Series 65 terms and definitions
Management Investment Company
Actively manages a securities portfolio to achieve a stated investment objective. It is either closed-end or open-end. Initially they both sell shares to the public; the difference lies in the type of securities they sell and how investors buy and sell their shares. Both calc NAV NAV = Total Assets - Liabilities / Number of Shares Outstanding
Investment Company Act of 1970
Amendments to the Investment COmpany Act of 1940 requiring, in particular, that salescharges relate to the services a fund provides it's shareholders.
Earnings Per Share
= Net Income - Dividends on Pref Stock / Avg Outstanding Shares
Good till Canceled Order
does not expire until filled or canceled order is based on time
Dividends per share
annual cash dividends / number of common shares outstanding
EPS
current market price of common stock / PE Ratio
Stop Limit Order
entered as a stop order and changed to a limit order if the stock hits or goes through the trigger price. order is based on price
Market Order
executed immediately at the market price with no restrictions order is based on price
Day Order
expires if not filled by the end of the day order is based on time
All or None Order
must ve executed in full but not immediately order is based on time
LIBOR rate
"London Interbank Offered Rate" is the interest rates that banks pay one another, when borrowing money from other banks anywhere in the world. It is the bse rate taht is used on most ARMs in the US / large corp / commercial loans.
Traditional IRA's
Maximum tax-deductible contrib are $5,500 (single), $11,000 (married) Income and capital gains earned are tax deferred until the funds are withdrawn.
Underwriter (Exempt) Transactions
These include transactions between issuer and underwriter (such as firm commitment underwriting) as well as those between underwriteres themselves (as when functioning as members of a selling syndicate).
Dividend Payout Ratio
it measures the proportion of earning paid to stockholders as dividends div payout ratio = annual divid per common share / EPS
Limit Order
limits the amount paid or received for securities. Can only be executed at a specified price or better. LOWER in BUY HIGER in SELL order is based on price
Leading Economic Indicators
Money Supply Building Permits (housing starts) Avg Weekly Initial Claims for Unemployment Insurance Avg Weekly Hours (manufacturing) Manufacturers' New Orders for Consumer Goods Manufacturers' New Orders for nondefense Capital Goods Index of Supplier Deliveries - Vendor Performance Interest Rate Spread between 10-yr Treasury bond and Fed Funds Rate Stock Prices (S&P 500) Index of Consumer Expectations
Face Amount Certificate Company (FAC)
is a contract between an investor and an issuer in which the issuer guarantees payment of stated (or fixed) sum to the investor at some set date in the future. IN return for this future payment, the investor agrres to pay the issuer a set amount of money, either as a lump sum or in periodic installments. FAC comp pay a fixed rate of return FAC comp do not trade in the secondary market; they are redeemed by the issuer FAC comp are classified as investment comp
Sharpe Ratio
is a measure of a portfolio's (or individual sec's) risk in compariosn to its expected return. The Sharpe Ratio of a portfolio is calculated as the portfolio's average return that is in excess of the risk-free rate divided by the standard deviation of the portfolio.
Optimal Portfolio
is a portfolio that provides the highest expected returns for a given level of risk.
Capital Asset Pricing Model (CAPM)
is a securites market investment theory that attempts to derive the expected return on an asset on the basis of the asset's systematic risk.
Monte Carlo simulation
is a statistical method to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values on the basis of the risk and return characteristic of the securities themselves
Coincident (Current) Indicators
Nonagricultural employment Personal Income, minus Social Sec, veteran benef, and welfare pymts Industrial Production Manufactoring and Trade Sales in constand dollars
Fill or Kill Order
must be executed immediately in full or be canceled order is based on time
Immediate or Cancel
must be executed immediatlely in full or in park; any part of the order that remains unfilled or canceled order is based on time
Joint Account
an account in which two or more individuals possess some form of control over the account and may transact business in the account. The account must be designated as either joint tennants in common or joint tenants with right of survivorship
Isolated Non-Issuer (Exempt) Transactions
include secondary (non-issuer) transactions, whether effected through a B/D or not, that occur infrequently (very few trans./yr; the exact number varies by state). These usually do not involve securities professionals.
Systematic Risk
sometiems called market risk, is the risk in the return of an investment that is associated with the macroeconomic factors that affect all risky assets. Systematic plus unsystemic risk equals the total risk of an investment.
