Series 65

Small cap

$300 million to $2 billion

Micro Cap

$50 million to $300 million

The current minimum maintenance levels set by the SROs is

25% equity in a long margin account and 30% equity in a short margin account. The initial margin requirement under Reg. T is 50% for both long and short accounts.

A traditional IRA requires minimum distributions (RMDs) once the owner has passed age

70½. The same is true for qualified plans (401(k), pension, etc.), except when the employee is still employed with the sponsor.

Both IRAs and Keogh plans have maximum annual allowable contribution limits but they are significantly higher in

A Keogh Plan.

A REIT must distribute at least

A REIT must distribute at least 90% of its income to investors

To come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over

A portfolio of at least $100 million of 13(f) securities

Anchoring is

Anchoring is making irrational decisions based on information that should have no influence on the decision at hand.

Current Yield (stock)

Annual Dividend / Current Market Price

Nano Cap

Below $50 Million

Minimum distributions from a traditional IRA must begin

Minimum distributions from a traditional IRA must begin by April 1 of the year after the owner turns 72.

Regret aversion is

Regret aversion is when the investor prepares herself in such a way as to avoid distress over an adverse outcome.

The Securities Exchange Act of 1934 specifically bars the use of ________ in purchasing new issues for the first __ days from the date of issue

The Securities Exchange Act of 1934 specifically bars the use of credit in purchasing new issues for the first 30 days from the date of issue. In addition, it prohibits installment payments on issues that can be bought on margin. The Securities Exchange Act of 1934 also empowered the Board of Governors of the Federal Reserve Board (FRB) to set margin requirements, and the FRB determines which issues may be purchased on margin.

What new benefit did the TCJA of 2017 bring to 529 plans effective 2018?

The big change was the ability to use a 529 plan for K-12 expenses. However, the only expense that qualifies is tuition and there is a maximum limit of $10,000 per year. No contribution to any 529 is tax deductible. The use of the 529 for foreign educational institutions pre-dates the TCJA of 2017.

The formula for alpha:

alpha = (actual return − risk-free rate) - (beta × [market return − RF])]

top-down analysis—

start with the "big picture" and narrow it down to the most attractive individual stocks.

If a gift tax is due, it is paid by the donor and based on

the gift's value on the date it is given.

Exchange-traded notes are

unsecured debt securities issued by financial institutions, such as banks. Their prices can be impacted by changes in the credit rating of the issuer, and they are not insured by the FDIC.

Central tendency is

usually defined as the center or middle of a distribution. The three most common tools used are mean, median, and mode.

The theory behind the laddering strategy is that

with bonds maturing every year, the investor is reinvesting the principal at current market rates. In a period of rising inflation, interest rates follow along, so annually, the maturing bonds will be used to purchase new bonds with higher coupons.

Earnings from any deferred annuity are taxed when

withdrawn using the LIFO (last-in, first-out) method. A major advantage of a deferred annuity is that all earnings during the deferral period are tax deferred. A special feature available to certain insurance company products, including annuities, is the ability to exchange 1 annuity for another on a tax-free basis under the provisions of Section 1035. When the annuitant dies, neither she nor her estate are subject to income tax; any tax due is levied against the beneficiary.

Big Cap

$10 billion and greater

Mid Cap

$2 billion to $10 billion

Systematic Risk

A risk that influences a large number of assets. Also, market risk.

A breakout occurs when

A security trades outside an established range. One would want to purchase only if the stock breaks through the resistance level already established, if one has no position

A special situation is

A special situation is an unusual event that compels investors to buy a stock or other asset in the belief that its price will rise. The special situation by definition has little to do with the underlying fundamentals of the stock or any other rationale that investors ordinarily use to select investments.

What is the distributable net income (DNI) for a trust?

All investment income, regardless of source, will be considered DNI and will be included in the taxable income calculation to the trust unless distributed. That portion of the DNI representing tax-exempt interest maintains its tax-free status. Reinvested capital gains are not part of a trust's DNI.

