Series 66 Exam Study Guide
industrial revenue stock options accelerated personal property direct participation programs
(Alternative Minimum Tax) Certain items that receive beneficial tax treatment must be added back into the taxable income for some high-income earners include: - interest on some _____ ______ bonds - some _____ _____ - _________ depreciation - ______ ______ tax on investments that do not generate income - certain tax deductions passed through from _____ ________ ______
National Securities Market Improvement Act of 1996
(Coordination Act) eliminated the duplication of effort among state and federal regulators; some key points of the act include: federal law overrides state law, registration requirements for investment advisers, capital requirements, increased industry competition by eliminating collusive behavior; ensured that no action by any state or political subdivision could impose laws or requirements upon any broker dealer that differed from or are in addition to those of the Securities Exchange Act of 1934 relating to: capital requirements, recordkeeping, financial reporting, margin, custody
printing prospectuses commissions
12B-1 fees cover such things as the ______ of ______ and certain sales _______ to agents.
US Government insurance parent
3 parties that may guarantee something: 1) ___ _______ 2) ______ company 3) ______ company (may guarantee obligations of a subsidiary)
leading coincident lagging
3 types of economic indicators are: 1) _______ indicators 2) ________ indicators 3) _______ indicators
expansion peak contraction trough
4 stages of the business cycle: 1) ________ 2) ______ 3) _________ 4) _______
Sharpe ratio
= (R- RFR)/SD
book value per share
= (assets -liabilities -intangibles- par value of preferred)/ # of common shares outstanding; purpose: to determine the value of the company's common stock
cash assets ratio
= cash and equivalents/ current liabilities; purpose: the most stringent liquidity measure
common stock ratio
= common shareholders equity/ total capitalization; purpose: to examine the company's capital structure
working capital
= current assets -current liabilities; purpose: to determine the company's liquidity
quick assets
= current assets- inventory; purpose: to determine highly liquid assets
current ratio
= current assets/current liabilities; purpose: the relationship between current assets and current liabilities
preferred stock ratio
= preferred stock/ total capitalization; purpose: to examine the company's capital structure
acid test ratio
= quick assets/ current liabilities; purpose: to determine the company's liquidity
debt to equity ratio
= total long-term debt/ shareholders equity; purpose: to examine the company's capital structure
bond ratio
= total long-term debt/ total capitalization; purpose: to examine the company's capital structure
rising
A CPI that is ______ would indicate that prices are going up and that inflation is present.
power of attorney
A ____ ___ _____ once given to an individual allows that person to make decisions on behalf of the grantor with the same force and effect as if the grantor had entered into the agreement himself.
full
A ____ power of attorney will allow the individual to withdraw cash and securities from an account.
free writing
A _____ _____ prospectus is exempt from filing with the SEC and not subject to Rule 2210's filing or content standards.
durable
A _____ power of attorney will remain in full force during the incapacitation of the grantor and will only terminate upon the grantor's death.
falling
A ______ CPI would indicate that prices are falling and deflation is present.
capital gain capital loss
A ______ _____ is realized when the investor sells the shares at a price that is greater than the cost base; a ______ _____ is realized when investors sell shares at a price that is less than their cost base.
federally covered exemption
A ______ ______ ______ provides for a full exemption from state registration for federally covered investment advisers and federally covered securities.
standard
A ______ power of attorney will terminate upon the death or incapacitation of the grantor.
A
A bank with a shortfall meeting their reserve requirement could borrow money from another bank and pay the: a) federal funds rate b) broker call loan rate c) prime rate d) discount rate
home state individual clients
A broker dealer must be registered in its ____ ____ as well as in the states of its ______ ____.
SEC solvency net capital customers
A broker dealer that conducts business with the public must register with the _____ and maintain a certain level of financial _______ known as ____ ______- all broker dealers are required to forward a financial statement to all _______ of the firm.