Exempt Transactions under USA
- Isolated nonissuer transactions: secondary transactions through b/d or not, infrequent sales - Unsolicited brokerage transactions - Underwriter transactions: issuer and underwriter - Bankruptcy, guardian, or conservator transactions: transactions by an executor, admin, sheriff, marshall, receiver, guardian or trustee in bankruptcy. Custodian under UGand UTMA NOT INCLUDED - Limited offering transactions: includes private placements directed at no more than 10 offerees other than instit invest during 12 consec months
Exempt Securities under USA
- US and Canadian gov't muni securities - Foreign gov't securities - Depository Institutions: banks, savings institut, trust comp, fed savings & loans - Insurance company securities: only issued debt and equity - Public Utility securities: util holding comp, equip trust certific issued by railroad or other common carrier reg. - Federal covered securities - Securities issued by cooperatives - Securities of employee benfit plans: invest contract issued boy employee purch plan, savings pension, profit sharing plan - Certain money market instrum: commercial paper & bankers accept.
Diluted EPS
= Net Income - Dividends on Pref Stock + convertible preferred div + convertible debt interest * (1 - tax rate) / Avg Outstanding Shares + Share from conversion of conv debt + Shares issuable from stock options
Roth IRAs
After tax dollars are contributed to plan, therefore not tax deductible. Regular contributions may always be withdrawn tax free. Earnings accumlated, however, may be withdrawn TAX FREE, five years following the initial deposit, provided: - the account holder is 59 1/2 or older - money withdrawn is used for the first-time purchase of a prinicpal residence (up to $10,000) - account holder has died or becomes disabled (minor can be named beneficiary) $5,500 contribution per year; $6,500 catchup rule 50 yrs and older Unlike traditional IRA contributions can be made past 70 1/2 as long as taxpayer has earned income Cannot deduct contributions from taxes if: AGI $114,000 (single) or less may contribute, phased out at $129,000 AGI $181,000 (married) or less may contribue, phased out at $191,000
Current Yield (dividend yield)
Annual dividends per common share / market value per common share
Fiscal Year Accounting
Any 12 month period used by a company thats calendar ends other than December 31.
Lagging Indicators
Average Duration of Unemployment Ratio of consumer installment credit to personal income Ratio of Manufacturing and Trade Inventories to sales Average Prime Rate Changes in CPI for services Total Amount of Commercial and Industrial Loans Outstanding Change in the Index of Labor Cost per unit of Output (manufacturing)
Debt-to-Equity Ratio
Best way to measure the amount of financial leverage being employed by a company. Should be called debt to total capitalization. Debt / Total Capitalization (total debt + total equity) = debt to equity
Book Value per Share
Calc is similar to NAV per share. Assume you sold all assets of a corp, paid back everyone we owe, paid back pref. stock at par and then split what is left among the stockholders. Does not include intangible assets. Tangible Assets - Liab - Par Value of Pref. Stock / Share of common stock outstanding
Closed-End Investment Companies
Closted Ends conduct a common stock offering. It registers a fixed number of shares with the SEC and offers them to the public for a limited time through an underwriting group. Capitalization is fixed unless an additional public offering is made. They can also issue bonds and preferred stock. Can be bought in secondary market or OTC market. Supply and demand determine the bid price (pr which investor can sell) and the ask price (price at which an investor can buy). May trade at a discount or premium to NAV.
Investment Company Act of 1940
Congressional legislation regulating companies that invest and reinvest in securities. The act requires an investment company engaged in interstate commerce to register with the SEC.
Investment Adviser Acts Act 1940
Is any person who makes investment recommendations in return for a flat fee or a percentage of assests managed. For an investment company, the individual who bears the day-to-day responsibility of investing the cash and securities held in the fund's portfolio in accordance with objectives stated in the fund's prospectus
Nominal Rate of Interest
Is the money rate of interest or the actual amount a borrower pays for loanable funds. If inflation is expected, the nominal rate of interest will exceed the real rate of interest on a loan to compensate the lender for the decline in purchasing power
Interest Rate
It is the cost of borrowing money. The rate a borrower pays for funds is determined by the supply and demand for loanable funds, the credit quality borrower and the length of timefor which money is borrowed
Discount Rate (Discount Window)
It is the rate the New York Federal Reserve Bank charges for short-term loans to member banks. This amount is higher than the Federal Funds Rate so it's used as a last resort for banks needing some cash to boost their reserves. FRB was originally established to aid the banking system in emergency situations by acting as a banker's bank. It fulfillls this function through its discount window. The discount rate also refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
Sell Stop Orders
Protect against loss in a long stock postion Protect a gain from a long stock position Establish a short position when a breakout occurs below the line of support (i.e., stock prices decline below low level)
Buy Stop Orders
Protects against loss in a short stock positon Protect a gain from a short stock position Establish a long position when a breakout occurs above the line of resistance
Quick Assets Ratio (Acid Test)
Same as current ratio, except inventory is taken out
Current Ratio
Sames as working capital, but expresses the relationship as a ratio: current assets / current liabilities = current ratio
Federal Funds Rate
Set by FRB member banks. If a FRB member has excess reserves, it may lend additional funds to borrowers including commercial banks that are in deficit reserve position. Basically, it is the rate banks that are members of the Fed Reserv Syst charge each other for overnight loans of $1 mil or more. The rate is considered a barometer of the direction of short-term interest rates. The fed funds rate is listed daily in the newspaper and is the most volatile rate, it can fluctuate drastically under certain market conditions.
