Series 65

Buy stop orders

"stop loss" orders are designed to halt a loss or protect a gain. These are buy orders placed above the current market that become triggered if it happens that the stock should trade at or through the specified stop price

GNMA securities

-investors receive a monthly check representing both interest and a return of principal -investors own an undivided interest in a pool of mortgages -GNMAs are considered to be the safest of the agency issues -the minimum initial investment is $25,000

registration with the SEC is optional

-pension consultants once their AUM reach $200 million; -small and mid-size advisers who would be required to register in 15 or more states; and -those advisers with at least $100 million in AUM, but not $110 million in AUM.

Tax treatment on estates

-the maximum tax rate on estates is the same as that on gifts -estates may be valued either at date of death or 6 months later using the alternative valuation option -income received by the estate is reported on Form 1041

tax on investments

21% federal income tax bracket -corporations have a 50% dividend exclusion on dividends received from other companies. The math looks like this: Only half of the 6% dividend is taxable. That means 3% per year is tax free and the other 3% is subject to tax at the 21% rate. So, we have 3% + 79% of the taxable 3% = 3% + 2.37% = 5.37% after-tax return. -The municipal bond is not taxed, but that only produces 5% after tax. -The corporate bond is subject to 21% tax so the corporation gets to retain the other 79%. That computes to 6.75 x 79% = 5.33%, just a bit less than the preferred stock. -In most cases, dividends paid to corporations by REITs are fully taxable. That makes the after-tax return on the 6.5% dividend only 5.14%.

Registration by qualification

A process that allows a security to be sold in a state. The state registration becomes effective when the Administrator so orders.

assessment of DPPs

A program's economic viability is the first priority in the assessment of DPPs. The IRS considers programs designed solely to generate tax benefits abusive. Because there is a very limited secondary market for DPPs, liquidity and marketability should be a low priority

strong form of EMH

Assumes that stock prices fully reflect all information from public and private (inside) sources. Stock prices follow a random walk and no technical analysis (price charting) or fundamental analysis (annual report or industry publication research) is of value. Using a buy and hold strategy is best

income tax filing due date of April 15th

C Corporations

entering an order

Customer name and/or address would never be on an order ticket

efficient frontier

The lower end includes low-risk and low-return portfolios. The higher end includes high-risk and high-return portfolios

maintenance margin

The original call for funds is the Reg. T or margin call. But, when the call is for ADDITIONAL money, it is known as maintenance margin

interest rate sensitive

Utility stocks are interest rate sensitive because they are highly leveraged. Preferred stocks are interest rate sensitive because they have a set dividend and fluctuate in price like bonds when interest rates change

purchased on margin

Warrants, but not rights, may be purchased on margin if the underlying stock is traded on the NYSE or the Nasdaq

agency cross transaction

When an investment advisory firm handles both sides of a transaction for a client of an investment adviser representative

Cyclical stock

a stock that tends to rise and fall with the economy, buy during recovery

discretion

agents may never exercise discretion without prior written authority. IARs must receive the written consent no later than 10 business days after the first discretionary transaction in the account.

barbell strategy

all bonds purchased at the same time with two different sets of maturities - half of the bonds mature near term and half mature intermediate term

Tactical asset allocation

attempts to capitalize on short-term market swings, is a market timing strategy

excluded from the definition of a broker-dealer

banks, trust companies, and savings and loan associations

Stop Order

becomes a market order when the stop price is reached or penetrated. Stops can be used to protect both long and short positions.

Agent Registration

becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments. Agents do not have financial requirements, and the Administrator has a maximum of 1 year after termination to initiate any actions.