D
A broker is a(n): a) registered representative b) duly licensed agent c) issuer of collateralized securities d) person who executes transactions for the accounts of others
D
A client has phoned in concerned about what will happen to his investment in a waste management company if new EPA laws are enacted requiring disposal companies to reduce pollution. What type of risk is he concerned with? a) call risk b) environmental risk c) investment risk d) legislative risk
brokerage
A client of a ______ firm may NOT opt out of the sharing of information with an affiliated company.
gross domestic product
A country's _____ ______ ______ measures the overall health of a nation's economy.
C
A couple in their early 30s are seeking an investment for the $40,000 they have saved. They are planning on purchasing a new home in the next 2 years. Which of the following would be the best recommendation? a) preferred stock b) common stock and common stock funds c) money market funds d) municipal bonds
A
A customer has a large portion in GJH, a thinly traded stock whose share price has remained flat for some time. The customer contacts the agent and wants to sell his entire position. The customer is most subject to which of the following types of risk? a) liquidity risk b) credit risk c) conversion risk d) execution risk
A
A decline in the GDP must last at least how long to be considered a recession? a) two quarters b) one quarter c) six quarters d) four quarters
US stock exchange Nasdaq Investment Company Act 1940 qualified purchasers
A federally covered security is any of the following: - security listed on a centralized ___ ____ _____ or on the ______ - investment company security issued under the _____ ______ _____ of _____ - securities sold to _____ ______.
30 days
A firm must file a Suspicious Activity Report for any transaction of more than $5,000 that appears questionable within ____ _____ of identifying any suspicious activity.
senior management
A firm's anti-money-laundering program must be approved by ______ _______.
assessable
A gift of ______ stock is considered to be a sale.
C
A guarantee ma be issued by which of the following? I. an insurance company II. the US government III. a parent company IV. an investment adviser a) I and IV b) I and III c) I, II, and III d) I, II, III, and IV
.25
A mutual fund that distributes its own shares and markets itself as a no-load funds may charge a 12B-1 fee that is no more than ____%.
D
A new investor is in the 15% tax bracket and is seeking some additional current income. Which of the following would you recommend? a) growth fund b) government bond fund c) municipal bond fund d) corporate bond fund
D
A parent gives 1,500 shares of assessable stock to his child. Under USA this is: a) subject to approval of the state administrator b) considered an offer of securities c) subject to a transfer tax d) considered a sale of securities
higher
A portfolio with a ______ R-squared value will have a more accurate beta coefficient, and as a result the volatility of the portfolio will be more predictable.
hard copy
A preliminary prospectus must be delivered in _____ _____ to all interested parties.
5 million 5 million trust
A qualified purchaser must meet strict minimum financial requirements: - an individual with at least $___ _____ in investments - a family-owned business with at least $___ _____ in investments - a _____ sponsored by qualified purchasers
dividend collateral loan
A sale does NOT include a ______ or pledge of a security for a ______ ____.
contract
A sale is considered to have been made at the time of the _____.
D
A security is represented by an interest in which of the following? I. farmland or animals II. a cooperative III. a marketing scheme IV. a multilevel distributorship a) none of these b) I and II c) I, II, and III d) I, II, III, and IV
nondiversifiable systematic
A security's beta measures its __________ or _______ risk.
ordinary income
A short-term capital gain will be taxed as ______ ______.
alpha
A stock or portfolio's ______ is its projected independent rate of return or the difference between an investment's expected (benchmark) return and its actual return.
higher more
A stock with a beta greater than 1.0 has a ______ level of volatility than the market as a whole and is considered to be ____ risky than the overall market.
less less
A stock with a beta of less than 1.0 is _____ volatile than prices in the overall market and is considered to be _____ risky.
beta
A stock's _____ is its projected rate of change relative to the market as a whole.
