enter orders? - distributions payable to who? - all taxable events are reported under whose SSN?
- both signatures - either party - payable to both - under 1 SSN
Financial Futures If you thought the market was about to rise, what would you do?
- buy/long stock index futures
definitions related to brochure rule contract for impersonal advisory services: any contract relating solely to the provision of IA services:
- by means of written or oral statements which do not purport to meet the objectives or needs of specific individuals or accounts - through the issuance of statistical information containing no expression of opinion as to the investment merits of a particular security or a combo
leveraged ETFs characteristics
- track an index fund or a benchmark - borrow capital with the goal of generating a greater percentage return - use derivatives such as futures and options - bc of leverage % gains or losses would be magnified
Capital Gains Distributions Investment Company - how can the investors receive these distributions? - Are capital gains taxable to the investor? - when are they paid out to the investor? - What happens to the NAV of the fund when these are paid out? - If reinvested, how are they reinvested? - Can these be used to offset other capital losses? - Is appreciation in the value of the portfolio taxable?
- can receive in form of cash or shares - taxable to investor EACH YEAR regardless of how they are taken - must be paid out 100% to investor, at least 1x a year - when paid, reduce the NAV of the fund - Reinvested at the NAV of the fund & no sales load will be charged - appreciation in the value of the portfolio is NOT TAXABLE
ETFs - _____________ are charged on transactions - do ETFs have a sales load?
- commissions are charged just like common stock - no sales load, which generally lowers costs to investors
SEP IRA - simplified employee pension - contributions are or are not tax deductible? - distributions and earnings are taxed how? - withdrawals taken before age 59.5 have what?
- contiribs are tax deductible - distributions and earnings are tax deferred until the owner retires then they are taxed as ordinary income - 10% penalty tax
Non-Qualified Deferred Compensation Plan - what type of plan is this? - frequently used by who? - subject to ERISA? - who is making contributions? - can employer offer to some and not to others? - can benefits be forfeited ever? - does an employee have a right to the asset of the plan? - what happens if the business fails? - can these be indexed to inflation? - are income taxes taken every year?
- contractual agreement between 2 parties - highly paid athletes and executives - employer isn't making contributions and neither is employee really - yes, employer can discriminate and only offer to highly paid execs - yes benefits can be forfeited under conditions of contract - NO no right to any asset until retirement, disability, or death - if business fails, could lose all benefits because the plan assets could be entitled to the company's creditors - employee becomes a general creditor if the company fails - can be indexed to inflation - income taxes are deferred until receipt
"C" Corporation - created how? - do shareholders have voting rights? - pay dividends? - can own real property? - can be general partners in investments? - can enter into contracts as a business entity? - subject to Alternative Minimum Tax per the Jobs Act? - Shareholders have what type of liability? - have ____________ existence? - are fringe benefits deductible? - can net capital losses be carried forward to offset capital gains? - what type of taxation?
- created by filing charter with the state - yes voting rights - can but dont have to pay dividends - can own voting rights - can be general partners in investments - can enter into contracts as a business entity - NOT subject to Alternative Minimum Tax per the Jobs Act - limited liability only liable for amount invested - perpetual existence (unlimited life) - yes and are greater - yes for up to 5 years - double taxation
participation rates - if index sees gains what happens? - if index sees loss what happens?
- credited with the gains at a given participation rate - do not participate in the losses
Forward Contract - __________ contract provisions - Terms __________ by parties - Price established by ________ - Deposit required? - Allowed to offset provisions? - Performance guaranteed? - regulated? - settled by what? - expect to take delivery? - daily valuation?
- customized contract provisions - terms negotiated by parties - price established by parties - NO deposit required - CANNOT offset provisions - performance NOT guaranteed - unregulated - settled by delivery - expect to take delivery - NO daily valuation
457 B - what type of plan? - designed for who? - who can contribute to plan? - how are contributions taxed? - earnings on the retirement money is taxed how?
- deferred compensation plan - for employees of state or local government or tax-exempt organizations - employers or employees can contribute through salary reductions - diff rules apply to Gov vs Non-Gov Plans - contribs are tax deferred - earnings are tax deferred
inertial inflation - what would a demand shock result from? - what would a supply shock result from?
- demand -> aggregate demand which is the sum total of national demand for goods and services, outstripping national supply (demand-pull inflation) - supply -> rising material costs or LT wage and price contracts pushing up prices (cost-pull inflation)
Traditional IRA - designed for who? - contributions to the account are taxed how? - how often can contributions be made when? - contributions can be made up to _______________ not to exceed certain limits - catch-up allowed? - are you allowed to contribute the limit of an IRA into an IRA and the limit of a Roth IRA into the Roth? - what happens if contributions are over the limits and are not removed from the account? - can contributions be made in cash? securities? both? - contributions can be made up to when? - is there an age limit on making contributions to an IRA?
- designed for employed individuals - contribs = tax deductible , annually, up to 100% of earned income - catch-up allowed for ppl age 50 and up - NO, because the Traditional and Roth IRAs are aggregated and cannot exceed limits - 6% excise tax for contribs over the limit - must be made in cash - up to April 15th of the year following the year that a deduction is claimed - no age limit per the Secure Act of 2019
Non-Traditional ETFs - most are designed for what type of trading objectives? - designed for what type of investors? - FINRA believes that these are unsuitable for who?
- designed for short-term trading obj - sophisticated investors - unsuitable for retail investors who plan to hold them for longer than 1 day
501 C 3 Entities - do they have to pay taxes? - what type of entities are they?
- dont pay federal income tax - non-profit organizations
defined contribution plans - who can make contributions? - how are benefits determined?
- employers and employees or both make contributions to employees' individual accounts - employers can make matching and profit sharing contributions to employee's accounts which are fixed by a predetermined formula - determined one the amount of contributions and the performance of investments inn the account
a stop loss order is an order entered to ________________ if the price of the security moves ____________ when you have a (profitable/loss) position
- entered to "unwind" a position (either buy or sell) - if moves against you when already have a PROFITABLE position
SS, Medicare, Unemployment taxes - what type of tax are these - what are they levied to pay for? - are they deducted? - what if income taxes are deferred, are they still deducted?
- federal payroll taxes - pay for social programs and unemployment - deducted from individual's paycheck - even when income taxes are deferred for various tax-qualified retirement plans, they are deducted from an individual's paycheck - even if your plan is tax-deferred you still have to pay these taxes
closed-end investment comapnies - How often are shares issued? - how do they trade? - how is the market price of a closed-end investment company's shares related to the NAV?
- fixed amount of shares issued once - secondary mkt like common stock - it is unrelated to NAV
Variable Life Insurance - fixed or variable level of premium? - fixed or adjustable DB? - cash surrender value based on what? is there a guaranteed rate? how often is it calculated? - do policyholders choose the investments/ bear investment risk? - is this a security? does it need a prospectus? - how can lapsed policies be reinstated?
- fixed level of premium that go into a Separate account - Variable DB - CSV based on performance of investments chosen by policy holder. Usually a guaranteed minimum DB. calculated at least monthly. - yes - policyholders bear investment risk - yes a security - yes needs a prospectus before or with the offer to sell - delivery of initial summary prospectus to new investors if a full prospectus is available online - updating summary prospectus if already own variable contract - reinstated w/ evidence of insurability and payment of unpaid premiums
whole life insurance - fixed or variable level of premium? - fixed or variable DB? - cash surrender value? - do policyholders choose the investments/ bear investment risk? - how can lapsed policies be reinstated?
- fixed level premium - fixed DB - yes CSV value is increased based on a fixed cash value table or schedule - policyholders do NOT choose investments - reinstated with evidence of insurability and payment of unpaid premiums
universal life or adjustable life insurance - fixed or variable level of premium? - fixed or adjustable DB? - cash surrender value based on what? is there a guaranteed rate? - do policyholders choose the investments/ bear investment risk? - how can lapsed policies be reinstated?
- flexible level of premium into a general account - adjustable DB - cash surrender value based on fluctuating interest rates but there is a minimum guaranteed rate - policyholders do not choose investments - reinstated with evidence of insurability and payment of unpaid premiums
IRA Rollovers - Rollovers to or from what are permitted ? - individual has ___________ to invest benefits from a retirement plan into the new account before incurring a tax liability - Are rollovers tax free?
- from another IRA, Keogh, or qualified plan are allowed - 60 days - Tax-free rollovers are limited to 1x every 12 months if rollover is IRA-IRA rollover
Valuation on modern indexed annuities Annual reset: - what time period? - how is it valued for the annuitant?
- from beginning of year to end of year - annuitant locks in gains every year that the index is positive
Social Security - funded from what? which applies to wages up to __________ - Tax rate is __________ of which _______ is paid by the employer and _________ is paid by the employee - earliest age at which a retiree can elect to receive benefits is __________ . What happens if they elect to receive benefits at earliest age? - Full benefits can be received by the retiree at age ____, _____, or ________ depending on ___________ of the retiree. - Retiree can elect to delay benefits until age _______. If so, benefits will increase ___________ how often?
- funded from Federal Payroll Tax - wages up to $137,700 (2020) - Tax rate is 12.4%, 50% paid by employer, 50% paid by employee - earliest = 62, then will reduce benefits - 65, 66, 67, depending on date of birth of retiree - retiree can delay till age 70. benefits will increase 8% annually each year that benefits are delayed and will stop increasing when the retiree reaches 70 years
- You are a soybean farmer in Iowa and want to protect yourself against price moves what should you do? - Cattle-feed manufacturer says he wants to buy all beans from you in 2 months when they are ready for harvest what agreement would that be?
- futures contract to protect against price movements - forward contract
Limited Partnership - general partners: role? liability? - limited partners: role? liability? - greatest risk in investing in an LP =
- general = sponsor/ manager, manage the entity, active partners, unlimited personal liability - limited = provide capital, do not manage, passive partners, limit their liability to their initial contribution + any unpaid contributions they agreed to in partnership agreement - greatest risk = lack of liquidity
Prepaid or EDU savings plan P/E 529 plan - hedge against increased tuition costs - available for all levels of edu - value based on performance of investments chosen by account holder/owner - account owner bears investment risk - typically charge enrollment and admin fees - charge enrollment fees, annual maintenance fees, and asset management fees - qualified withdrawals are tax free - higher returns - lock in cost of specific # of academic periods at current prices - offering circular is delivered to potential investors - earnings accumulate tax free - composed of mutual funds
- hedge against increased tuition costs Prepaid - available for all levels of edu Prepaid and EDU - value based on performance of investments chosen by account holder/owner EDU - account owner bears investment risk EDU - typically charge enrollment and admin fees Prepaid - charge enrollment fees, annual maintenance fees, and asset management fees EDU - qualified withdrawals are tax free EDU - higher returns EDU - lock in cost of specific # of academic periods at current prices Prepaid - offering circular is delivered to potential investors EDU - earnings accumulate tax free EDU - composed of mutual funds EDU
US Balance of Payments Deficit Increases (worsens) Due to
- increase in US investments abroad - US tourists spending abroad - US loans to other countries - raising dividends and interest payments on foreign-owned securities of US issuers MONEY GOING OUT
HSAs - individual accounts or can be set up through employer? - established as savings account? established as investment account? - withdrawals before age ___________ for non-health purposes will result in what taxes? + a ___________ penalty tax. - withdrawals after age ___________ for non-health purposes will result in what taxes? + a ___________ penalty tax.
- individual NOT employer not FSA - savings or investment acct - before 65 = ordinary income tax + 20% penalty - after 65 = ordinary income tax + 0% penalty
Real estate investment trusts (REITs) - invest in LT mortgages? - own property? - provide investors with depreciation write-offs? - make ST real estate construction and development loans? - pass through losses to investors? - redeemable? - invest in other REITs? - are investment companies? - issue debt? - require minimum investment? - regulated under Investment Company Act of 1940? - Offer limited liability? - are direct participation programs? - are exempt from registration from SEC? - offer professional asset management? - offer liquidity? - offer possible share appreciation?
- invest in LT mortgages? YES - own property? YES - provide investors with depreciation write-offs? NO - make ST real estate construction and development loans? YES - pass through losses to investors? NO - redeemable? NO - invest in other REITs? YES - are investment companies? NO - issue debt? YES - require minimum investment? NO - regulated under Investment Company Act of 1940? NO - Offer limited liability? YES - are direct participation programs? NO - are exempt from registration from SEC? NO - offer professional asset management? YES - offer liquidity? YES - offer possible share appreciation? YES
individual taxpayers may deduct charitable contributions of money or property made to qualified organizations if the taxpayer has _________________ - _______________ is allowed for Public Foundations - ________________ for all cash donations for public foundations - ______________ is allowed for Private Foundations
- itemized tax return - Public: up to 50% of adjusted gross income - Cash Public: up to 60% of adjusted gross income - Private: up to 30% of AGI
vatical settlement agreement - buys from policyholder w/ terminal disease = life expectancy of ______________ - at the time of the trans, purchase price of policy will be (more than/less than) cash value but (more than/less than) the DB, therefore (both/policyholder/investor) benefit. - ___________________ continues to pay the premiums - ________________ becomes the beneficiary and collects DB
- less than 2 yrs - at the time of the trans, purchase price of policy will be more than cash value but less than the DB, therefore both benefit. - investor pays premiums - investor = beneficiary
Which assets are not eligible for a TOD - limited partnership interests - mutual funds - variable annuities - fixed annuities - stocks - bonds - precious metals - commodities
- limited partnership interests - variable annuities - fixed annuities - precious metals - commodities
Taxable Termination - original trust transfer made to how many ppl? - income is first paid to child of grantor (who is the ________ person) for life, and any remainder is paid to the grantor's grandchild (who is the ____________ person) - in this situation the tax is imposed when - for example, at the point when the property will pass to the skip-person, tax would be applicable when?