Equity ETFs are often organized as

Regulated open-end investment companies and rarely as limited partnerships. Therefore, they must distribute at least 90% of their net investment income and capital gains. However, the method by which those capital gains are realized by the ETF is different than that of a mutual fund and, in almost all cases, result in lower taxable capital gains distributions. Unlike limited partnerships, there is no flow through of losses. Expenses are generally lower as well, and ETFs trade during the day just like any stock.

risk-adjusted return is another way of stating the

Sharpe ratio

A security is any one of the following:

Stock Bond Debenture Right or warrant Note Put, call, or other option Limited partnership interests Certificate of interest in a profit-sharing arrangement

Commodity prices tend to have a high correlation with

The inflation rate. As inflation goes up, the value of the dollar generally falls. The relationship is inverse, a characteristic of negative correlation. As inflation increases, interest rates invariably do the same leading to a decrease in bond prices. Stock prices have a random correlation to commodities, generally negative.

All these statements regarding borrowing from a 401(k) plan are true:

The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. Payback of the loan will be through payroll deduction. Default on the loan will result in the IRS treating the loan as a distribution.

Modern portfolio theory dictates that

The optimal portfolio for an investor will always lie on the efficient frontier.

The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)?

This statement is the definition of the strong form EMH. Private sources include insider information, such as persons holding non-public access to information relevant to the company. Weak includes historical pricing and volume information. Semi-strong includes all publicly-available information, such as earnings reports.

market risk

Uncertainty about an investment's future value because of potential changes in the market for that type of investment

Unsystematic risk

Unsystematic risk (diversifiable risk) is the risk that is eliminated when the investor builds a well-diversified portfolio.

Probably the most significant benefit of saving for retirement using a Roth IRA is

What is truly special about the Roth is that, if certain conditions are met, withdrawals are totally free of income tax.

NASAA has a Model Rule that requires investment advisers have a plan in place that would assist them in preserving the continuity of advisory services in the event of temporary or permanent business disruptions such as natural disasters, cyberattacks, technology failures, or the departure of key personnel. This is known as

a business continuity and succession plan, which requires that every investment adviser shall establish, implement, and maintain written procedures relating to a business continuity and succession plan. The plan shall be based on the facts and circumstances of the investment adviser's business model, including the size of the firm, the types of services provided, and the number of locations of the investment adviser.

A direct participation program (DPP) is

a pooled entity that offers investors access to a business venture's cash flow and tax benefits. Also known as a "direct participation plan," DPPs are non-traded pooled investments in real estate or energy-related ventures over an extended time frame.

The Dow Jones Industrial Average is

a price-weighted index.

One way in which the use of discretionary authority differs between agents and IARs is that

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.

The bullet strategy is used when

aiming at a target. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date.

Under the NSMIA, federal covered securities include

all investment companies registered under the Investment Company Act of 1940, regardless of where they trade. Any stock listed on Nasdaq is federal covered, and that makes any security equal to or senior (like their bonds) also federal covered, regardless of where they trade. Canadian government and municipal securities are not federal covered (although under the Uniform Securities Act, they are exempt securities).

Under the Uniform Securities Act, prepaid fees

are permitted if they are detailed in the advisory contract and there is a refund of the fees if the contract is canceled prematurely. If an adviser accepts more than $500 in prepaid fees, 6 months or more in advance of services, a balance sheet must be included in the brochure (Part 2 of Form ADV) given to customers.

Under provisions of the Investment Advisers Act of 1940, investment advisers that maintain custody of client securities are required to do all of the following:

arrange for a surprise audit by an independent public accounting firm at least annually and subsequently file a report of the examination with the SEC; maintain a separate ledger for each client showing all purchases and sales; keep copies of all confirmations sent to clients; send statements to customers on a quarterly basis

To compare GDP from 1 year to another, and thus to compare the amount of actual economic activity, economists use

constant dollars to eliminate distortions caused by inflation.

Contra party is

defined as the broker-dealer or customer to whom a person has sold securities or from whom a person has purchased securities—they are on the other side of the trade.

A "matched order," sometimes known as "painting the tape," is

defined as when trades are coordinated for the purchase or sale of a security. Essentially an order is placed with the knowledge that another order (or orders) of substantially the same size, at substantially the same time, and at substantially the same price, has been or will be entered. The effect is to cause an appearance of market activity and price movement that is not market driven.

A 401(k) plan is a type of

defined contribution plan rather than a defined benefit plan.

The barbell strategy

has 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.

The Investment Company Act of 1940 requires that an open-end investment company

have a minimum of $100,000 in net assets prior to commencing a public offering. Reports must be sent to shareholders on a semiannual basis. No fund is permitted to own more than 3% of the outstanding shares of another registered investment company.