D
A syndicate has published a tombstone ad prior to an issue becoming effective. Which of the following must appear in the tombstone? I. a statement that the registration has not yet become effective II. a statement that the tombstone ad is not an offer to sell the securities III. contact information IV. a "no commitment" statement a) III and IV b) II and III c) I and II d) I, II, III, and IV
A
A testimonial by a compensated expert, citing the results he realized following a FINRA member's recommendations, must include which of the following? I. a statement detailing the expert's credentials II. a statement that past performance is not a guarantee of future performance III. a statement that the individual is a compensated spokesperson IV. the name of the principal who approved the ad a) I, II, and III b) II and IV c) I and II d) I, II, III, and IV
1A
ADV Part ____ includes general information about the investment adviser, including: the principal office address, type of organization (such as corporation or partnership), how the adviser will conduct business, if the firm engages in other activities (such as that of a broker dealer), biographical data on the officers, directors, or partners, disciplinary history of the officers, directors, partners, and the firm, location of books and records if other than the principal office; if the adviser has custody of customer assets, if the adviser has dictionary authority over customer assets
1B
ADV Part ____ provides details on the indirect owners of the firm and is filed with the state securities administrator for advisers registered at the state level.
D
According to Rule 135, as it relates to generic advertising, which of the following is FALSE? a) The ad may contain information about the services a company offers. b) The ad may describe the nature of the investment company's business. c) The ad may contain information about exchange privileges. d) The ad may contain information about the performance of past recommendations.
3 annuity payouts life insurance debts funeral charitable gifts
Added to an individual's gross estate: - assets transferred within ____ years of death - _____ ______ payable to the estate or heirs - ______ _______ Deducted from value of estate: - _____ owed by the individual or estate - _______ expenses - ______ _____ made after death
annual 90 fiscal assets
Advisers must file _____ updates to their Form ADV within ____ days of the end of the adviser's _____ year; at this time the adviser will certify the value of the _____ under the adviser's control.
IARD
Advisers must promptly file any changes to the adviser's business and to Form ADV through the ______.
1B
Advisers who are federally registered do not file ADV Part ____.
home state employment residence customers
Agents and registered representatives are required to register in their _____ _____, their state of ______, and the state of _______ of their ______.
issuer broker dealer underwriting bank savings and loan issuance
Agents are NOT required to register if: - They represent the _____ or a _____ _____ in an _______ transaction. - They represent a _____ or a _____ ___ ____ in the _____ of securities.
exempt issuers
Agents who represent _____ _____ are not required to register.
legally binding contract
Agreeing to buy or sell a security represents a ______ _____ _____.
quarterly
All 12B-1 fees are reviewed _______.
name relationship
All ads except blind recruiting ads are required to disclose the _____ of the member firm, as well as the _________ of the member to any other entities that appear in the ad.
net capital type
All broker dealers are required to maintain a certain level of ____ ______ in order to endure that they are financially solvent; requirement contingent on the _____ of business that the broker dealer conducts.
31
All broker dealers are required to withhold ____% of all sales proceeds if the investor has not provided a Social Security number or a tax id number (same is true for mutual funds).
fingerprinted
All employees of a broker dealer who are involved in the sale of securities, have access to cash and securities, or who supervise employees must be __________.
articles of incorporation bylaws constitution
All exchanges are required to file a registration statement with the SEC that includes its ______ ___ ________, _______, and _________.
3 years
All institutional communications must be maintained by a member for ___ _____.
fidelity bond
All member firms are required to obtain a _______ _____ to protect customers in the event of employee dishonesty- will insure against check forgery and fraudulent trading.
enacted
All new rules and regulations adopted by exchanges must be disclosed to the SEC as soon as they are _______.
D
All of the following are bullish for the stock market, EXCEPT: a) falling taxes b) increasing government spending c) increasing money supply d) increasing interest rates
B
All of the following are considered securities, EXCEPT: a) whiskey warehouse receipts b) a trust indenture c) a commodity future option d) interest in a marketing scheme
C
All of the following indicate a downturn in the business cycle, EXCEPT: a) rising inventories b) high consumer debt c) falling inventories d) falling stock prices
day
All orders are considered ____ orders unless otherwise specified.
5 years
All records relating to the SAR filing including a copy of the SAR report must be maintained by the firm for ____ _______.
general security principal 24
All retail communications is required to be approved by a principal of the firm prior to first use- a ______ ______ ______ (Series ___) may approve most retail communications.