- made to more than 1 person , 1 skip-person and 1 non-skip-person - child = non-skip-person - grandchild = skip person - tax imposed upon date of termination of last remaining interest held by non-skip-person - applicable upon the death of the grantor's child (the non-skip-person)
included in annual fund operating expenses are - - - - - -
- management fees - distribution and or service fees (12b-1) - custodial fees - legal expenses - accounting expenses - administration expenses and transfer agent expenses
Qualified Domestic Relations Order (QDRO) must contain certain information: - name and last known address of the plan participant and each alternative payee? - plan to provide an alternate payee or participant with any type of benefit prohibited by the plan - plan to provide for increased benefits - name of each plan to which the order applies - dollar amount or percentage of benefit to be paid to the alternative payee - number of payments or time period to which order applies
- name and last known address of the plan participant and each alternative payee? - name of each plan to which the order applies - dollar amount or percentage of benefit to be paid to the alternative payee - number of payments or time period to which order applies
Qualified Investors are defined as having - net worth of ___________ or - _____________ in assets invested under the specific investment manager
- net worth of $2.2 Mill - $1.1 Mill in assets
US Balance of Payments Deficit Improves Due To
- new foreign investments in US - commodity exports - spending by foreign tourists in the US - repayment of loans paid to US - increased dividends and interest earned on foreign investments MONEY COMING IN
if an individual has health coverage, can they set up an HSA? - what do ppl need to be enrolled in in order to set up an HSA
- no - high-deductible health plan (HDHP)
direct investing precious metals - income potential? - capital gain or loss potential? - can be purchased by an investor in a brokerage or retirement account? - storage costs/insurance costs? - what is paid to the seller when buy these?
- no income potential - yes capital gain/loss potential - yes brokerage and retirement account - yes storage costs and insurance costs - current "spot" or cash prices + mark-up
Class C shares - what type of sales load? - do they provide breakpoints? - how do their expense fees compare to other classes?
- no upfront and no back end load - no - HIGHEST expense charges
Market Linked Notes (MLNs) - debt securities that have a return linked to the performance of another asset or assets and can include?
- not limited to equities - can include commodities, futures, foreign currencies, equities, and international markets
Policy loans/premiums - taxable? - have to repay them? - what happens if have a loan when die?
- not taxable - must be repaid with interest - loans are subtracted from death benefits if unpaid
Short put - right or obligation if exercise? - Profit potential? - loss potential? - max loss?
- obligation to buy stock if exercised - limited profit= premium - limited loss - max loss = strike price - premium
short calls - right or obligation if exercise? - Profit potential? - loss potential? - max loss?
- obligation to sell if exercised - limited profit= premium - limited loss if covered - unlimited loss if uncovered
Can ETNs be sold short? How do ETNs trade? Are ETNs callable? Do ETNs have a maturity date?
- trade like a stock and - CAN be sold short - can be callable - have a final maturity date
CMOs risks: 1. 2.
1. Implied risk - that principal will be returned sooner than expected 2. extension risk - risk that life of security may be longer than anticipated
Uniform Gifts to Minors Act Uniform Transfer to Minors Act - allow opening of __________ for a minor - used to transfer _______________ to a minor upon when? - need an attorney? - donor must be how old? - limit on size of gift? - does gift tax apply? - whose SSN is used for account? - can margin accounts or short-selling be used? - can this effect a child receiving special aid? - tax benefit potential? - how many custodians per account? - how many minors per account?
- opening of securities account - transfer securities or cash to minor upon reaching legal age - no attorney needed - donor must be adult - no limit on gift size - gift tax could apply - use minors SSN - no margin acts or short selling - YES could disqualify them from financial aid so should use a 529 plan instead - tax benefit potential bc minor may be in a lower tax bracket - 1 custodian - 1 minor
ordinary income - subject to what tax treatment by IRS? - how is it taxed? - taxed at what rate? - includes: 1. 2. 3.
- ordinary tax treatment - fully taxable 1. wages 2. interest 3. some dividends (non-qualified dividends like divs on REITs and mutual funds not qualified bc they are only taxed at rate of 15%)
sole proprietorship - business owned by who? - simplest or hardest way to do business? - legal filings required? - start up / maintenance costs? - can losses be used to offset income for tax purposes? - what type of liability does owner have? - what tax do owners have to pay?
- owned by individual - simplest - DBA - Doing Business As for the use of a fictitious name - no or low start up and maintenance costs - losses can - unlimited personal liability - self-employment tax for themselves and any employees may have
LLC - owners = - ___________ existence - taxation? - shareholder restrictions? - interests freely transferable as corporate shares? - use of marketability? - use of minority discounts?
- owners = members - LIMITED existence - pass-through taxation, NOT double - NO restrictions - NO because consent of other members is required - use of marketability and minority discounts
types of federal income tax rates Marginal Tax Rate - tax rate that is paid on __________ - In the US, the progressive income tax causes the marginal rate to _______________
- paid on the LAST dollar that you make - progressive tax causes marginal rate to increase with increasing salaries
life insurance premium payments are generally paid with ____________ - if policyholder discontinues premium payments on a cash value policy, policyholder can elect to 1. 2.
- paid with after-tax $ 1. elect to receive a receive a reduced, paid-up policy OR 2. extended term insurance
S Corporation - taxation? - what type of liability? - have how many shareholders? - Is S Corp status available to large corporations? - Capital gains and losses on S Corps pass-through to shareholders as ___________ - have _________ existence
- pass through taxation NO double taxation - limited liability - 100 or fewer shareholders (used to be 75 or fewer) - not available - as shareholder capital gains and capital losses - perpetual existence -> unlimited life
indexing - actively or passively managed portfolio? - weighing a portfolio to mirror an index or to beat an index? - attempt to identify under and over valued securities?
- passively managed - mirror an index - NO
Forward contracts - what type of contracts? - are they traded? - used primarily by who?
- personal agreements between 2 parties - NOT traded - users or producers of commodities to hedge spot or cash price movements
Balance sheet can be constructed - period of time or point in time - used to create a _______ - used to calculate _________ - components: 1. 2. 3. Equation:
- point in time - create trend - calculate estate tax 1. assets 2. liabilities (debt) 3. Net Worth (Equity) Assets = Liabilities + Equity
When securities are acquired as a gift and: - sold at a profit, cost basis of ___________ is used - sold at a loss, cost basis of ____________ is used
- profit = cost basis of donor - loss = cost basis of securities at time of gift is used
types of federal income tax rates Income tax rate - a __________________ tax rate based on ____________________ - your tax rate (increases/decreases) as your income increases
- progressive tax rate based on the amount of $ you make in a given YEAR - increases
direct investments in real estate basic rental properties - income? - who is responsible for mortgage payments, taxes, and other costs of maintaining property?
- provide monthly rental income - investor
real estate investment trusts (REITs) - traded? - manage a portfolio of real estate assets in attempt to earn profit for who?
- publicly-traded companies - profit for shareholders
Keogh Plan - qualified or non qualified retirement plan? or IRA? - contributions are taxed how? - plan is for who? - can be set up as defined contribution plan? or defined benefit plan? - are Keoghs or SEPs more complex to set up? - do Keoghs or SEPs have higher contribution limits?
- qualified plan - tax-deferred - self-employed individuals and their full-time employees who meet requirements including partnerships, sole proprietorships, and unincorporated entities - can be set up for both - Keoghs are more complex to set up - Keoghs have higher contribution limits
Equity REITs - shareholders receive _______________ - REITs take _________
- receive income from rents received and capital gains when the property is sold at a profit - take equity positions in real estate
Mortgage REITs - shareholders receive _____________ - capital structure has large amount of ________________ - leveraged?
- receive interest income from loans taken out by building developers - debt - highly leveraged
long put option - right or obligation if exercise? - Profit potential? - loss potential? - max loss?
- right to "sell stock" if exercised - limited profit - limited loss - max loss = premium
Long Call - right or obligation if exercise? - Profit potential? - loss potential?
- right to buy stock if exercised - unlimited profit potential - limited loss potential - max loss = premium
direct investments in real estate Raw land - risky or safe investment? - income? - who makes mortgage payments? - who pays taxes and maintains property? - does depreciation apply to raw land? - liquid investment?
- risky - no income - owner - owner - no so dont get the depreciation tax deduction - illiquid
dark pools - run by who? - trade stock how? - execute at what price? - are orders executed reported? - are the number of shares bought or sold reported? - when trading, does the price of the stock being traded move?
- run by large investment banks and hedge funds for institutional investors - trade stock PRIVATELY and anonymously off the floor of an exchange - orders executed NOT reported - # of shares NOT reported - doesn't move the price of the stock being traded
equity indexed annuities interest rate caps - what happens if index sees gains? - what happens if sees losses?
- set cap is placed one the amount of appreciation of the index - index goes down, no fee
equity indexed annuities spread/margin/asset fees - if index sees gains? - if index sees losses?
- set fee is taken from any gains instead of a participation-rate-based equation - no fee is charged for losses
HSA - set-up with who? - who can contribute? - who can withdraw? - what can withdraw for? - are withdrawals taxed? - accounts can only be opened for ________
- set-up with a qualified HSA trustee like a bank or insurance company - individual taxpayers can contribute - individual taxpayers can withdraw - withdraw for certain medical, dental, and vision expenses - w/drawals = tax-free - for ppl who enroll in a high-deductible health plan (HDHP) and have no other health coverage or Medicare
Savings Incentive Match Plan for Employees (SIMPLE) - designed for who? - are contributions tax deductible to the contributor? - who is allowed to contribute? - similar to what type of plan?
- small business owners and their employee with only 100 or fewer employees - employer gets a tax deduction for contributions they make to the SIMPLE IRA - employees can make elective salary deferrals of their pre-tax compensation to the plan - similar to 401K
Simplified Employee Pension (SEP/SEP IRA) - plan designed for: - who can make contributions? - who owns the account? - are contributions tax deductible? for who? - are contributions fixed or variable over the years?
- small business owners and their employees - employers make contributions to personal IRA accounts of employees - employees can also make their own additional contributions to their accounts under the plan accordance with the Traditional IRA regs and limits - employees own and control the IRA - tax deductible for the employer - discretionary can be changed from year to year
Valuation on modern indexed annuities point-to-point - what time period? - how is it valued for the annuitant? - interest is credited at beginning or end of period? - what is the interest based on?
- some period - compares change of index at 1 point in time to another point in time - end of period - based on participation rate or cap rate of the annuitant
Valuation on modern indexed annuities high water mark: - what time period? - how is it valued for the annuitant?
- some period of time - takes high point of index and compares it to index value at the beginning of the period
income statement - point in time or period of time? - details what?
- specific period of time - revenues and expenses of client and shows net profit or loss
Futures Contract - __________ contract provisions - Specifications of contract mandated by who? - Price established by ________ - Deposit required? - Allowed to offset provisions? - Performance guaranteed? - regulated? - settled by what? - expect to take delivery? - daily valuation?
- standardized contract provisions - specifications mandated by exchanges - price established by open outcry in "pit" - Deposits (margin) required - traded on exchanges to offset - performance GUARANTEED by 3rd party - highly regulated - settled by delivery or cash - dont expect to take delivery - daily valuations for gains / losses
529 Savings Plan or Qualified Tuition Program - established and maintained by who? - contributions tax deductible for federal income tax purposes? - annual earnings taxed how? - qualified withdrawals taxed how? - how many students per account is allowed? - can one student have multiple accounts? - Who cam establish for student? - can the beneficiaries of the account be changed? by who? when? - assets can be transferred to ___________ How are they taxed? - who can make withdrawals from the account? - do you have to invest in plans from your own state?
- state government - NOT tax deductible - annual earnings and qualified withdrawals = tax free - 1 student/acct - 1 student can have multiple accts - anyone can establish - yes acct holder/owner can change beneficiary at any time AS LONG AS new beneficiary is a qualified member of the original beneficiary's family - transferred to another 529 Plan of the SAME beneficiary tax free 1x every 12 months - only owner can make withdrawals not beneficiary - no can invest in other states plans
SIMPLE IRA - how are distributions and earnings taxed? - if you are an employee and you have participated in your SIMPLE IRA for 1 year and want to withdraw, how will the withdrawal be taxed? - if you are an employee and you have participated in your SIMPLE IRA for 3 years and you are 58 and you want to withdraw how will that withdrawal be taxed?
- tax deferred until withdrawn then taxed at ordinary income tax rate - if take out in first 2 years that you participate, penalty tax = 25% - if take out after 2 years but before 59.5, penalty tax = 10%
403B/ TSA - used by who? - how does it provide its benefits? - 3 types of employers that qualify to offer a 403B = 1. 2. 3.