The alternative minimum tax (AMT) is assessed against

high annual income earners. When calculating adjusted gross income, some deductions and exemptions are disallowed resulting in a higher taxable adjusted gross income (AGI). In the real world, it is not only those with high incomes that are caught by the AMT, but the exam is not likely to go that deep.

Retained earnings represent

income that has not been paid out to shareholders.

Real rate of return considers the

inflation rate

A measurement of investment return that takes the time value of money into consideration is

internal rate of return (IRR). The internal rate of return compounds returns and takes into consideration the time value of money.

A life settlement

involves selling an existing life insurance policy for an amount in excess of the cash value, but less than the death benefit

Stock dividends

make the number of shares owned increase and the cost per share decrease. The overall value should remain unchanged. 125 shares × $20 = $2,500; 100 shares × $25 = $2,500.

A closed-end investment company

makes an initial public offering of stock, and once those shares have been purchased, no more shares are available from the company until it offers a new issue. Investors may purchase shares of a closed-end investment company on an exchange or over the counter at whatever price the market demands. This price may be more or less than net asset value. Investors may not buy or sell fractional shares but may trade only in full shares.

Buying shares directly from clients who own those shares places the IA in the position of being

one of the principals. This is an action that must be disclosed in writing to the client no later than completion of the transaction.

The consent to service of process is.

supplied with the initial registration and remains on file permanently

One of the advantages to secondary trading is

that making secondary purchases can give an investor exposure to a general partner, which can create opportunities to gain access to future opportunities from that partner. The other statements are all incorrect. Secondary trading may allow investors to get into a private equity deal at a later stage and, thus, realize positive returns more quickly. Secondary trading provides liquidity and makes it easier for investors to make strategic shifts in their portfolios. Secondary markets are often used by investors due to changing portfolio needs, rather than a change in the value of their private equity funds.

Limit placed on the number of shareholders in an S corporation:

the maximum is 100, none of whom may be a nonresident alien.

Maximum contribution to IRA

The maximum contribution is the lesser of 100% earned income or $6,000

Under the uniform securities act, the administrator may deny or revoke any transaction exemption except

Those involving a federal covered security. The only security exemptions where the administrator has this power is in the case of securities issued by nonprofit organizations and investment contracts of employee benefit plans. The order must pertain to a specific transaction or security.

The premature distribution penalty of a traditional IRA does not apply if the distribution is made

after the death of the account owner, regardless of the age of the owner or the beneficiary.

The National Securities Markets Improvement Act of 1996 (NSMIA)

defined the term "federal covered adviser," referring to advisers who must register with the SEC or who are excluded from the definition of "investment adviser" under the Investment Advisers Act of 1940.

The discounted cash flow method of valuing a fixed-income security

discounts the investment's future cash flows to arrive at a present value. Those cash flows come from two sources: The first is the semiannual interest payments and the second is the final maturity payoff. Each of these is discounted using the required rate of return (usually the current market interest rate) and the result is the present value of those cash flows. The security's rating is not a factor in this computation although it may affect what investors are willing to pay for the security.

Interest from municipal bonds is exempt from

federal income tax. While municipal bond interest is usually taxed at the state level, most states have an internal rule that exempts interest on their state and local municipal bonds.

Mega Cap

over $200 billion

Time-weighted returns are generally of more use than dollar-weighted returns to evaluate

portfolio manager performance.

The capital market line (CML) represents

portfolios that optimally combine risk and return.

Alternative investments include 4 major categories:

real assets, hedge funds, private equity, and structured products.

The federal covered security exemption applies to

securities listed on the major stock exchanges in the United States, including the Nasdaq Stock Market.

Keogh plans are retirement plans for

self-employed people and unincorporated businesses, such as sole proprietorships and partnerships. If an individual is an independent contractor, they cannot set up and use a Keogh plan for retirement.

A supplemental executive retirement plan (SERP) is

a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees. It is probably not a testable point, but these are frequently funded with cash value life insurance policies. Defined benefit and defined contribution plans are qualified - the question states, nonqualified. A payroll deduction plan is usually nonqualified, but that is most often used by lower income employees; it is definitely not an executive's plan.

At least 75% of a REIT's assets must consist of

at least 75% of a REIT's assets must consist of real estate assets such as real property or loans secured by real property. That 75% can also include cash and U.S. government securities.