Prime Rate
The "prime rate" is the preferential interest rate offered by commercial banks to its most valued corporate customers. But in reality, it just serves as a benchmark for lending rates. Generally, the prime rate is 300 basis points, or 3 percent, higher than the federal funds rate, although this is not always the case. Banks use the prime rate to set interest rates on numerous short-term loan products. These include adjustable-rate mortgages, auto loans, credit cards and home equity loans. Each bank sets its own prime rate, with larger bankers generally setting the rate that other banks follow. Extends credit to heloc loans and small business loans. Banks lower their prime rates when the Fed eases the money supply and raises rates when the Fed contracts the money supply.
Notes on rates
The Federal Reserve Board establishes the discount rate. The discount rate, unlike the federal funds rate, is a managed rate. It is one of the tools of monetary policy. In contrast, the federal funds rate is the market rate determined by the demand for bank reserves on the part of deposti-based financial institutions.
Institutional Investor (Exempt) Transactions
These are primarily transactions with financial institutions such as banks, insurance companies and investment companies, and there is no minimum order size used to define these trades.
Limited Offering (Exempt) Transactions
These include any offering called private placement directed at not more than 10 persons (called offerees) other than institutional investors during the previous 12 consecutive months, provided that - the seller reasonably believes that all of the non institutional buyers are purchasing for investment purposes only - no commissions or other remuneration is paid for soliciting non institutional investors - no general solicitation or advertising is used (Unlike federal law, where the private placement rule restricts the number of purchasers, the USA restricts the number of offers that may be made. Also, USA does not require a written represenation by each buyer that he is purchasing for investment, but it is prudent to have it in writing)
Unsolicited Brokerage (Exempt) Transactions
These include transactions initiated by the client, not the agent. This is probably the most common of the exempt transactions. The Administrator may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of the form be kept by the broker/dealer for a specified period.
Bankruptcy, Guardian, or Conservator (Exempt) Transactions
Transactions by an executor, administrator, sheriff, marshal, reveiver, guardian or trustee in bankruptcy are exempt transactions. Please note that a custodian under UGMA or UTMA is not included in this list and that the only trustee is one in backruptcy.
Stop Order
becomes a market order if the stock reaches or goes throught the stop price. Entered to protect a profit or prevent a loss if the stock beginsto move in the wrong direction. Buy Stop Order is used to protect a short position and buy underlying stock if the price goes above a certain trigger price Sell Stop Order is used to protect a long positions profits if the underlying stock price goes below a certain trigger price order is based on price
Efficient Market Theory
believes taht prices of securities rapidly reflect simultaneous access to all information
Working Capital
is the amount of capital or cash a company has available. Working capital is a measure of a firms liquidity, which is its ability to quickly turn assets into cash to meet its short term obligations. current assets - current liabilities = working capital
Real Rate of Interest
is the nominal rate of interest minus the expected rate of inflation.
Unsystematic Risk
is the specific risk associated with an ivestment. It is not related to macroeconomic factors.
Unit Investment Trust (UIT)
it is an unmanaged investment investment company organized under a trust indenture. Does not have a BOD Does not employ an investment advisor Does not actively manage their own porfolios (trade securities) UIT shares (units) must be redeemeed by the trust A Fixed UIT typically purchases a portfolio of bonds and terminates when the bonds in the portfolio mature. They as of recent started to incorporate equity securities Non Fixed UIT purchases shares of an underlying mutual fund.
PE Ratio
it provides investors with a rough idea of the relationship between the prices of different common stocks compared with the earnings that accrue to one share of stock. PE Ratio = current market price of common share / EPS