- tax-exempt or non-profit organizations - buys annuities or contributes to custodial accounts that are invested in mutual funds 1. public edu systems 2. certain 501 c 3 organizations like religions, edu, charities 3. certain employers of ministers
Partnerships - how is income taxed?
- taxed only once at the partner level since partnership itself is not a taxable entity - conduit/ flow through/ pass through taxation
Revocable Trust - the income of a revocable trust is taxed to the grantor how when the grantor is alive?
- taxed to the grantor at the grantor's tax rate
Traditional IRA - how are earnings taxed in an IRA?
- taxes on all earnings in the IRA are deferred until withdrawals are made
investment objective = growth - what should they invest in?
- technology stocks & sector funds for aggressive growth - blue chip and defensive stocks for moderate growth
Blotter or Daily Blotter - temporary or permanent record of activities? - BDs blotters will show: 1. 2. 3.
- temporary until transferred to permanent record book 1. purchase and sale transactions 2. cash receipts and disbursements 3. securities received and delivered
CMOs - how are they traded? - are interest payments subject to taxation? - what credit rating do they carry? - primary risks or concerns to investors (not including implied or extension risk)
- traded OTC in secondary market w/ markups and markdowns - interest payments = Federal and State income tax - AAA Rating - liquidity, average-life sensitivity, price sensitivity
Under USA a person is an individual or legal entity including:
- trusts - corporations - partnerships - associations - unincorporated orgs - governments NOT MINORS
Real estate investment trusts (REITs) - value based on what? - shares considered "derivatives"?
- underlying properties - NOT derivatives - REITs directly invest in real estate
Tax Filing Status Head of Household - what is a qualifying person and how long do they have to live with the taxpayer for them to be able to file under head of household?
- unmarried child, grandchild, or elderly parent that the taxpayer can claim as an exemption - live with them for over 6 months of the year
Class A shares - what type of sales load? - do they provide breakpoints? - how do their expense fees compare to other classes?
- upfront sales charge not exceeding 8.5% - only one that provide sales charge brkpt discount - LOWEST sales charge
cash surrender value - amount of cash available upon the ___________________ - policyholders can or cannot take out loans against the CSV? - the amount paid =
- voluntary termination of a policy if the policyholder surrenders or cancels the policy before it becomes payable by death - can take out loan - amount paid = cash value of policy - any surrender charge or - outstanding loan balance
equity indexed annuity traditional approach - are contract holders guaranteed a minimum value on their annuity? - if index increased in value, the contract holder would be - if index decreased in value, the contract holder would be - products were treated as _________
- yes - credited with at least part of the gain (cap to how much they would receive) - debited at least part of the decrease in value - securities
Simplified Employee Pension IRA - are employees vested in contributions made by employer? - can an employer make a contribution to 1 employee and not another? - employees are eligible to participate if: 1. they are how old? 2. They have worked for the employer for how long? 3. They have receives at least $_____________- in wages for what time period?
- yes 100% vested - NO if makes contribution, must make contributions to all employees who are eligible - they are 21 - worked for employer during at least 3 of the preceding 5 years - have received at least $600 in wages for the current tax year
if the owner of an IRA dies and the designated beneficiary is: stretching an IRA - do the beneficiaries enjoy any tax deferred growth? - what act abolished this option? - Are there required minimum withdrawals? - requires beneficiary take out all assets in account when?
- yes tax-deferred growth - Secure Act of 2019 - no required minimum withdrawals - but entire balance must be distributed by the end of the 10th year
Correlation Coefficient =.. Minus 1 or -1 means ____________ Plus 1 or +1 means ______________ 0 means _________________
-1 = perfectly negatively correlated to the benchmark +1= perfectly positively correlated to the benchmark 0= no relationship
Under FINRA rules, for a mutual fund paying marketing and distribution expenses cannot exceed _______ of the fund's average net assets per year
0.75%
if Fed Reserve is purchasing government issues, it causes:
1 Bank deposits to increase 2 Bank reserves to increase
order ticket for a securities transaction must include
1 act # 2 time order is received 3 agent on acct 4 terms and conditions of order
people excluded from the term BD
1 agents 2 issuers 3 banks, savings institutions, trust companies 4 person who has no place of bus in state and only effects trans with or through financial institutions
to be entitled to the dividend, you must own the stock at least _________
1 bus day before the ex div date
Form CRS (BDs) and Form ADV Pt 3 (IAs) have to have an explanation or description of the following
1 firm's services 2 fees and costs 3 conflicts of interest 4 disciplinary history of financial professionals 5 link to the SEC's investor education website, Investor.gov
following investment products are specifically excluded from the definition of a security
1 fixed life insurance policies 2 endowment policies 3 fixed annuity contracts 4 commodity futures contracts 5 collectibles. including antiques 6 precious metals 7 real estate
Leading Economic Indicators - tend to forecast the future of the economy
1 production worker's average workweek 2 new housing starts 3 new business formation 4 money supply M2 5 vendor performance 6 new orders for durable goods - goods that have a life of 3 or more years 7 stock prices 8 contracts and orders for equipment 9 index of consumer expectations 10 unemployment claims 11 unfilled orders for durable goods
ST Capital Gain = Cap gains where security held for how long?
1 year or less
negotiable CDs have fixed maturities of how long?
1 year or less
Registration is denied to any person who has spent _____________ in prison
1 year or more
IRS Rule = __________ waiting period for IRA rollovers
1 year waiting period - can't make another rollover from same IRA within 1 yr if already did it
Exemptions per Dodd Frank Act: Exempt Reporting Advisers are IAs that qualify for the exemption from registration because they are an adviser solely to:
1) 1 or more venture capital funds, or 2) small private funds w/ AUM<$150 million
2 categories of private funds which are excluded from the definition of an investment company under the Invstmt Comp Act of 1940, and therefore, do not have to register with the SEC and are exempt from the reporting requirements of the Secs Act of 1934:
1) 100 investors max, not making public offering - investors must be Accredited Investors 2) over 100 investors, but typically limited to 499 investors, not making a public offering - investors must be Qualified Purchasers
"investment counsel" may not be used by an IA registered at the federal level unless both of the following are met
1) Adviser's principal business = IA 2) over 50% of IA's business consists of providing investment supervisory services
Qualified Distribution in an IRA 1. AND 2.
1. 5 year holding period - distribution can't be made before the end of the 5th year after which the individ made their initial contrib to the Roth IRA AND 2. must meet 1: - after Roth owner = 59.5 - as result of death or disability of Roth Owner - for qualified 1st time home buyer expenses - for edu expenses - for medical insurance premiums
Shareholder Fees of Mutual Fund Fees and Expenses include: 1. 2. 3. 4. 5. 6. 7.
1. Annual Fund Operating Expenses 2. Sales Load 3. No-Load Fund 4. Redemption Fee 5. Exchange Fee 6. Account Fee 7. Purchase Fee
A registration statement for a security must be filed with the SEC for review and must include the names and addresses of 1. 2. 3. anyone who owns more than _____________ of the issuer's stock
1. CEO, CFO, and CAO 2. Underwriter of issuer 3. more than 10%
key characterstics of Brady bonds:
1. Coupon bearing bonds with fixed or variable interest rates that mature in 10-30 years 2. Secured by US Treasury Zero Coupon bonds
To calculate the DCF of a bond, the investor must know the*****
1. Coupon payment amounts 2. final principal payment at maturity 3. Discount rate
categories of return 1. 2. 3.
1. Income - dividends and interest paid to investors 2. Realized Capital Gains - when investor realizes profit aka sells security 3. Real returns - total returns (income + realized capital gains) adjusted for inflationn
customer confirmations must be sent at or before completion of a transaction and must include: 1 2. 3. 4. 5. 6. 7. 8.
1. Date & Time of a transaction 2. Identification of the security 3. Price of the security 4. # of shares 5. principal amount if its a bond/debt security 6. whether BD acted as an agent or principal 7. yield to maturity calculated from the dollar price 8. yield at which the trade was effected
"cost basis" of asset - key elements in determining= 1. 2. 3. 4.
1. Date acquired 2. original cost 3. adjustments/depreciation 4.owner
2 types of pension plans
1. Defined Benefit Plans 2. Defined Contribution Plans
403B/ TSA Annual Contributions can include: 1. 2. 3. - is any catch-up amount allowed?
1. Elective Salary Reduction contributions made by EMPLOYEE 2. Non-Elective contributions made by the EMPLOYER 3. After-tax contributions made by the EMPLOYEE - yes allowed at age 50
Types of REITs 1. 2. 3.
1. Equity REITs 2. Mortgage REITs 3. Hybrid REITs
semi-affluent investors can invest in certain types of hedge funds that are established as:
1. Funds of funds 2. Open-end funds
Derivatives: 1. 2. 3. 4. 5.
1. Futures & Forward Contracts 2. Options 3. Swaps 4. Rights 5. Warrants
CMO pools may be collateralized by: 1. 2. 3. 4. 5.
1. Ginnie Maes (GNMA) 2. Fannie Maws (FNMA) 3. Freddie Macs (FHML) 4. FHA Mortgage Loans 5. Conventional Mortgages
agency cross transactions by an IA may be permitted if: 1. 2. (a) (b) 3. 4. (a) (b)
1. IA is acting in best interest of advisory client regarding price 2. IA gets written consent from client that client understands that adviser (a) receives commissions from both parties & (b) potential exists for a conflict of interest 3. client gets written confirmation not later than completion of trans 4. if adviser sends both clients ANNUALLY a WRITTEN statement indentifying (a) total agency cross transactions in that period & (b) commissions received in that period
excluded from the definition of a federal covered advisor (Exempt from SEC registration)
1. IAs who give advice on US Gov Secs ONLY 2. Banks and Bank Holding Companies 3. Publishers of general advice about securities 4.. Lawyers, Accountants, Teachers, Engineers
Physical security and cybersecurity policies and procedures must cover at least 5 functions:
1. Identify 2. Protect 3. Detect 4. Respond 5. Recover
Can 403B Plans/ TSA Plans invest in: 1. Limited Partnerships? 2. Annuities? 3. Mutual Funds?
1. Limited Partnerships? NO 2. Annuities? YES 3. Mutual Funds? YES
An investor with a minimum required rate of return of 3% might be looking at buying a $1,000 bond with a 5% coupon that matures in 3 years. 1. What's the NPV of this bond? 2. If the market price of the bond is less than the NPV, what does this mean for our investor? will he achieve a rate of return higher/lower/equal to 3%? 3. If the market price of the bond is greater than the NPV, what does this mean for our investor? will he achieve a rate of return higher/lower/equal to 3%? 4. If the market price of the bond is equal to the NPV, what does this mean for our investor? will he achieve a rate of return higher/lower/equal to 3%?
1. NPV = Yr 1 PV: $50 coupon/ (1+.03)^1= $48.54 Yr 2 PV: $50 coupon/ (1+.03)^2= $47.13 Yr 3 PV: ($50 coupon+ $1,000 principal)/ (1+.03)^3= $960.90 $48.54+ $47.13+ $960.90 = $1,056.57 2. mkt price<NPV rate higher than 3% 3. mkt price>NPV rate lower than 3% 4. mkt price=NPV achieve min required Rate of Return of 3%
new account report forms Info must be included and confirmed:
1. Name 2. Contact info 3. Occupation, employer, business address 4. Citizenship 5. DOB 6. SSN or Tax ID # 7. Gov issued photo ID 8. numbered accounts require written statement attesting to ownership of the account
financial firms that transfer funds, including wire fund transfers of 3k or more_, must collect, retain, and record certain info:
1. Name and address of transmitter and recipient 2. recipient's financial institution, account number, and amount
DCF can be used to evaluate 1. 2. 3. 4. 5. 6.
1. Ongoing investments with no expected maturity 2. investments with an expected maturity 3. portfolios 5. Specific projects which have a completion date 5. Business ventures with no specifiec completion date 6. Investment managers
Cash fee may be paid to unaffiliated solicitors as long as solicitor: 1. 2. 3. Not later than _______________, the IA must receive a signed and dated acknowledgment from the client stating the client has received both: (a) (b)
1. Perform duties in manner consistent with adviser's instructions 2. deliver current copy of IA's disclosure statement & separate WRITTEN disclosure document of solicitor 3. no later than time a written or oral agreement is entered into, IA has to get a SIGNED AND DATED acknowledgment from client that received (a) adviser's written disclosure document (b) solicitor's written disclosure document
Money Laundering Stages
1. Placement: cash enters financial system 2. Layering: Funds moved into other accounts 3. Integration Stage: Funds reintroduced into economy
Basic characteristics of ELNs and MLNs 1. Are they allowed to be issued with a guarantee? 2. How do structured products pay interest payments? How specifically does MLNs pay interest and coupon payments? 3. How are they listed? 4. How are they issued? 5. What are the primary risks associated with them?