3 years
All retail communications must be maintained by the member for ___ _____.
nonissuer selling
All secondary market transactions that take place on an exchange or in the over the counter market are _______ transactions, and the _____ security holder receives the proceeds from the sale.
investment advisor representatives
All solicitors must be registered as _______ _____ _______.
principal
All written complaints received from a customer or from an individual on behalf of a customer must be reported promptly to the ______ of the firm.
agent registered representative
An _____ or ______ _______ may only be an individual (natural person) who represents the issuer or a broker dealer in the purchase and sale or the attempted purchase and sale of securities with the public.
1 million 200000 2 300000
An accredited investor is an individual who meets one of the following criteria: - net worth of $___ _____, excluding the primary residence - earns $______ per year or more for the last ___ years and has the expectation of earning the same in the current year - is part of a couple earning $______ per year or more
revoked disciplinary
An act of contumacy may result in the agent's or firm's registration being _____ or other _______ action.
client status representative firm investment fees charged
An adviser may not knowingly make any misrepresentations regarding: - a ______'s account _____ - the ________ - the ____ - an ________ - ____ to be _______
utility
An example of a low beta stock would be a ______ stock- their price does not move dramatically.
illiquid market manipulation
An investment adviser who has discretion over client accounts may in certain circumstances be found to have made unsuitable blanket recommendations if the adviser purchases a significant amount of an ______ security for a large number of client accounts; this action could also be deemed to be _____ ________.
Form ADV
An investment adviser will begin the formal registration process by filing _____ _____, which provides detailed information regarding the investment adviser.
PV=FV/(1+R)^T
An investor can determine the present value of a future payment by: ____________________
B
An investor gets advanced notice of a research report being issued and enters an order to purchase the security that is the subject of the research report. This is known as: a) front running b) trading ahead c) insider trading d) advance trading
B
An investor has a conservative attitude towards investing and is seeking to invest $50,000 into an interest-bearing instrument that will provide current income and safety. Which of the following would be the most appropriate recommendation? a) Treasury bill b) Ginnie Mae pass-through certificate c) Treasury strip d) banker's acceptance
B
An investor is looking for a risk-free investment. Which of the following would be the best recommendation? a) Series HH government savings bond b) 90-day T bill c) convertible preferred stock d) bankers' acceptances
offset dollar for dollar reduce 3000 realized 3000 3000 entire gain
An investor may use capital losses to ______ capital gains _____ ____ ______ in the year they are realized; capital loss may be used to ______ investor's taxable ordinary income by up to $_______ in the year _______; any losses that exceed $______ may be carried forward into future years deducted at a rate of $______ until used up; if the investor has a capital gain in subsequent years, the investor may use ______ amount of net capital loss to offset gain up to amount of _____.
equal will not will equal
An investor who donates securities to charity will receive a tax deduction _____ to the value of the securities; if the investor has an unrealized capital gain and the securities were held for more than 12 months, the investor ____ ____ owe taxes on the appreciation; if held less than 12 months, investor ____ be responsible for taxes on the appreciation; the recipient's cost base will be _____ to the value of the securities on the day received.
B
An investor who is most concerned with changes in interest rates would be least likely to purchase which of the following? a) long-term warrants b) long-term corporate bonds c) long-term equity d) call options
B
An investor who is seeking some current income would most likely invest in which of the following? a) commercial paper b) Treasury bond c) income bond d) bankers' acceptance
A
An investor who may lose part or all of his investment is subject to: a) capital risk b) market risk c) reinvestment risk d) credit risk
tax free
An investor's cost base is always returned to the investor ____ ______.