Both the Uniform Securities Act and the Securities Act of 1933 exempt securities issued by

banks, trusts, or savings and loans. While the security is exempt under both acts from registration and prospectus delivery requirements, it is never exempt from the antifraud provisions of the acts.

Risk-adjusted return (Sharpe) is calculated by

dividing the security's return in excess of the risk-free rate by its standard deviation

In a nonissuer transaction, the proceeds of the trade

do not benefit or go to the issuer.

All investment adviser advertising must reflect

fees, state actual market conditions during the referenced period, and disclose the specific group of clients to which it applies. Advertising that reflects past performance must show a minimum period of 1 year.

The primary practical difference is the fact that S corporation earnings (and losses)

flow through to the shareholders, whereas C corporation earnings are only received by shareholders when dividends are paid.

Checks made out to a third party must be

forwarded to that party within 3 business days of receipt or the IA will be considered to be maintaining custody. In the case of certificates or checks made out to the IA, return must be made within 3 business days of receipt in order to avoid custody issues; they are never forwarded.

Dollar-weighted returns are generally of more use than time-weighted returns to evaluate

individual investor performance. Because dollar-weighted returns reflect the individual investor's cash deposits and withdrawals from the investment account, it is the preferred measure of return for them.

Class C mutual fund shares generally have the following features:

no front-end sales charge, lower CDSCs than Class B shares for a shorter period, and no conversion to Class A shares regardless of how long they are held. Because of these features, Class C shares may be less expensive for investors with shorter investment horizons. They may be more expensive for investors who plan to hold their shares for a long time, because the level load never discontinues.

The capital asset pricing model (CAPM) is an investment theory that serves as a model for

pricing securities based on their systematic risk

The SEC's pay-to-play rule

prohibits investment advisers from receiving compensation for advisory services to a government entity (any agency, authority, or instrumentality of a state or political subdivision), for 2 years after the advisory firm or any covered employee makes a political contribution to a public official or candidate who is or would be in a position to influence the award of investment advisory business by public retirement funds. Please note that the advisory relationship can continue, just without any compensation. The de minimis exemption of $350 applies to an individual, as long as that person is eligible to vote for the candidate ($150 if he is not), but it never applies to the firm.

Performance fees may be charged,

regardless of the client's age, to anyone with a net worth in excess of $2.1 million or with at least $1 million under management with the firm. An individual reaches accredited investor status with a net worth of $1 million - not enough to qualify and one way in which the states differ from federal law is the requirement to disclose the incentive to take greater risks.

Advisers may use the term "investment counsel" only if two conditions are met:

rendering investment advice must be their principal business and a substantial part of that business must be providing investment supervisory services—that is, continuous advice based on the individual needs of each client.

Commercial paper

represents the unsecured debt obligations of corporations needing short-term financing. Both yield and maturity are open to negotiation. Because commercial paper is issued with maturities of no more than 270 days, it is exempt from registration under the Securities Act of 1933.

The 2 most common forms of DCF (Discounted cash flow) used in the valuation of common stock are

the dividend discount and dividend growth models.

The simplest model for valuing equity is

the dividend discount model—the value of a stock is the present value of expected divi¬dends on it.

In almost all cases, income received into a revocable (grantor) trust, whether distributed or not, is taxable to

the grantor.

Time-weighted returns are used to evaluate

the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals. Dollar-weighted return is more commonly used for evaluating investor performance.

A realized capital gain on a security may be offset by a capital loss realized from

the sale of any type of security, including municipal bonds, equities, corporate bonds, or REITs.

Employees must be covered under a Keogh plan if

they are at least 21 years old, have been employed a minimum of 1 year, and work full time (at least 1,000 hours per year). Keogh plans do not include employees who are under 21 or have just started working with the employer.

Legal and regulatory constraints are

those that apply to an investor by law. We haven't heard of it being tested, but IRS requirements are that a foundation must generally payout 5% of its assets each year as qualifying distributions. This legal requirement to make distributions places constraints on how the foundation's money is to be invested.

Email correspondence is treated the same as written correspondence. The records must be kept for

three years. One method is "the cloud", but there are other acceptable methods as well.

Monetarists believe that the economy and inflation are best controlled

through the management of the money supply rather than through fiscal policy stimulation.