1. Principal Protection: Many structured products are issued with a guarantee of full or partial return of original investment if held to maturity, some issued without 2. Performance/ Return: Pay interest payments as ordinary notes do - performance or return of these products at maturity is tied to selected underlying security - some MLNs might not pay fixed interest payments or coupon because the value of the payment would be based on the performance of the underlying stock 3. Listing: some exchange-listed, some unlisted 4. Issuance: new offerings or in 2ndary misplace for listed 5. Risks: Principal Risk, Performance Risk, Liquidity Risk, Credit Risk, Call/Reinvestment Risk
Administrator may by order summarily deny or revoke any of the specified exemptions. Upon the entry of a summary order, the Administrator shall: Can an order to deny/revoke an exemption be made retroactively?
1. Promptly notify all interested parties that order = entered 2. provide reasons for the order 3. indicate that within 15 days of the written request, a hearing will be granted no
Income Statement 1st _________ 2nd ____________ 3rd ____________ 4th ____________________ 5th __________________ 6th __________________
1. Sales - COGS - Selling & Admin costs - depreciation 2. Operating Profit (EBIT) - Bond Interest 3. Total Income (EBT) - Taxes 4. Net Income (EAT) - Dividends on Preferred Stock 5. NET EARNINGS - Dividends on Common Stock 6. Retained Earnings
variable policies with separate accounts generally have deductions from premiums: 1. 2. 3.
1. Sales charge 2. premium tax charges 3. administration fees such as billing, record keeping, and communication with policyholders
To implement a tight money policy, the Fed would - all would decrease excess reserves
1. Sell treasury secs in open market 2. raise discount rate 3. raise reserve requirement of member banks
An Investment Advisor shall not enter into, extend, or renew any investment advisory contract unless IN WRITING and discloses:
1. Services to be provided 2. Term of contract 3. Advisory fee + differences in fees/discounts 4. Return fee amount in case of termination or non-performance 5. If discretionary power has been given 6. That no assignment of contract be made without client consent
Coverdell contributions are phased out for taxpayers : 1. Singles -> 2. Married couples joint filers ->
1. Singles btwn $95k - $110k 2. MFJ $190k - $220k
order of asset distribution upon liquidation of a corporation is:
1. Taxes 2. Secured debt (bonds backed by hard assets) 3. Unsecured debt (debentures, general creditors, accounts payable) 4. Preferred stockholders 5. Common stockholders
High Liquidity risk or Low Liquidity Risk (H/L) 1. Thinly-traded stocks 2. NYSE-listed common stock 3. REITs 4. real estate or land purchases 5. limited partnerships 6. money market securities
1. Thinly-traded stocks H 2. NYSE-listed common stock L 3. REITs L 4. real estate or land purchases H 5. limited partnerships H 6. money market securities L
low-risk and safe investment strategy include 1. 2. 3.
1. Treasury Securities 2. CDs 3. Money Market Funds
exempt securities under the '33 act 1. 2. 3. 4. 5. 6. 7. 8. 9. 1. 11. 12.
1. US Gov Secs 2. Muni Secs 3. Secs issued by nonprofit org 4. Regulation D Offerings 5. Intrastate Offering 6. Regulation A+ Offering 7. Commercial Paper 8. Promissory note 9. Secs issued by Small Business Investment Companies (SBIC) 10. Banks and Savings and Loans 11. Motor carriers regulated by Interstate Commerce Commission (ICC) 12. Ctfts issued by receiver or by trustee in bankruptcy w/ approval of a court
agent does not include an individual who represents an issuer in effecting transactions in some exempt securities which are:
1. US Gov Secs 2. muni secs 3. canadian government secs 4. banks 5. promissory notes and investment contracts (dont have to register as an agent)
exempt securities (exempt from State Registration because they will be registered at the federal level)****
1. US Gov Secs 2. Municipal Securities (both GO and Rev bonds) 3. Secs issued/guaranteed by country of Canada or its provinces (but not secs listed on Canadian Exchange, secs issued by Canadian companies or Canadian insurance companies) 4. Secs issued by US banks, savings institutions, or trust companies organized under State laws (but not secs issued by Holding Companies which may own banks) 5. secs issued by federal savings and loan association 6. credit unions 7. secs issued by US insurance companies 8. any sec listed on registered stock exchange or NASDAQ: then these are also exempt if issue bc senior or equal in rank - secured bonds (convertible & non, ie mortgage and equipment bonds), unsecured bonds (convert & non, ie debentures), preferred stock (convertible and non) 9. non-profit issues 10. Promissory Notes, Commercial Paper, or Bills of Exchange issued in denomination of $50,000 or greater 11. Public Utility and Common Carrier Securities (ie railroad carrier, but not cruise line or airlines) 12. Investment Contracts in connection with employee stock purchase plan, savings/pension/profit share
the following are considered Federal Covered Securities because an Exemption exists from registration at the federal level under the 1933 Act:
1. US Gov Securities 2. Muni bonds offered outside the state of issue (interstate) 3. Securities Unregistered/ Private Placements (Reg D Offerings)
structured products typically have 2 components:
1. a note - fixed income component that pays interest to the investor at a specified rate and interval 2. a derivative (often an option) - establishes the payment at maturity based on the performance of the underlying assets
order ticket for a securities transaction must include:
1. account number 2. time order was received 3. agent on account 4. terms and conditions of the order
an IA may pay a cash fee (referral fee) to a person soliciting advisory clients ONLY if:
1. adviser = registered with SEC 2. Solicitor X subject to SEC suspensions/limitations & 3. There is a WRITTEN AGREEMENT between the solicitor and IA and kept by the IA
the administrator may require filing of any/all documents in respect to a "covered security":
1. all documents part of federal registration prior to initial offering 2. Consent to Service of Process signed by issuer along with fees 3. federal amendment registration documents 4. value report of federal covered secs offered in this state 5. any necessary filing fees
when initial registration is filed, it must include
1. an application 2. the registration fee 3. consent to service of process 4. a bond/surety bond
the IA Act of 1940 requires an investment company to obtain majority shareholder approval for : 1. 2. 3. Compensation agreements between _________ & __________. Agreement must be _____________ and cannot continue for more than _____________ without shareholder approval. The agreement creates a fiduciary duty between the fund and the IA 4.
1. any deviation from the funds investment objective 2. using fund assets t pay for the cost of distributing fund shares (12b-1 fees) 3. fund & IA must be in WRITING no more than 2 years 4. Renewal of IA's contract
every application for registration must contain:
1. applicant's form and place of business 2. applicant's proposed method of doing business 3. applicant's qualifications and business history 4. any injunction or admin order or conviction of a misdemeanor involving securities and any conviction of felony 5. applicant's financial condition and history 6. any info to be furnished to clients, if the applicant is an IA 7. Form BD for BD Registration
no stop order denying effectiveness to a registration statement or suspending or revoking effectiveness of any registration statement may be entered without prior notice to:
1. applicant/registrant 2. issuer, and 3 person who securities are offered (SRO/FINRA notification is not required)
REITs avoid double taxation on profits applicable to other corporations if they satisfy 4 conditions 1. REIT must distribute _____________ of its __________ in form of dividends to shareholders how often? 2. Have _________________ of its ____________ invested in real estate, mortgage loans, shares of other REITs, cash, or government securities 3. REIT must derive ______________ of its gross income from rents, mortgage interest, or gains from the sale of property 4. REIT must have ___________ shareholders and _______________ of the outstanding shares can be concentrated in the hands of _________ shareholders
1. at least 90% of profits in form of dividends ANNUALLY 2. @ least 75% of assets 3. 75% of gross income 4. at least 100 shareholders and less than 50% of outstanding shares can be concentrated in hands of 5 or fewer shareholders
types of federal income tax rates 1. 2. 3.
1. average or effective tax rate 2. income tax rate 3. marginal tax rate
Value investors look at 1. 2. 3. 4. 5. 6.
1. book value 2. overall yield 3. dividend yield 4. P/E ratio 5. Price/sales 6. Capitalization of the company
business continuity and succession plan should provide for at least the following
1. books and records backups 2. alternate means of communications with customers, key ppl, employees, vendors, service providers, regulators 3. providing notice of a significant business interruption or death of key personnel 4. office relocations 4. assignment of duties to qualified people
to implement an easy money policy, the Fed would - all would increase excess reserves
1. buy treasury secs in open market 2 reduce the discount rate 3 lower the reserve requirement of member banks
IA Act of 1940 Custody of Client Funds and Securities 1. IA must identify, segregate, and place in safe-keeping, _________ each client's securities 2. Client's funds must be deposited in 1 or more bank accounts which contain ______________ 3. maintain records for each account and the amount of each client's __________ 4. notify clients IN WRITING ____________________ in which funds and securities will be maintained and give prompt WRITTEN notice of any change 5. IA must provide each client with an itemized statement when? 6. IAs must arrange with an ______________________- for an unannounced examination to verify clients' funds and securities in custody how often? Then (answer above) is required to file Form ________ with the SEC within: (a) _________________ for material discrepancies OR (b) _____________________ of the surprise audit if no big problems 7. If client is out of town and gives IA auth to write checks out of client's check book to pay __________________ for the account, it WOULD be considered custody of client funds 8. If an IAR is the ____________ of the client's trust account, the IAR would be considered to have custody of a client's funds. 9. If a client mistakenly sends a check to the IA instead of the IA's custodian, the IA may within _________________, return the check to the client and request the client ____________________ to avoid "custody" of client funds 10. Does custody include pre-payment of advisory fees?
1. by client 2. only client funds 3. beneficial interest 4. location and manner 5. every 3 months/ quarterly 6. with an independent public accountant at least 1x a year Form ADV-E (a) within 1 business day for material (b) 120 days 7. custodial fees ONLY 8. Trustee 9. 3 business days & re-issue the check payable to the custodian 10. NO
IA Act of 1940: record keeping can be kept electronically if: USA:
1. can be read 2. copies can be made 3. duplicate copy is stored in separate location USA: all of those +can not be altered
Estate documents that may be required for this type of account include: 1. 2. 3.
1. certified copy of death certificate 2. will 3. inheritance or estate tax waiver
material changes
1. changes in ownership 2. changes of address/contact info 3. changes to registrations/ registered employees
Qualified Domestic Relations Order (QDRO) decree or order can relate to 1. 2. 3.
1. child support 2. alimony payments 3. marital property rights to a spouse
Safe Harbor 404C Provisions plan participants must: 1. Have ability to choose btwn ___________ categories of investments and must differ 2. Be provided with a certain level of investor _______________ related to various factors that affect investments such as : 1. T 2. Anticipated _______ 3. The ______________ relationship 4. Benefits of _________ 5. ______________ for such plan 3. Be informed that they can make changes to their plan how often? and no less than _____________. Those who offer these plans : - are prohibited from offering as one of the investment categories, a plan that is _________
1. choose between 3 2. education and disclosures 1. Time horizon 2. Anticipated levels of return 3. The risk/reward relationship 4. The benefits of proper diversification 5. Realistic goals and objectives for such a plan 3. be informed that they can make changes to their plan a regular basis and no less then quarterly - can't offer a plan that is made up of securities of the company offering the plan
shareholders equity includes 1. 2. 3. 4.
1. common & preferred stock 2. Treasury Stock 3. Paid-In Surplus 4. Retained Earnings
when economy is: 1. Expanding (recover), managers invest in __________ 2. Peaking (of the recovery; interest rates usually rising), managers invest in __________ 3. Contracting (beginning of recession), managers invest in __________ 4. Trough (bottom of recession, managers invest in _________
1. expanding -> industrials 2. peaking -> consumer staples 3. contracting -> utilities 4. trough -> technology and as the recession nears an end, industrials
registration by both Canadian BDs and agents of Canadian BDs requires the following
1. filing of application as required by jurisdiction where it has its HEAD OFFICE 2. Filing of a consent to service of process 3. Registration in good standing in the jurisdiction from which the firm or agent is effecting transactions and filing evidence of effecting transactions 4. BDs must be members of a SRO or stock exchange in Canada
2 types of beneficiaries of a trust 1. receive interest and other income from the property 2. generally receive the property upon the passing of the first beneficiary - which beneficiaries's needs must the trustee consider
1. first or income beneficiaries 2. remainderman or second beneficiaries - trustee must consider both's needs at the same time
members of the public include
1. individual investors 2. accredited investors 3. public employees 4. private employees 5. trust accounts (set up for minors)
discounts for open-end fund sales charges may be given to:
1. individuals who qualify for quantity discounts 2. employee benefit plans 3. directors officers patness employees 4. fund contractual plans or plan companies
Death benefits are usually paid as a lump sum, but can be paid using the following settlement options: 1. 2. 3. 4.
1. interest only 2. fixed annual installments until funds are exhausted 3. fixed installments until the period ends 4. life annuity
variable policies with separate accounts generally have deductions from separate account: 1. 2. 3.