D
An offer of securities is considered to have been made in which of the following circumstances? a) a sales presentation for a fixed annuity b) delivering a market report c) mailing a form letter d) delivering a prospectus
C
An offer to sell has been made: a) when stock has been pledged as collateral for a loan at the bank b) the a gift of securities to a charity results in tax credit for the donor c) when a representative calls a client and recommends a security d) when an account is transferred to the surviving party under joint tenants with rights of survivorship
television radio outside newspaper magazine out magazine two thirds outside
An offer will not be considered to have been made if it was received through a ______ or _____ broadcast originating _____ the state; also will not be considered to have been made if received by a ______ or ______ published ___ of the state or by a ______ published in a state that has ____ ____ of its paid circulation _____ of the state.
registered option principal compliance registered options principal
Any retail communications relating to options must be approved by a ________ _____ _______ or the ________ ________ ______ ________.
customer identification program
Any-money-laundering riles require that all firms implement a ______ ________ ________ to ensure that the firm knows the true identity of their customers- all customers who open an account with with firm, as well as individuals with trading authority, are subject to this rule.
C
As it pertains to the USA, which of the following are considered institutional investors? I. a bank II. an insurance company III. an employee benefit plan with $800,000 in assets IV. a trust a) I and II b) I and IV c) I, II, and IV d) I, II, III, and IV
peak
As the economy tops out, the GDP reaches its maximum output for this cycle as wages, manufacturing, and savings all _____.
1,000,000 generation skipping
Assets left to relatives more distant than children (grandchildren) may be subject to a special tax if the amount exceeds $_______; known as ______ _______.
irrevocable
Assets placed in ________ trusts are excluded from the individual's estate.
total dollars invested/ total # shares purchased
Average Cost Formula: ____________________________________
increasing increasing falling falling
Bearish for the stock market: - _______ taxes - _______ interest rates - ______ government spending - ______ money supply
state
Because the companies governed under the Public Utilities Holding Company Act of 1935 are regulated by the act, their securities are EXEMPT from ______ registration requirements.
agent bank savings loan place business institutions issuers existing reside 30
Broker dealer is NOT: an _____, a ____, a _____ and ____, a person with no _____ of ______ in the state who deals exclusively with financial _______ or ______, a person who conducts business with ______ clients who do not _____ in the state and are in the state for less than ____ days.
falling increasing increase falling
Bullish for the stock market: - ______ interest rates - _______ money supply - ______ in government spending - ______ taxes
risk reward overall portfolio diversification removed anything removed safeguards
Changes brought by UPIA: 1) main consideration of a fiduciary is the management and trade off between ____ and ______ 2) the standard for prudence for each investment will be viewed in relationship to the ______ ______ rather than as a stand-alone investment 3) the rules regarding _________ have become part of the definition of prudent investing 4) the restrictions from investing in various types of investments have been _______, and the trustee may invest in ______ that is appropriate in light of the objectives of the trust and in line with the requirements of prudent investing 5) the rules against delegating the duties of the trustee have been _______ and the trustee may now delegate investment functions subject to ________
location name custody location brochure contact personnel legal disciplinary books records
Changes required to be promptly filed through IARD: - change in the business ______ - ____ changes - changes in _____ policy or _____ of assets - material changes to the adviser's ______ - change of _____ information or ______ - change in _____ structure (how the firm is organized- corporation, partnership, etc.) - changes to _______ history - change in location of _____ and _____
reserve requirement
Changing the ______ _______ is the least-used Fed tool.
sole proprietorship C corporation S corporation partnership limited partnership family limited partnership trust
Clients may hold their investments in their own name or in any of the following entities: - a ____ _______ - a ___ _______ - an ___ _______ - a ________ - a ______ ________ - a _____ ______ _______ - a _____
GDP industrial production personal income employment hours worked manufacturing trade nonagricultural employment
Coincident indicators include: - _____ - _______ _______ - _____ ______ - _______ - average number of _____ ______ - _________ and _____ sales - __________ _______
30 70
Corporations that invest in the shares of other corporations will pay only on ____% of the dividends it receives from those investments; ____% of the dividends are tax free to the corporation.
B
Creating false activity in a security to attract a new purchaser is a fraudulent practice known as: a) trading ahead b) painting the tape c) active concealment d) front running
power of attorney
Discretion may not be exercised until the _____ ___ _____ has been received and approved.
