Series 65 - Quick Guide

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Excluded from definition of investment adviser

- Banks or trust companies - Publishers of bona fide publications of general circulation (newspapers and magazines) - Persons advising about certain securities (U.S. government or agency issues) - Broker-dealers not receiving special compensation for giving advice - Persons whose advice is incidental to their profession, such as lawyers, accountants, teachers and engineers. (L.A.T.E)

Surety Bond Specifics

- The Administrator requires the posting of bonds primarily to cover the cost of civil liabilities associated with violations of the Uniform Securities Act. - The Administrator can accept securities instead of cash if the posting of a bond is required. - Bonds may be required for agents of broker-dealers. - Firms that maintain net capital in excess of minimum requirements may be exempted from the requirement of posting surety bonds. - Agents exercising discretion over client accounts may be required to post a surety bond.

Return Concepts

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. On the other hand, time-weighted returns are generally a more important tool to show portfolio manager performance.

Buy - Stop

Buy stop orders go into effect when the price of the security reaches or exceeds the specified "stop" price. As such, they are commonly used by short sellers who either wish to protect a profit they've already made, or protect against a loss if the stock should go up. Buy stops can also be used by those wishing to acquire stock when it breaks through a resistance level. However, when one is already long the stock, turning in an order to buy more is not going to offer any protection. U22LO6

Nonpunitive termination

Cancellation and withdrawal of a person's registration

Brochure Rule

Each client must be delivered a written disclosure statement no later than at the time of agreement to contract for the adviser's services No agreement between an investment adviser and a client may commence without delivery of the adviser's brochure. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. If there are no material changes, a brochure does not have to be sent. U6LO4

Exchange-traded notes (ETNs) are

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.

Hedging Example

Hedging is best accomplished by taking a long position with a market view opposite that of the position held. A long stock position is bullish, so buying a put, which is bearish, is the appropriate hedge. Short stock is bearish, so buying a call, which is bullish, is the appropriate hedge.

Punitive termination

Suspension, revocation, and denial are considered forms of punishment.

Alternative Minimum Tax (AMT)

The excess of the alternative tax over the regular tax is added to the regular tax.

Total Return

The total return on an investment is the sum of the capital gains/losses plus any income distribution such as dividends or interest.

Market Capitalization

The total value of a company's issued shares. - Determined by: multiplying the price per share x number of outstanding common shares.

​Oscar and Hilda, a married couple, are collecting Social Security. They speak to their financial planner for advice on taxation of those benefits. At what level do their benefits become subject to income tax?​

When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000 These are the current numbers used by the IRS to determine if Social Security benefits are taxable. It is interesting that the computation indirectly can cause tax-exempt interest to become taxable. Once the couple's income under this computation exceeds $44,000, 85% of it is taxable. If the question dealt with a single person, the limit would be $25,000 rather than $32,000. Unit 21-LO5

Call feature available on some bonds

allows the issuer the option to escape high interest rates if market rates decline. Many bonds have a call feature that allows the issuer to call in the bonds, assuming the issuer has the cash available to pay them off, and escape high interest rates if market interest rate declines. If the company does not have the cash, it may issue a new bond at the lower prevailing interest rates and use that money to pay off the old bonds. This is known as refunding and, in essence, is no different from refinancing the mortgage on a home.

Capital Asset Pricing Model (CAPM)

assumes frictionless markets, i.e., no taxes or transaction costs. Among the other assumptions of the CAPM are that all investors have the same time horizon and that all investments are infinitely divisible into fractional shares. The CAPM assumes that there is no inflation. the equation of the SML showing the relationship between expected return and beta. Ex: market return - risk free rate x stock beta + risk free rate

Fundamental Analyst

concerned with the - economic climate - the inflation rate, - how an industry is performing - a company's historical earnings trends - how it is capitalized - its product lines, management, and financial statement ratios (ex. such as the P/E ratio) U12LO6

Sharpe Ratio

excess return earned compared to its total risk Equation: Fund's excess return (fund's return exceeding the risk-free rate) / by the total risk (standard deviation).

Negotiable CD (Jumbo CD)

issued in the minimum face amount of $100,000 and are traded in blocks of $1 million.

Current Yield Formula

on mutual funds is calculated by dividing the annualized yield by the POP

Technical Analyst

try to predict the market by examining price and volume trends. (They expect the market to act in the future as it has in the past.) ex: 200-day moving averages


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