1. investment advisory or management fee 2. mortality and expenses charge 3. death benefit guarantee charges
A registration may be canceled by the administrator if the person:
1. is no longer in existence or cannot be located after the Administrator has made a reasonable search 2. ceased doing business as an IA, BD, or agent 3. Who is an individual, has been found mentally incompetent
exempt transactions : transactions that do not include issuers or underwriters involved in a public offering and are exempt from registration/advertising requirements include:
1. isolated "non-issuer" transaction 2. non-issuer transactions by registered agents at registered BDs if: (a) issuer of security being traded is engaged in business and is NOT in the organizational stage, in the bankruptcy or receivership stage, a blank check, blind pool, or shell company; (b) security is senior in rank to the common stock of the issuer and has been outstanding for at least 3 years without default 3. non-issuer transactions effected by/through a registered BD pursuant to an unsolicited order/offer to buy 4. Fiduciary Transactions 5. Bona Fide Pledges of Securities 6. Underwriter trans (trans for new issues between underwriters and issuers) 7. Transactions with Financial Institutions 8. Private Placements sold to not more than 10 persons other than institutional investors during a 12-month period 9. Mortgage Bond transactions issued as a unit 10. pre-organization subscription transactions 11. Rights, Warrants, and Convertible Securities Transactions if no commission or remuneration is paid
to register a security listed on an exchange, information must be filed regarding: 1. 2. 3. issuer's BS for ________ 4. 5.
1. issuer 2. any person directly or indirectly controls/is controlled by the issuer 3. issuer's BS for last 3 years 4. names of officers, directors, UWs of firm 5. organization, financial structure, and nature of business
an offer is considered to have been made in a state when:
1. it originates in state 2 it is directed to the state 3 it is accepted in the state
Following Books and Records must keep records of: 1. journals of ___________ 2. Ledges showing: 3. Memorandum of each order including: (a) (b) (c) (d) (e) 4. ____________, ________, ___________, but NOT log of all phone calls received 5. originals of all communications received and copies of all communications sent to __________________ 6. 7. 8. copy of each notice, circular, advertisement, or other communication circulated to ______________ 9. record of every transaction in which IA acquires __________________ 10. copy of all written disclosure statements including: (a) (b) 11. all records in regards to calculation of 12. current and historical copies of _____________
1. journals of cash receipts and disbursements and other records of original entry 2. Ledgers showing assets, liabilities, reserves, capital, income, and expenses 3. Memorandum of each order, including the (a)terms and conditions of the order (b) name of person who recommended the transaction (c) account number (NOT name of person) (d) date (e) name of BD/bank that executed order 4. Checkbooks, bank records, bills , NOT log of all phone calls received 5. originals of all communications received and copies of all communications sent to the public or clients relating to any investments or recommendations 6. Discretionary auth and power of attorney 7. all written agreements between IA and customer 8. copy of each notice, circular, advertisement, or other communication circulated to 2 or more ppl (including seminar materials) 9. record of every transaction in which IA acquires beneficial ownership of a security 10. copy of all written disclosure statements including: (a) dates sent to customers (b) signed written receipts received from customers 11. all records in regards to calculation of performance or rate of return where recommendations are distributed 12. current & historical copies of Form ADV-Pt3 including amendments and records of the dates the Form has been filed with the SEC and delivered to customers
Systematic or unsystematic risks? (S or U) 1. market risk 2. interest rate risk 3. Regulatory risk 4. Reinvestment Risk 5. Business Risk 6. Inflation Risk 7. Liquidity risk 8. Competitive Risk 9. Political Risk 10. Credit Risk
1. market risk S 2. interest rate risk S 3. Regulatory risk U 4. Reinvestment Risk S 5. Business Risk U 6. Inflation Risk S 7. Liquidity risk U 8. Competitive Risk U 9. Political Risk U 10. Credit Risk U
The 1940 Act requires an investment company to get an exemption from the SEC : 1. for a 2. for a 3. to own more than ________ of the shares of another fund
1. merger between 2 investment companies 2. purchase of assets from the fund's IA 3. more than 3%
IA: Shall not write a memorandum to buy/sell orders of securities without including: 1. 2. 3.
1. name of BD who executed order 2. Person who recommended trade 3. Person Placing the order
excluded from the federal definition of federal covered security
1. non profit issued securities 2. muni bonds offered ONLY in the state of the issuer 3. intrastate offerings (within one particular state) 4. security issued with guarantee from another entity as to principal, interest, OR dividends
Valuation on modern indexed annuities 3 basic means of determining how the interest will be calculated and credited to the client's account
1. participation rates 2. spread/margin/asset fees 3. interest rate caps
type of technical analysis 1. 2. 3. 4. 5.
1. point and figure 2. moving averages 3. advances and declines 4. odd lot purchases and sales 5. changes in the price-earnings ratio of the Dow Jones Industrial Average during the past year
Exempt transactions under '33 Act
1. privately held corporation issuing stock to a new stockholder 2. investment manager for an insurance company negotiating with a financial executive of a publicly held corp to buy a note 3. broker trans that are unsolicited 4. intrastate offerings
1. If the NPV is Positive (above zero) what does this mean for the investment? 2. If the NPV is Negative (below zero) what does this mean for the investment? 3. If the NPV is equal to 0 what does this mean for the investment?
1. profitable and exceed required rate of return 2. lose money and not meet required rate of return 3. no net gains or losses dont pursue investment unless outside factors
If IA has custody or possession of securities or funds of a customer, need to keep 1. Journal and separate ledger showing all: (a) (b) (c) (d) 2. copies of all _____________ 3. a record showing: (a) (b) (c)
1. purchases, sales, receipts, deliveries of securities 2. copies of all confirmations 3. record showing a. name of customer b. amount of interest c. location of security
direct investments in real estate 1. 2. 3.
1. raw land 2. primary residence 3. rental property
unlawful to transact business in a state as an IA or IAR unless
1. registered under act 2. exempt from registration because they have no place of business in the state and their only clients in the state are NOT members of the public, and they don't have over 5 clients in 12 consecutive months 3. there are federally covered advisers who have filed a notice with the state if required
it is unlawful for any person to offer or sell any security in a state unless
1. registered under the act 2. security or trans is exempt from registration 3. security is a Federal Covered Security
Exempt securities and exempt transactions are only exempt from 2 things:
1. registration requirements 2. filing of advertising and sales literature
type of trusts 1. 2. 3. 4.
1. revocable = changeable 2. irrevocable = unchangeable 3. living (revocable or irrevocable trust set-up while the grantor is "living"), 4. testamentary trusts (a trust created from will) not perpetual or corpus trusts
included list of securities that must be registered with the SEC include:
1. securities listed/authorized for listing on a national stock exchange 2. investment company or pooled investment fund shares (mutual funds) 3. securities sold to "qualified purchasers" which includes wealthy individuals couples family businesses or trust sponsored by qualified persons
policyholder can access the cash from the CSV by: 1. 2.
1. taking a loan against the cash value 2. surrendering policy for its CSV
As a general rule, if you work for more than _________ years you are eligible for the Workers Benefit of Social Security
10 Years
A person who has been convicted of securities misdemeanor in the last _______ is subject to statutory disqualification which effectively bars that person from the securities industry. to re-enter the industry, that person would need approval of __________
10 years SEC
if current interest rates were 5% and an investor needed $10,000 in 5 years, how much would they need to invest now?
10,000/(1+.05)^5= 10,000/1.27628= $7,835.27
T Bond maturities
10-30 years
When do Brady Bonds mature?
10-30 years
does a 10-K or a shareholder's report contain more detail?
10-K
comprehensive summary report of a company's performance that must be submitted annually to the SEC. contains much more detail than the annual shareholder's report
10-K Report
standard advisory fees = _______ of AUM and _______ of performance based fees
2% AUM and 20% performance based fees
After a minimum _________ waiting period or "cooling off period" the registration statement becomes "effective" allowing the security to be sold. Securities may be offered for sale by means of a ____________________ which must be delivered no later than with the purchase confirmation.
20 day Final Prospectus
If the total costs of trading in a customer's account rises above ______ it could be deemed as excessive trading
20%
Risk Free Rate of Return is the rate of return on what?
3 month Treasury Bill
An IA must keep a copy of all books and records for _______________ after the termination of the enterprise of the IA
3 years
Securities Act of 1933 required that civil actions for alleged liability for false or misleading info concerning a new issue be brought within __________ from the offering of the security to the public
3 years
Even with disclosure, advisory fees may not be excessive. The SEC takes the position that IA fees should not be higher than what other IAs charge for similar services and a specific disclosure would be required for annual fees of ____________ of AUM Industry standard = ______ of AUM measured annually and ________ of annual profits when dealing with allowable, performance-based fees
3% or higher 2% AUM annually 20% performance based
Russell 3000 Index is made up of
3,000 of the largest companies
For new issues, members of the UW Syndicate must receive full payment within ___________ of the purchase of the new issue shares
35 days
Penalty for trading on material non-public information is _______________________________. If the IAR trades on material non public info, who is liable to pay?
3x the profit gained or losses avoided both IAR and advisory firm employer
Wilshire 5000 Index is made up of ________ based on __________
7,000 largest companies based on market capitalization
alpha formula =
= Realized Return - (Market Return x Beta)
types of federal income tax rates average or effective tax rate - formula = - tax that customer pays when?
= amount of tax paid / taxable income - customer pays over a period of time
Acid Test Ratio or Quick Ratio = What is the Standard Minimum? Most stringent measure of what?
= current assets less inventory/ current liabilityes Standard = 1:1 most stringent measure of CORPORATE LIQUIDITY
After-tax Rates of Return formula =
= gross rate of return - tax liability
What should be included in an investment policy statement? A. client's or participant's investment goals and objectives B. Statement of purpose and responsibilities C. Specific criteria for selecting securities for the investment portfolio. D. Guidelines for review E. Compensation arrangements for the IA F. Risk Tolerance and liquidity requirements G. Summary Plan Description H. Recommended allocations among asset classes as to minimize the risk of large losses I. Tax Treatment of specific investments held in the plan. J. Expected Returns and the expected range of returns (benchmarks relative to objectives) K. Time horizon
A. client's or participant's investment goals and objectives B. Statement of purpose and responsibilities D. Guidelines for review F. Risk Tolerance and liquidity requirements H. Recommended allocations among asset classes as to minimize the risk of large losses J. Expected Returns and the expected range of returns (benchmarks relative to objectives) K. Time horizon
payments for unaffiliated solicitors solicitor's written disclosure must disclose which of the following? A. name of solicitor and services provided B. name of BD executing trades C. name of IA D. Business background of solicitor E. nature of relationship btwn solicitor and IA F. statement that solicitor will be compensated and compensation agreement G. Amount (if any) that client will be charged in addition to advisory fee
A. name of solicitor and services provided C. name of IA E. nature of relationship btwn solicitor and IA F. statement that solicitor will be compensated and compensation agreement G. Amount (if any) that client will be charged in addition to advisory fee
An investor would: _____________ if they expect the values of stocks or futures to rise ____________ if they expect values of stocks or futures to remain stable or decline modestly and are looking for income ____________ If they expect the values of stocks or futures to decline _____________ if they expect the values of stocks or futures to remain stable or appreciate modestly and are looking for income
An investor would: Buy Calls - if they expect the values of stocks or futures to rise Sell Calls - if they expect values of stocks or futures to remain stable or decline modestly and are looking for income Buy Puts - If they expect the values of stocks or futures to decline Sell Puts - if they expect the values of stocks or futures to remain stable or appreciate modestly and are looking for income
regular payment made to a retired person from an investment fund to which that person or that person's employer made contributions during that person's working life
pensions
dollar cost averaging - involve buying fixed number shares at regular intervals? - involves investing a fixed number of dollars at regular intervals
fixed number of dollars at regular intervals
who bears risk in variable and fixed annuities?
fixed- insurance company variable-annuitant
Billy wants to tour the country in a new motor home. He goes to the RV dealership and the salesman tells Billy that for merely $500/month, he can drive away today. The interest rate that Billy qualifies is 7.5% calculated monthly, and the term on the loan is 10 years. How much did Billy borrow to buy this RV? a. $6,000 b. 12,250 c. $42,125 d. $60,000
Billy will owe the amount to buy the RV but will also have to pay 7.5% in interest on this amount over a 10 year period with payments of $500/month for 10 years we can find that Billy will make 12 months x 10 years = 120 monthly payments 120 x $500 monthly payments = $60,000 paid a total but also has to pay interest on the loan, so the total is going to be over 60k so can eliminate D as an answer Terms of the loan require Billy to pay $500 per month for 10 years. This works out to $6,000 per year in payments. So answer "A" would NOT be correct because it would only cover 1 year of payments. Billy would not pay $6,000/yr for 10 years in order to repay a $6,000 loan. Repayment of a 6k loan at 500/month and 7.5% interest would take just over 1 year 12,250 is way too low. With a $500/month pmt at a rate of 7.5% a $12,250 loan would be repaid in less than 3 years and our loan term is 10 years 42,125/60,000= around 70%
DCF figures are most reliable when evaluating investments with known characteristics such as _____________
fixed-income securities
NASAA Custody Requirements Form __________ is completed by an IA who has custody of client funds then given to independent CPA who examines client funds in custody, then forwards to the form to SEC or State Administrator with the accountant's certificate of accounting
Form ADV-E
does a SEP IRA have a high or low cost of administration?
low cost of administration
taxation of an early withdrawal is LIFO or FIFO? if the annuitant is under 59.5 and they withdraw what happens?
LIFO meaning that earnings are taxed first, plus a 10% penalty tax
are LT bonds or ST bonds riskier?