GDP productivity wages savings unemployment fall corporate profits inventories
During a contraction, ____ falls, along with _______, _____, and ______; _________ begins to rise, the stock market begins to _____, and _______ _____ decline as ________ rise.
increase corporate sales manufacturing output wages savings
During an expansionary phase, an economy will see an ______ in overall business activity and output; ______ _____, _________ ______, ______, and _______ will all increase while the economy is expanding.
C
During an inflationary period, the price of which one of the following will fall the most? a) preferred stock b) Treasury bills c) Treasury bonds d) common stock
GDP consumer demand stock market production real estate
Economic expansion is characterized by: - increasing _____ - rising ______ ______ - rising _____ ______ - rising ________ - rising ____ _____ prices
B
Economic theories believe all of the following to be true, EXCEPT: a) as supply rises, prices tend to fall b) as supply rises, prices tend to rise c) a moderately increasing money supply promotes price stability d) as demand rises, price tends to rise
GDP supply and demand models business cycle
Economists chart the health of the economy by measuring the country's ____ and by monitoring _____ ____ ______ ______, along with the nation's ______ _____.
M1 M2 M3
Economists gauge the money supply using 3 measures: 1) ____ 2) ____ 3) ____
offices 25 offices separately managed assets derivatives leverage private funds clients assets managed 1 billion 1 10 billion 10 50 billion 50 billion social media chief compliance officer
Enhanced disclosures on form ADV: - total number of _____ and detailed info. relating to the adviser's ____ largest _____ - detailed info. regarding the adviser's _____ ______ account including the type of _____ held, the use of ______, ______, and ownership or operation of _____ _____ - detailed info. regarding the number of _____ serviced by the adviser and amount of _____ ______ for each category of client (ex. institutional or individual) - advisers with over $___ ______ in assets under management must report the value of their AUM within 1 of 3 ranges: $___ to ____ _____, $___ to ____ ______, and greater than $___ ______ - advisers who utilize _____ _____ must disclose all accounts (such as Facebook, Twitter, LinkedIn, etc.) and all websites operated for the adviser's business - if the ____ ______ _____ of the firm is employed at any other adviser, the fact must be disclosed but not approved by regulators
exempt issuers
Examples of _____ ______ are: US Government, state and municipal governments, Canadian federal and municipal governments, commercial paper with maturities of less than 270 days sold in denominations exceeding $50,000, investment contracts associated with employee pension plans, profit sharing, stock purchases, or savings plans, foreign national governments recognized by the US.
nonperson
Examples of a _______: a minor, someone deemed to be legally incompetent, a deceased individual.
person
Examples of a _______: natural person, corporation, trust, government organization, partnership, joint stock company, sole proprietor, association, unincorporated organization.
hedge FINRA NYSE SEC FINRA larger qualifications
Examples of misleading statements not allowed to appear in communications with the public: - excessive ______ clauses - implying an endorsement by _____, the ______, or the ______ - printing the ______ logo in type that is larger than the type of the member's name - implying that the member has ______ research facilities than it actually has - implying that an individual has higher ________ than he or she actually has
C
FINRA considers which of the following to be retail communications? I. videotape displays II. listing of services in local yellow pages III. circulars IV. telemarketing scripts a) II and III b) I and II c) I, II, III, and IV d) I and III
Rules of Fair Practice Uniform Practice Code Code of Procedure Code of Arbitration
FINRA's 4 Major Bylaws: 1) The _____ ___ _____ _______ 2) The _______ ________ _____ 3) The _____ ___ ________ 4) The _____ ___ _________
Securities Act of 1933
FIRST major piece of securities industry regulation- largely result of STOCK MARKET CRASH OF 1929; regulates the PRIMARY MARKET; requires NONEXEMPT ISSUERS, typically CORPORATE issuer, to file a REGISTRATION STATEMENT with the SEC- SEC will review for a min. of 20 days- during this time, the cooling off period, no sales of the security may take place; if the SEC requires additional info., they may issue a deficiency letter or stop order that will extend cooling off period
misrepresentations
Financial relief for ___________ made under the Securities Act of 1933 is available for purchasers of any security that is sold under a prospectus that is found to contain false or misleading statements.