Wilshire 5000

broadest index representing the domestic stock markets

capacity of a principal

broker-dealer that purchases securities for, or sells securities from, its inventory. Charge markups NOT commission

offer price

client wanted to buy and receives a quote from a dealer

Current yield

computed on the basis of the current market value

over-the-counter market

considered to be a negotiated market in contrast to a stock exchange, which is an auction market.

mixed margin account

contains both long and short positions

step-up in basis for inherited stock

customer's cost basis is the fair market value of the stock on the date that the decedent died

dollar-weighted return

determines the internal rate of return to an investor based on cash flow in and out of the portfolio

sell stop

entered below the market

forward contract

exchange of an agreed-on amount on an agreed-on date. hedge against a drop in price

A person who renders investment advice solely with respect to securities issued by the U.S. government

excluded from the definition of investment adviser under the Advisers Act and is therefore a federal covered adviser under the NSMIA of 1996.

Section 404(c)

fiduciary responsibilities. plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules

health savings account (HSA)

funds not used for health expenses may be invested in mutual funds and other securities

Defensive stocks

good to hold when the economy is in the early contraction

zero-coupon bonds

have default and interest rate risk, do NOT have reinvestment risk

growth stock

higher-than-normal P/E ratio, typically 20:1 or higher, and a low dividend yield

revocable trust tax

income received into a revocable (grantor) trust, whether distributed or not, is taxable to the grantor

investment adviser representative

individual person. manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities

CAMP Assumptions

investors should construct a portfolio with the highest Sharpe ratio because that offers the highest risk-adjusted return. It also assumes that the expected excess returns for the market are assumed to be known in that investors have access to the same information. As well, it assumes that returns are normally distributed and investors' expectations for risk and return are identical.

semi-strong form efficiency

involves financial information which is publicly available

QDRO

judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. IRS regulates this.

Shareholders of an S corporation

limited liability, are limited to no more than 100 shareholders, and receive flow-through tax treatment

Value stocks

lower price-to-earnings and price-to-book value ratios. better relative performance in periods of contraction

457 plan

nonqualified deferred compensation plan for municipal employees, as well as for independent contractors

Deferred compensation plans

not qualified plans and may be discriminatory

income tax filing due date of March 15

partnership returns (including LLCs with more than 1 member) and S corporation

hypothecation agreement

permits the broker-dealer to accept the client's margin securities as collateral for the loan

real rate of return

profit on stock divided by purchase price to get a %. Add that to the % of the dividend divided by purchase price. If there is an inflation rate given, subtract that from those two %'s added

dividend discount model

project the current value of a common stock using projected future dividends

Third-party solicitors

provide a copy of the investment adviser's brochure (Form ADV Part 2A), as well as a copy of the solicitor's brochure

Laddering strategy

purchasing bonds on a regular basis, but not with new funds (reinvestment), As bonds mature, the proceeds are rolled-over into new bonds

regressive tax

rate remains the same regardless of the dollar amount being taxed

incentive stock options

result in long-term capital gains: Ex: An employee wishing to obtain long-term capital gain treatment would prefer the employer to offer this

Dollar cost averaging

share price fluctuates and the same number of dollars is invested at each interval

Progressive taxes

tax rate increases as the amount being taxed increases

current yield

the annual dividend or interest of an investment divided by the current market value

Buy a Put Option

the best way to protect a long position either on that security or on an index with a close correlation (large cap stocks/S&P 500)

real interest rate of a fixed income investment

the interest earned after inflation

bid price

the price a dealer is willing to pay/client wishes to sell so the quote from a dealer

effective tax rate

the rate of tax paid on total taxable income

Marginal tax rate

the rate of taxation on any additional taxable income received

Contrarian investors

trade in the opposite direction from most other investors

Buy a call option

used for selling short/short position to protect loss

tax preference items

used to arrive at the taxpayer's alternative minimum taxable income: -accelerated (but not straight-line) depreciation; -Excess intangible drilling costs; -Capital gains on incentive stock options; and -Otherwise tax-exempt interest from specified private activity bonds

bullet strategy

used when aiming at a target; ex: fund college education of child. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date

Weak-form EMH

uses historical market data, such as price and volume movements

Russell 2,000

value-weighted index for small cap corporations