LT bonds are riskier. ST bonds are considered to be safer
MSRB rules state unless the advertisement includes (realized return? total return?) quotations current to the most recent ______________ ended _______________________ prior to the date on any use of the advertisement, the legend must also identify wither a _________________ or _____________ where an investor may obtain those quotations.
MSRB rules state unless the advertisement includes (realized return? total return?) quotations current to the most recent month ended 7 business days prior to the date on any use of the advertisement, the legend must also identify either a website or toll free number where an investor may obtain those quotations.
Do ETNs have coupon rates/ pay dividends or interest? How are ETNs taxed?
NO so there is not normally any annual income to the investor holders of ETNNs will pay capital gains or losses associated with their units, pay LT gains rates
Can the IA loan money to a client who is a relative?
NO unless the IA is a financial institution in the business of loaning funds or the client/relative is an affiliate of the IA
Increase of tax rates on individual investors or businesses would or wouldn't be effective in turning around a recessionary period and why?
NOT because it reduces the amount of income consumers and businesses may use to spend aka tightening spending
if the owner of an IRA dies and the designated beneficiary is: non-spouse - can non-spouse become owner of account? - can non-spouse make contributions to account? - can non-spouse rollover IRA to another IRA? - Does the non-spouse have to pay taxes on the distribution?
NOT become owner - NOT make contribs - NOT rollover to their own IRA - have to pay tax on distributions as ordinary income to the beneficiary in the year that the distribution is received
if the owner of an IRA dies and the designated beneficiary is: a charity - will the charity need to pay taxes on distributions?
NOT income tax since charity pays no income taxes on gifts received
what happens to the P/E ratio when a stock split occurs?
NOTHING - does not change
form of DCF methodology which uses discounting to find the present value of inflows (revenues) and outflows (expenses) for each year of a given investment
NPV - Net Present Value
Analysts use DCF to evaluate an investment's inflow and outflows as well as the expected cost of capital related to the investment to determine the _____________ and the ____________ of the project
NPV - present value of project and IRR - expected rate of return
figure on income statement that gives the overall profitability of a company before the payment of dividends on preferred and common stocks
Net Income
Return on Assets =
Net Income (Net Profits after tax) / Total Tangible Assets
Return on Equity =
Net Income/ Shareholder's Equity
a BD that is a member of an underwriting syndicate receives compensation from ______________
UW Spread, not commissions
Bond ETFs generally have (high/low) cost compared to bonds
low cost way to invest in bonds
starting point to calculate federal income tax liability
adjusted gross income (AGI)
who is the designated state official administers and enforces securities regulations and the USA in a given state?
administrator
type of technical analysis ratio of advancing stock prices to declining stock prices
advances and declines
for life insurance products the premiums are generally paid with _______ and are tax-deductible or not tax-deductible
after tax dollars not tax deductible
Non-Qualified annuities are bought with _______________ how are distributions taxed?
after tax dollars only the earnings are taxable
replacement policies for life insurance - can they avoid taxation?
can avoid current taxation on any gain in the old policy by making a Sec. 1035 tax-free exchange.
total return equation =
amount received from investment/ amount paid for investment
an industry sector ETF would be (more/less) affected by overall changes in the market and offers (more/less) diversification when compared to a broad-based ETF but would provide diversification within a particular sector
an industry sector ETF would be LESS affected by overall changes in the market and offers LESS diversification when compared to a broad-based ETF but would provide diversification within a particular sector
formula for common stock dividend yield or current yield =
annual dividend/ current market price
Cost of regular and recurring fund operating expenses
annual fund operating expenses
after-tax yield formula =
annual interest * (100% - Investor's Tax Rate)
current yield on bonds formula =
annual interest/ market price
Calculating stock price based on expected annual payouts and a client's required rate of return: price for a given yield =
annual payout/ required rate of return
Total return is the return on investment in what period of time? - it includes: 1. 2. 3. 4.
annual rate of return 1. appreciation 2. capital gains/losses 3. dividends or interest 4. other distributions
10-K - must be submitted when?
annually
12b-1 fees are charged how often?
annually
renewal application for Canadian BDs and Agents must be filed when
annually by December 1st
Exchange fee is a fee charged to an investor if they exchange shares for what?
another fund within the same fund family
interest rate risk - applies to what? - price of __________ will move in which direction to interest rates?
applies to bonds and fixed income securities price of bond will move in opposite direction to IRs
if the index or strategy that an ETN is linked to appreciates in value, ______________________________ If the index or strategy depreciates in value, ________________________
appreciates -> unit holders participate in appreciation LESS investor fees, which normally accumulate annually depreciates in value-> unit holders can see losses associated with their ETN holdings and are STILL subject to investor fees
The world banks purpose
assist developing nations by providing them with loans
the world banks purpose is to ___________-
assist developing nations by providing them with loans
BD any partner, officer, director, or branch manager of a BD, any person directly or indirectly controlled by or under common control of BD and any employee of the BD except any person whose functions are solely clerical
associated person of a BD
evaluating the company's debt to equity, debt to total capital, and debt to book value ratios are all ways to measure
company's financial leverage
mkt price of shares in a Bond ETF is based on _____________________ and (can/cannot) be different than the NAV per share of the fund.
based on supply and demand and can be different - if mkt value is higher = premium - if mkt value is lower = discount
Mutual Funds Investment Income or Dividends - Fund deducts its operating expenses before or after paying dividends to customers?
before
Descending/Inverted/Negative Yield Curve
bond buyers may want to buy short-term maturities because thats where get best yield and are safest - "interest rates have gone up sharply and quickly" - long term interest rates are lower than short term - short term rates exceed long term - indicates periods of tight money and rising interest rates
is bond interest tax deductible on the income statement? are dividends tax deductible on the income statement?
bond interest IS tax deductible dividends are NOT tax deductible
if the federal reserve buys government securities in the open market,
bond prices will increase, yields will decrease
when using diversification to lower or reduce risk, an investment adviser would consider investments in A domestic investments B foreign investments C both
both
how are earnings taxed for fixed and variable annuities?
both - earnings are tax deferred until annuitization unless holder makes early withdrawals
if the cash surrender value is paid to the policyholder, what happens to the policy and DB?
both canceled
Do ETNs or ETFs have market risk?
both have market risk associated with the performance of the market which the ETN or ETF is attempting to mirror
Scaling in - investment strategy where securities are (bought/sold) (in increments/in lump sum) to achieve any overall total goal to attain an average ______________ as the value of the security is (increasing/declining)
bought in increments average purchase price declining
Qualified annuities are bought with _______________ how are distributions taxed?
bought with before tax dollars - all distributions are taxable
Volume discount offered to investors in investment companies where investors can receive a lower sales load due to the amount of money invested
breakpoint
the Standard and Poor's 500 Index is : - made up of ___________ - generally considered to be ___________-
broad, large cap index - measure of average market performance
risk associated with the unique situation of an individual company - can be reduced by diversification within an asset class - risk that a company will fail
business/credit/financial risk/ unsystematic risk
open market operations : Fed would buy or sell treasury securities to stimulate the economy when inflation is not a threat
buy
a bearish investor is short ABC common stock and is concerned that the stock may rise in value. What should they do?
buy a call to protect against rise inn market value
a bullish investor is long ABC common stock but is concerned that the stock may decline in value. What should they do?
buy a put option
portfolio management strategy in which investment manager or investor designs a portfolio and purchases appropriate investments to fit that portfolio, then holds the investments with the anticipation of income and appreciation
buy and hold strategy
what is the simplest form of portfolio management with no rebalancing?
buy and hold strategy
Bonds trading at a discount = bond is paying interest rate that is (higher/lower) than the current prevailing rate in the market?
lower
strategy whereby a portfolio manager has the opportunity to actively manage a portfolio but if the returns fall below a specified level, then the active management ceases and immunization of the portfolio occurs
contingent immunization strategy
do the opposite of what most investors are doing at any particular time
contrarian investors
defined contribution plan - amount of pension employee receives depends on __________
contributions made to the employees account + actual earnings on contributions
bonds are converted at a specific rate which tells you how many shares of common stock the investor would receive upon conversion
conversion price
for large yield changes the bond price volatility is measured by __________
convexity
a form of registration used for new issues with pending registration with SEC
coordination
what would an IPO of a new NASDAQ stock be an example of? coordination, notice filing, or qualification?
coordination
client investment objective = income , what should they invest in?
corporate bonds corporate bond funds REITs for high yield interest income preferred stocks, utility stocks, and blue chip stocks for dividend income
credit spread/ spread cited most often is the difference of a _________ compared to a __________
corporate issue w/ a US Treasury issue
corporate yield -> municipal yield
corporate yield *(100% - investors tax rate) = muni equivalent yield
measures the correlation of the returns of a specific portfolio compared to the return of the market as a whole
correlation coefficient
ranges from -1 to +1 and is a coefficient developed using a series of data points
correlation coefficient or the R-value
are notes payable current or long term liabilities on the balance sheet?
current liabilities
tactical asset allocation focuses of (LT/ST) asset mixx. Adjustments can be made to the targeted balances within a range based on ___________
current market conditions and economic conditions
market capitalization is equal to:
current market price per share x number of shares outstanding
In connection with the solicitation of investment company shares, stating or implying to a customer the funds ____________ without disclosing the fund's most recent average __________,
current yield or current income annual return calculated using the SEC's calculation for the one five and 10 year periods and fully explaining the difference between current yield and total return may be cause for suspension or revocation
If the IA has custody of client funds or securities: If the IA is registered at the federal level under the IA Act of 1940 and requires prepayment of fees 6 months or more in advance in excess of _______. If IA is registered at the State level under the USA and requires pre=payment of fees 6 months or more in advance in excess of ______________: If the IA has discretionary authority over client's funds or securities: If IA has custody due to direct fee deduction or due to pooled investment vehicles (mutual funds): What is min required net worth and what are the balance sheet requirements?
custody= $35k; audited BS must be filed IA Act of 1940 excess of $1,200: Positive net worth; audited USA in excess of $500: Positive net worth; audited Discretionary auth: $10k; BS NOT audited custody w/ direct fee: EXEMPT
bonds trading at a premium will always have a basis (YTM) which is (higher/lower) than the coupon rate
lower
Mutual Funds Investment Income or Dividends - are derived from ?
dividends, interest, and short term gains in the portfolio
upon completion of a person's will, the original copy should be kept in a safe place like a safe deposit box by a bank with the lawyer that created the will. Generally, a will should be reviewed how often?
every 5 years
estimates the return on an investment based on certain scenarios and weighs these estimates based on the probability of the occurence of each scenario
expected return
Calculate the overall expected return for ABC common stock if the bull market has a projected return of 15% and a likelihood of occurrence of 40%, the bear market has a projected return of -10% and a likelihood of occurrence of 30%, and the neutral market has a projected return of 7% and a likelihood of occurrence of 30%
expected return of bull = .15*.4=.06 expected return of bear= -.1*.3=-.03 expected return of neutral = .07*.3=.021 .06-.03+.021= .051 5.1%
a security covered by federal law under the securities act of 1933 which must be registered with the SEC (not the states) or exempt from registration with the SEC is a
federal covered security
Equity Indexed Annuity point-to-point - is a term that refers to a _____________ indexed annuity crediting method - indexed annuities credit a level of ________ to the contract owner which can be based on or linked to the performance of equity markets
fixed interest
CSV accumulate on either a ________ basis on whole life policies or ____________ on variable life policies
fixed = whole life variable = variable
when you annuitize a variable annuity, is the amount of units you receive variable or fixed?
fixed but the value fluctuates based on the value of the securities in the sub account
laddering - involves the purchase of _______________ securities with different __________________________ in an attempt to reduce _______________________
fixed income maturities and coupon rates interest rate risk and re-investment risk
2 basic types of annuities
fixed: pays same predetermined dollar amount each period variable: pays fluctuating $ amount each period varying on the value of securities in Separate account of insurance company issuing the variable annuity contracts
Employee Stock option policies and exercise transactions can be found where?
footnotes of company's annual report
when a BD or IA firm first files for registration, the initial registration is active until when? when will registration be renewed?
for remainder of year until Dec 31st renewed annually
when is qualification used?
for securities not generally filed with SEC but registered (qualified) in state of issuance
Investment Companies General Info With any fund, diversification is achieved whether within a certain sector, or across global markets with investing in ____________ securities
foreign
in fixed exchange rate system, the exchange rate is determined by
foreign governments working through their central banks
what is required to support a claim under the surety/fidelity bond?
formal Proof od Loss
calculated using the projected future earnings of the company, generally when
forward P/E upcoming 12 month period
cash contract in which seller agrees to deliver a specific cash commodity to the buyer at some point in the future
forward contract
interests in tenants in common arrangements are thought of as being _______________
freely transferrable, because of the fact that interest only changes hands after death of owner
Monte Carlo Simulation creates a _____________ based on a wide range of _____________
frequency distribution table wide range of potential outcomes
illegal practice of making a trade based on advanced knowledge of a transaction/event that will affect the price of the security
front-running
trusts - created by ________________ who entrusts property to the person of their choice, a _______________, who is obliged to hold the property for the benefit of one or more individuals, ______________.