OFAC Treasury Department Office Foreign Assets Control Specially Designated Nationals Blocked Persons
Firms must identify the customers opening an account and make sure they are not on the ______ list- the list maintained by the ______ _______ ______ of ______ ______ ______ consisting of known and suspected terrorists, criminals, and members or pariah nations; individuals who appear on this list are known as _______ _______ _______ and ______ _______, and conducting business with anyone on this list is strictly prohibited.
D
Fiscal policy is controlled by: I. president II. FOMC III. Congress IV. FRB a) I and IV b) I and II c) II and IV d) I and III
federal spending federal taxation deficits surpluses
Fiscal policy may change the levels of: - ______ _______ - ______ _______ - creation or use of federal budget ______ or ______
municipal bonds municipal bond funds
For investors seeking tax advantages, the only 2 possible recommendations are: - _______ _____ - ______ _____ _____
2A
Form ADV Part ____ is the adviser's narrative brochure and will disclose information relating to clients, including: how and when fees are charged, the types of securities the adviser does business in, how recommendations are made, the type of clients the adviser has, the qualifications of officers and directors.
2B
Form ADV Part ____ provides information relating to individuals who: provide investment advice and who have direct contact with advisory clients, have discretion over client assets regardless of whether the individual has contact with the clients.
2A 2B
Form ADV Parts ____ and ____ are provided to clients.
testimonials
From time to time, broker dealers will use ________ made by people of national or local recognition in an effort to generate new business for the firm.
balance sheet income statement financial ratios liquidity ratios valuation ratios
Fundamental analysts use the following to determine a value for the company's stock: - the ______ _____ - the _______ _______ - _______ ______ - _______ _____ - _______ ______
constant dollars
GDP is measured in ______ ______ so that the gain or loss of the dollar's purchasing power will not show as a change in the overall productivity of the economy.
10
GDP often falls by _____% or more during a depression.
real GDP
GDP that is adjusted for the effects of inflation or deflation over time
charity medical educational
Gifts to ______ are always tax-free, as is paying for someone's ______ or ________ expenses.
monetary fiscal
Government has 2 tools it can try to use to influence the direction of the economy: _______ policy, controlled by the FRB, determines the nation's money supply, while ______ policy is controlled by the president and Congress and determines government spending and taxation.
28000 1999
Husband and wife may give up to $______ per year per person- IRS considers half coming from each spouse; annual gift limit has been indexed for inflation since ______.
leveraged
If a company borrows a large portion of its capital through the issuance of bonds is said to be highly ________.
greater less
If a higher interest rate is used in the NPV calculation, it will cause a _______ discount to be applied to the future payment- therefore, the future payment is _____ valuable.
no-load
If a mutual fund charges a 12B-1 fee that is greater than .25%, it may not be called a _____ fund.
14 calendar
If a registered principal finds a match between the firm's customer list and the list of individuals and entities sent by FinCEN, the firm must notify FinCEN within ____ _______ days.
250,000 general creditor
If an account has in excess of $250,000 in cash, the individual would not be covered for ant amount exceeding $_______ in cash and would become a _____ _______ for the rest.
fair market value died long term
If an investor dies and leaves securities to another person, the recipient's cost base is the ____ ______ _____ on the day the dependent _____; any capital gain on the securities will be considered ____-____.