grantor trustee beneficiary
the larger the credit spread between a corporate and treasury bond, the (greater/lower) the risk of investing in a corporate bond
greater
long term bonds react the ___________ to interest rate changes
greatest
(high/low) yield, (high/low) P/E stock would provide the value investor with income
high yield and LOW P/E
Bonds trading at a premium = bond is paying interest rate that is (higher/lower) than the current prevailing rate in the market?
higher
bonds trading at a discount will always have a basis (YTM) which is (higher/lower) than the coupon rate
higher
buying mutual fund shares just below a breakpoint amount forces the investor to pay a _____________ sales load
higher
call premium over the face or par value of the bond will cause the yield to call on the bonds trading at a DISCOUNT or Par value to be (higher/lower) than the yield to maturity?
higher
the (higher/lower) the Sharpe ratio, the better the performance of the manager or safer the manager's strategy
higher
assuming a call price that is equal to the face or par value of the bond, the yield to call would be: - (Higher/Lower) than the Yield to Maturity on bonds trading at a discount - (Higher/Lower) than the Yield to Maturity on bonds trading at a premium
higher than YTM on bonds trading @ Discount Lower than YTM on bonds trading @ Premium
If an investor is comparing multiple investments and the goal is to achieve the highest return (annualized or total), the investor should seek the investment with the (highest/lowest) YTM
highest
term policies provide the highest or lowest amount of death benefit for every dollar of premium paid
highest amount
in strategic asset allocation, these assets are maintained in order to achieve ___________
highest anticipated return vs risk
when securities are given as a gift, what happens to the holding period of the securities?
holding period of donor will be added to holding period of the donee when securities are sold at a GAIN
Generally, ESO - Employee Stock Option policies and exercise transactions would be found where ?
in the footnotes of the company's annual report
when are distributions taxed to limited partners? and at what rate are they taxed?
in the year the distribution was received @ the limited partners participation rate
Time-Weighted Return - investment performance measure where _____________ are eliminated - used to compare a portfolio manager's performance against what?
in-flow and out-flow of money are eliminated compare performance against a benchmark
If an IA oversees a securities portfolio of a Limited Partnership, the most important consideration in determining an investment strategy would be
income needs and requirements of all partners
Disadvantages of C Corp - Double Taxation:
income taxed first to the corporation, shareholders subject to taxation of dividends received
If IR are increasing in general, then it can be anticipated that DCF (returns) on new bonds and bond portfolios would (increase/decrease?)
increase
interest rates and the movement of the business cycle
interest rates parallel the movement of the business cycle
form of DCF methodology that uses discounting to find the present value of inflows and outflows for each year of a given investment, then sets the equation equal to zero in order to find the rate of return which gets the investment to a breakeven point which can then be compared to the estimated cost of capital, also known as the discount rate for a project
internal rate of return
floating exchange rate is determined by the
intervention of central banks, market forces, supply, and demand
Precious metal values and equities market have what relationship
inverse precious metal values tend to move in the opposite direction of the equities markets
do leveraged funds or inverse funds rely more heavily on derivatives to achieve their investment objectives?
inverse funds
Both preferred stock and bonds are fixed income securities. Therefore their market prices are sensitive to interest rate movements. Their prices have what relationship with interest rates?
inverse reaction interest rates go up, prices of outstanding bonds go down. move in opposite direction
managed wrap fee includes what in the fee
investment advice as well as transactions
company that issues its own shares to the public, and manages a portfolio of other securities for the benefit of its clients including the separate acts of insurance companies but not REITS, BDs, fixed insurance companies, or pooled investments in precious metals
investment company
written statement that provides plan fiduciaries who are responsible for investments with guidelines concerning investments and management decisions
investment policy statement
length of time until you need to liquidate an investment for a specific goal
investment time horizon
Risk adjusted return =
investment's total return - risk free rate of return
compared to a registered fund, are private fund's initial and ongoing costs generally higher or lower
lower
who decides the amount of the surety/fidelity bond?
left to the discretion of the Administrator, but amount applied to BDs cannot exceed the amount set by federal law.
Appreciation of US dollars causes US exports to become more or less competitive in US markets? causes foreign imports to become more or less competitive in US? why?
less competitive because more expensive to the buyer more competitive in US because less expensive
If a bond trading at a premium has a call price which is lower, the final yield to call (should the bond be called away), would be (more than/less than) the coupon rate of the bond?
less than
bond's price if trading at discount =
less than $1k
NASAA Delivery of the brochure and related brochure supplements do not need to be made to: clients who receive only impersonal advice and who pay _______________ per year, or ___________________ or _____________
less than $500 in fees per year investment company registered under 1940 act business development company
total return can be especially useful when comparing multiple investments which have a holding period of __________
less than 1 year
court order appointing someone as the representative of a decedent's estate
letters testamentary
written directive which states a person's desires with regards to their end-of-life wishes if they become mentally or physically incapacitated with no ability to communicate their decisions. Includes things like medical treatment and do-not-resuscitate directives
living will
long hedge is used by ____________ of commodities to protect against __________ prices short hedge would be used by ____________ of commodities to protect against __________ prices
long hedge is used by _buyers__ of commodities to protect against ___rising__ prices short hedge would be used by __sellers___ of commodities to protect against _falling__ prices
the best downside protection with options would be ____________
long put when the investor is long the stock -> Protective Put
___________ protect or hedge long stock positions __________ protect or hedge short stock positions
long puts hedge long stock long calls hedge short stock positions
if the yield curve is normal and positive are short term or long term rates more volatile?
long term rates are more volatile
Annuity is a suitable investment for someone with an investment objective of
long-term capital appreciationn
what classification does this go under on the Balance Sheet? debentures
long-term liabilities
those with (longer/shorter) time horizons are generally willing to be more aggressive with investments and invest in (more/less) liquid investments
longer less
Bonds with the (longest/shortest) maturities and the (highest/lowest) coupons have the greatest interest rate risk
longest maturities and lowest coupons have the greatest
real estate has a (high/low) correlation to other financial assets
low
yankee bonds are used when interest rates in the US are (high/low)
low
coverdell accounts are for what type of contributor
low and middle income level
approval of a contract with an investment adviser of or principal underwriter of a registered investment company requires approval of ____________-
majority of non-interested directors = directors who are NOT parties to such contract or agreement
Price to Earnings Ratio (P/E)
market price/ earnings per share
price to book ratio formula
market price/book value per share book value per share = (total stockholder's equity - preferred stock)/ common shares outstanding
bond that will mature in 10 years. it has a coupon rate of 5.25% and is trading at 103. If the bond is called away from the customer at 102 in 3 years, the investor would end up with a yield to call of (more than/less than) coupon rate of the bond?
market price=103 call price = 102 (103-102)= 1 point loss bond being called 7 years early would mean interest income loss of: $52.50*7years= less than coupon because the customer would suffer a loss in yield income and a loss in principal value
tactical asset allocation uses _______________
market timing
inherited securities being sold IRS allows step up in cost basis from original cost when it was purchased to the _____________ when?
market value of securities at the date of death of the decedent
is a really high P/E ratio a good or bad thing?
market value will decline because the company is overvalued
Pice of ABC Common Stock declined as the entire stock market declined today. This is an example of what type of risk?
market-wide risk or systematic risk
1. matching contributions based on the elective contributions made by employees of up to __________ compensation 2. Non-elective contributions of a straight___________ of compensation to each eligible employee
matching up to 3% compensation non-elective contributions of a straight 2% of compensation
What can a Broker Dealer or IA that reorganizes in the middle of a registration period do
may file an application to register the successor firm (whether in existence or not) for the unused portion of the year
the administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant from employment if he finds that it is in the public interest and the the applicant/registrant is insolvent - meaning what?
meaning liabilities exceed assets and cannot meet obligations as they come due. applies to the firm not a principal of the firm
values used to measure statistical averages and frequency of numbers
measures of tendency
halfway point of a series of data points or numbers
median
Exception: If the investment advice for a client is provided by a team comprised of ______________, a current brochure supplement need only be delivered to that client for the _________________ with the most significant responsibility for the day-to-day advice provided to that client.
more than 5 supervised persons 5 supervised persons
Definition of an IA Engaging in the business means that the advisory services represent _________ of the IA's total sales and revenues before tax for the most recent ____________, not including investment company clients
more than 50% most recent 3 fiscal years
Operating Cash Flow / Cash Flow from Operations formula =
net income + depreciation & amortization
Delivery of Form ADV-Pt 3 New customers must be delivered when? If Info Materially Inaccurate - IA must file amended Form ADV-Pt3 with the SEC when? - Existing customers must be notified when?
new customer = before or at the time IA enters into an Investment advisory contract with retail investor new amended form w/ SEC within 30 days existing customers must be notified within 90 days
are investment companies considered to be derivatives?
nno
Are Real Estate Investment Trusts derivatives?
no
Do you forfeit your COLAs (Cost of Living Adjustment) if you choose to delay your claim to receive a larger payment of social security later?
no
Does the Investment Act of 1940 require that the investment advisory contract be in writing?
no
agency cross transaction: can an adviser recommend the transaction to both the buyer and the seller?
no
an issuer is any person who issues or proposes to issue any security for sale and receives the proceeds of the sale.. are corporations issuing certificates or interest in Oil, Gas, or Mining Titles/leases considered issuers?
no
are fees for registration prorated for portion years?
no
are insurance companies exempt from registration with the SEC under the '33 Act?
no
are mutual funds subject to the Glass-Steagall Act of '33?
no
can you offset qualified dividends against any other gains that you have?
no
do charitable foundations have to pay state or federal tax?
no
do you need to know the prime rate to develop an investment strategy for a client?
no
does a bond's rating need to be on a customer confirmation?
no
does income flow through to owners in a C Corporation?
no
does principal disclosure requirement apply to transactions with customer of a BD if it is not acting as an investment advisor?
no
does the exchange or name of the market maker who executed the order need to be on the order ticket?
no
does the price at time order is received need to be on the order ticket?
no
if a person is required to be registered at the federal level, will they need to be registered at the state level?
no
is a registered investment adviser automatically considered an accredited investor under the '33 Act?
no
is converting a bond to a stock considered a sale?
no
would a decrease in demand for real estate be advantageous to REITs?
no
does a cash flow statement itemize assets, liabilities, or insurance cash values?
no sees if client is living within their means
is it considered an offer when a newspaper or other publication is not published in a state, but is sold in a state?
no the Wall Street Journal is published in one state, but is sold throughout the whole US
risk that changes in government activity including, laws, rules. regulations. and tax rates in the US will have an adverse effect on investments
regulatory risks
Administrator may by rule adopt exemptions from registration requirements if exemptions are consistent with public interest and purposes fairly intended by the policy and provisions of the act. Administrator may revoke or deny certain exemptions. Does the Administrator have to give prior notice to those who were previously exempt and to other regulators?
no - without prior notice the Admin can revoke or deny certain exemptions
Roth IRA - is there an age limit to making contribs to IRA? - what age do you have to be to make a catch-up? - are contribs tax deductible ? - To be a qualified distribution what do you have to do?
no age limit - 50 - 5 yr holding period & meet one of following 1. made after Roth IRA is 59.5 2. made as a result of the death or disability of Roth IRA owner 3. used for qualified 1st time home buyer expenses 4. used for edu expenses 5. used for medical insurance premiums
is the market price of an investment included in the NPV calculation?
no because NPV is attempting to assign a present value to the investment which can then be compared to the market price to determine if the investment will be profitable
is a fixed annuity offered by an insurance company subject to the anti-fraud provisions of securities law?
no because fixed annuities are not securities
is an issuer negotiating with an underwriter an offer to sell under the '33 Act?
no because not dealing with the public
can an advisor be paid on the basis of capital gains or capital appreciation?
no can only be paid on total value averaged over defined period
does a no-load fund charge fees?
no front or back end fees but can still charge purchase fees, exchange fees, account fees, and redemption fees
BDs must furnish a final prospectus to customers purchasing securities of a new issue when?
no later than transaction confirmation due date
equity indexed annuities participation rates if the index goes down by 5%, with a 10% participation rate what happens to the investors equity indexed annuity?
no matter the participation rate, the investor's equity indexed annuity does not see a decrease in principal
what is the mode for a series of numbers if no number repeats in a set of numbers? what is the mode for a series of numbers if more than one number repeats itself?
no mode there can be more than one mode
Should you invest in tax-exempt securities in your IRA?
no there is no benefit since IRA earnings are tax deferred or tax exempt so shouldn't invest in muni bonds or muni bond funds
is principal guaranteed with ETNs?
no, return of principal is not guaranteed
do administrators file registration?
no. registration is reviewed by Administrators but the firms and individuals do the filing
permanent life insurance policy - does not pay dividends
non-participating
contract between individual and their employer to defer compensation as agreed upon between the 2 parties
non-qualified deferred compensation plan
payroll deduction plans are qualified or non qualified plans typically?
nonqualified
what is recharacterization and is it allowed?
not allowed basically have until due date of their tax return for the yr that contribution was made to recharacterize Roth IRA into another IRA
If an individual has previously declared bankruptcy is this grounds for denying from becoming an IAR?
not grounds for registration denial
Exempt transactions: Private Placements sold to ___________________ during a _____________ period
not more than 10 persons other than institutional investors 12-month
Can options be bought on margin or in a margin account?
not on margin yes in a margin account
Are IAs allowed to take custody of client's funds or securities?
not unless the IA has notified the Admin of custody and the Admin has not prohibited this practice
Can a BD ever share in client profits or losses in regards to the NASAA rule?
not unless they have written authorization from the client and the BD (doesn't need to be proportional)
If an IA is required to register with the SEC, they will not have to "register" with the State but may be required to make a ___________
notice filing of their Form ADV with the state
type of technical analysis for stock, trades of less than 100 shares
odd lot purchases and sales
one account that contains the accounts of many SEC rules apply
omnibus account
Regulated Investment Companies are exempt from
paying tax on dividends which are distributed
where do commodities trade?
on an exchange
if a corporation experiences any extraordinary items or expenses, where would this be reflected?
on the investor's income statement
if you use a 1035 tax-fee exchange for replacing an old insurance life insurance policy, how often are you allowed to do this?
once every 3 years
married but filing separately may result in less tax than filing a joint return if
one spouse has significantly higher income than the other spouse
Private CMOs are backed by what?
only backed by the issuer of the product not by any government guarantee
If a radio or TV signal is broadcast and directed to Tennessee, but the signal can be received and viewed in Texas, then what state(s) is the signal considered to be an offer?
only considered an offer in the state where it originated and is directed (Tennessee) not considered an offer in Texas, but could be considered a "solicitation" in states other than Tennessee
guarantees in variable-universal life
only guarantee is the Rate of Mortality
is an IA allowed to charge an advisory fee and a commission?
only if they disclose it in writing BEFORE any advice is rendered
If an IA has offices in multiple states Then the IA has to be compliant with the Minimum Net Worth requirements needed in every state or where?
only need a minimum net worth requirement in the state its principal place of business is
IARS do not have to register if they
only sell fixed annuities/life insurance products because these fixed products are not considered securities
must redeem an investor's shares on demand at the current net asset value which is calculated daily and may be the same as, higher, or lower than the price paid
open end investment companies
If a Coverdell account is owned by the student, it will have a (high/low) impact on financial aid eligibility? If owned by the parent, it will have a (high/low) impact on financial aid eligibility Do qualified distributions from a Coverdell account count as income in the FAFSA?
owned by student = high impact owned by parent = low impact NO dont count
formula for common shares received upon conversion
par value/conversion price = common shrs received
permanent life insurance policy - one that pays dividends to the policyholder. - dividends can be used to reduce the premium
participating policy
Form of asset allocation where the portfolio is set and is re-balanced at pre-determined intervals
passive asset allocation
equity indexed annuity while most commonly calculated annually, some employe ____________ valuation method.
point-to-point
risk that an investment's returns could suffer as a result of political changes or instability in a country
political or country risk
If Agents of BDs, BDs, or IA Firms (not IARs) are going to have custody or discretion over their clients' assets, the USA provides that a State Administrator may require them to do what
post surety bonds aka fidelity bonds
direct investments in real estate Raw Land: only upside =
potential LT Capital Gain if property value increases
passes the assets of the creator of the will into an existing trust that was created by the writer of the will
pour-over will
pre-tax margin =
pre-tax profit/ sales
529 plan that allows anyone to establish account in name of student and lock in the cost of a specific number of academic periods or units at CURRENT PRICES but the units or periods will be used in the future
prepaid tuition plan
Main Purpose of Chinese Wall
prevent material, non-public information from being shared between departments within a BD, thereby promoting confidentiality and trust with the investing public
real estate investors make money from ___________ & ____________. Real estate can provide leverage to investor bc most conventional mortgages only require ____________% down
price appreciation & rental income - 25% down
what is referred to as the multiple at which stock is selling?
price earnings ratio
bond bought at par
price is equal to par =$1000
bond bought at premium
price is greater than par>$1000
bond bought at discount
price is less than par <$1000
Trade futures contracts to protect against what?
price movements in your commodity
ratio is often used by money managers to determine whether a stock is undervalued or overvalued
price to book ratio
Risks or disadvantages in investing in precious metals:
price volatility discovery of new metal reserves if investor purchase bars , that investment must be kept in safe place
Variable part of the Futures Contract is what?
price, based on the market price of commodity
Amex Major Market Index (MMI) is ____________ average of ___________ ___________________stocks?
price-weighted average of 20 blue chip industrial stocks
fee that some funds charge investors when they purchase fund shares and is separate from front-end sales load because it is paid to the fund, not the broker
purchase fee
a form of registration used for NEW ISSUE of securities not registered with SEC but state of issuance only
qualification
small company making intrastate offering is an example of coordination, filing, or qualification?
qualification
type of analysis that focuses on hard data only like revenues, margins, profits, and assets in order to determine the value of a stock
quantitative analysis
10-Q form - submitted when? - required to disclose relevant info regarding their _______________
quarterly financial position
short term bonds react the ___________ to interest rate changes
quickest
changing the discount rate: rate charged to member banks which borrow from the Fed to cover temporary reserve needs rate is __________ to slow the economy
raised
who is eligible to participate in a Keogh Plan?
recipients of income from self-employment and their full-time employees if they : 1. are 21 yrs old 2. have worked at least 1 yr for the company 3. work 1,000 hours per year
Mutual Funds Investment Income or Dividends - what happens to the NAV when dividends are distributed
reduce the NAV on the ex-date
annuity payout option if the income payments of the annuitant do not equal the premium paid, the balance of the account is paid to a beneficiary of the annuity either in payments or in a lump sum
refund annuity
any person (IA, IAR, BD, or Agent) may avoid civil liability by offering what prior to the filing of a lawsuit.
refund of purchase price plus interest
Pay to Play rule applies to
registered advisers and advisers covered under the Private Adviser Exemption
what happens when registering by coordination?
registration is filed with SEC and simultaneous duplicate copies of registration are filed with BOTH State and Federal
if an agent or IAR leaves employment at a firm and does not transfer to another firm, what happens to the registration of the agent or IAR? How many years until they have to retake exams?
registration is not effective when the agent or IAR is not employed by a registered firm 2 years
Mutual Funds Investment Income or Dividends - if reinvest dividends, how will they be reinvested?
reinvested at the Public Offering Price or less depending on the fund - could charge investors a sales load if they wanted to
risk that interest and dividend income from existing investments may not be able to be reinvested in a way that will earn the same rate of return
reinvestment risk
benchmarking when creating a customized benchmark for a specific client, the portfolio manager must provide _________________________________ which reflect the portfolio's investment objective
relevant and obtainable alternatives
what happens if you have one life insurance policy and want a different one ?
replacing a policy is permitted but highly regulated
investors who open cash accounts must pay for all of their trades by when?
settlement date
capitalization formula = what is it also referred to as?
shareholders' Equity + Bonds "Total Capital"
Insiders cannot sell shares of their own company stock ______ or ____________. An owner of _____________ of the stock of a company is considered to be a principal stockholder (insider)
short or short against the box 10% or more
a will that handles the outright distribution of one person's assets to beneficiaries named in the will
simple will
if 10 investors participate in intrastate offerings of corporate securities would they need to register under the USA
since its not more than 10, no
accumulated depreciation is (added/subtracted) from the value of depreciable assets like buildings and equipment in the fixed asset section of the balance sheet
subtracted
risk common to all securities of the same general asset class (stocks, bonds) - cannot be minimized or eliminated with diversification with the same asset class. Includes general market forces and sentiment
systematic risk
market risk interest rate risk and inflation risks are categorized as what?
systematic risks
focuses on short-term asset mix. There are targeted balances but adjustments can be and are made within a range based on current market and economic conditions
tactical asset allocation
is active allocation a form of tactical allocation or is tactical allocation na form of active allocation
tactical is a form of active
how do earnings accumulate for qualified and non-qualified annuities?
tax deferred basis
IRA - taxed how? - account for who? - Is an IRA itself an investment?
tax deferred so pay with before tax dollars account for individuals who are employed and their spouses no it is a container which an individual can keep their investments in
lump sum payments for death benefit of life insurance policies are generally taxed how to the beneficiary? what if the policy had been sold to a 3rd part prior to death?
tax exempt to the beneficiary but may be taxable under the transfer for value rule if the policy had been sold to a 3rd party prior to death
EPS would be increased by - tax (loss/gain) carried forward - (reduction/increase) of corporate income tax rates - (retirement/issue) of bonds
tax loss carried forward reduction of corporate income tax rates retirement of outstanding bonds
after registration becomes effective, the registration statement may only be amended to change ? A. public offering price B. syndicate compensation arrangements C. the amount of securities to be offered or sold
the amount of securities to be offered or sold A and B CANNOT BE AMENDED
concept states that value of a $ today will be higher than the value of that same $ in the future because of inflation and potential appreciation or income received from investing that $
time value of Money
this type of insurance policy allows the holder, at certain times stated in the policy, to "adjust" the amount of premium and the amount of the DB
universal life or adjustable life insurance
are listed or unlisted products considered to be more risky
unlisted = riskier bc more difficult to sell bc no market readily available
OTC market trades what type of securities? who trades these securities in the OTC market? OTC NASDAQ market is what type of market?
unlisted securities market makers from own inventory negotiated market
A buyer of securities in a private placement receives _____ securities
unregistered
the administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant from employment if he finds that it is in the public interest and the the applicant/registrant has willfully violated the law of a foreign jurisdiction when?
within the past 5 years
advisory program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (may include portfolio management or advice concerning the selection of other IAs) and the execution of client transactions
wrap fee program
investment advisers cannot place an order for a client based on 3rd party instruction without _______
written 3rd party trading authorization
state replacement requirements for replacing a life insurance policy with a new one include:
written comparison of the new and old policies covering policy provisions such as the suicide clause, incontestability clause, and the conversion period
It is unlawful for any person who receives, directly or indirectly, any consideration for advising others as to the value of securities, or their purchase or sale to act as principal for their own account (to knowingly sell to or purchase any security from a client) without __________________ when?
written disclosure to client before completing the transaction - client must consent but doesn't have to be in writing
manager tenure is the length of time in __________ that a person has been a portfolio manager of a fund
years
403 B rollovers - is an employer ever allowed to deny a rollover?
yes
if a BD or an IA becomes registered, does this registration automatically constitute registration of any agent/IAR who is a partner, officer, or director?
yes
if an agent tells a customer that the agent cannot make an offer to sell a specific security but can accept an offer from the customer to buy that security, is this considered an offer by the agent to the customer?
yes
is a certificate of interest in oil, gas, or mining titles or leases defined as a security under the Uniform Securities Act?
yes
is receiving a security as a bonus for buying another security or product considered a sale?
yes
is receiving rights or warrants to buy another security considered a sale?
yes
- can a stop order protect a profit on an existing position? - can a stop order limit a loss on an existing position? - can a stop order assure a specific price execution?
yes yes no
Rollovers: - Can distributions from a SIMPLE IRA be rolled over into other types of retirement plans?
yes after the employee has participated in the plan for at least 2 years - distribs in 1st 2 years can only be rolled over to another SIMPLE IRA
are performance fees allowed in a private fund?
yes as long as all investors are "Qualified Clients"
is a Canadian BD permitted to contact a snowbird or those on vacation in the US?
yes as long as there was an established BD relationship with the client before the client traveled to the US
Is an IA allowed to exercise voting authority with respect to a client's securities? IA Act of 1940
yes as long as they 1) have written policies and procedures so that they act in client's best interest 2) disclose to clients that they can see info on how the IA voted 3) upon client's request, furnish copy of IA's policies and procedures
is receiving a "gift" of assessable stock considered a sale?
yes because the owner would no longer be liable for future assessments (received "value") by gifting the stock
If you are an IA that discusses life insurance with their clients are they regulated under the IA act?
yes because they are still an IA
can a customer and an agent of a BD open a joint account?
yes but must agree in writing and have the written authorization of the BD
Does the IA Act of 1940 allow performance based fees?
yes but only for Qualified Clients : net worth of 2.2 million or 1.1 million in AUM
is it okay for an investment advisor to distribute a 3rd party research report to a client?
yes but the IA has to disclose that its a 3rd party research report
do you have to register as an agent if you are conducting transactions with insurance company securities and federal savings and loans securities?
yes but you do not have to register them with the state
if have a place of business in that state, do you need to register?
yes in that state unless already registered with SEC or exempt from registration
Are options available on ETFs?
yes on most
after in place, can the client revoke consent for an agent cross transaction?
yes upon WRITTEN notice
if the owner of an IRA dies and the designated beneficiary is: a trust - can the trust become owner of account? - what is the maximum payout period based on?
yes, trust becomes owner and the beneficiaries of the trust become the beneficiaries of the IRA - maximum payout is based on the OLDEST beneficiary's age
Investment Act of 1940: If an IA is acting as a BD in any capacity, do they need to notify the client?
yes. must disclose in writing that acting as a BD BEFORE completion of the transaction and must obtain WRITTEN CONSENT of the client for the transaction different than the USA rule bc in USA you dont have to have written consent from a client
long-term yield on a bond that is expressed as an annual rat
yield to maturity or basis