2 giver's giver's fair market value gift less
If an investor gives securities to another person, the recipient has ____ cost bases: for determining a capital gain will be the ______ cost base; for determining a capital loss will be the ______ cost base or the _____ _______ ______ on the date of the _____, whichever is _____.
time weighted return
If an investor will not be making additional contributions to and withdrawals from the account, the investor may use the _____-_______ ______ method to determine the IRR of the portfolio.
increase rise slow down
If the Fed wanted to slow down the economy, it might _______ reserve requirement for banks, making less money available to borrowers, causing interest rates to _____ as a result and the demand for goods and services would _____ _____.
increase up raising slow down
If the Fed wanted to slow the economy down, it would _______ the discount rate- as a result, all other rates go ____ with it, ______ the cost of borrowing; as that increases, demand and the economy ____ _____.
reduce fall increase
If the Fed wanted to stimulate the economy, it might ______ reserve requirement for banks, which would allow banks to lend more- by making more money available to borrowers, interest rates will _____ and, therefore, demand will _______, helping to stimulate the economy.
reduce fall lower borrowing demand
If the Fed wanted to stimulate the economy, it would ______ the discount rate- as a result, all other interest rates _____ with it, making the cost of money ______; the lower rates should encourage _______ and _____ and help stimulate the economy.
sell reducing increase cooling
If the Fed wants to slow the economy down, it will _____ US Government securities, _______ the money supply; because less money available to lend, interest rates will ______, slowing borrowing and demand; will have a ______ effect on the economy.
but down increase
If the Fed wants to stimulate the economy and reduce rates, it will _____ government securities, sending money into the banking system, making more money available to lend; because more money available, interest rates will go _____ and borrowing and demand should _______ to stimulate the economy.
deficiency letter stop order
If the SEC requires additional information when reviewing a registration statement in the cooling off period, the SEC may issue a ______ _____ or a ____ _____, that will extend until all required info. is received.
insolvent trustee liquidate trustee
If the firm falls below its net capital requirement, it will be deemed to be _______, and the SIPC will petition in court to have a _____ appointed to _______ the firm and protect the customers; the ______ must be a disinterested party- once appointed, the firm may not conduct business or attempt to conceal any assets.
prices dates market conditions 12 months market maker firm officers directors underwriting 3 years supporting documentation
If the firm uses reports that cite past performance of the firm's previous recommendations, the report must contain: - the _____ and _____ when the recommendations were made - general ______ ________ - the recommendations in all similar securities for ____ ______ - a statement disclosing that the firm is a _____ _____ (if applicable) - a statement regarding whether the ____ or its ______ or ______ own any of the securities being recommended or options or warrants for the same security - if the firm managed or co-managed an ________ of any of the issuer's securities in the last ___ _____ - a statement regarding the availability of _______ ________ for the recommendations
reduce lower raise
If the government wanted to slow down the economy, it may _______ spending to ______ the level of aggregate demand or ______ taxes to reduce demand by taking money out of the hands of consumers.
increase increase taxation
If the government wants to stimulate the economy, it may ______ spending, which will ______ aggregate demand and therefore, productivity; the government may also reduce the level of ______, leaving a larger portion of earnings for the consumers and businesses to spend- should also have a positive impact on aggregate demand.
disclaimer
If the individual giving the testimonial is quoting past performance, relating to the firm's recommendations, it must be accompanied by a _______ that past performance is not indicative of future performance.
FIFO largest largest
If the investor does not identify which shares are being sold at the time of sale, the IRS will assume the shares purchased first are the first sold under the ______ method- in many cases this will result in the ______ capital gain and the investor will have the ______ tax liability.
access equals delivery
If the issuer has filed a prospectus with the SEC, the prospectus can be viewed on the SEC's website, it will be deemed provided to the investor through the _____ _____ _______ rule.
15
If the market was up 10% for the year, a stock with a beta of 1.5 should reasonably be expected to be up ____%.
retail
If the member believes that the institutional communication to any part thereof may be seen by even a single retail investor, the communication must be handled as ______ and is subject to the applicable approval and filing requirements.
10 prior
If the member firm is a new member that has been in existence for less than 12 months based on the firm's approval date in the rental registration depository, the member must file all retail communications with FINRA ____ days _____ to its first use unless the communication has been previously filed by another member, such as an investment company or ETF sponsor.
sales charge current yield dividends performance broad based index 10 years life less safer sources
If the mutual fund company or broker dealer distributes advertising or sales literature regarding the mutual fund, the following should be disclosed: - the highest ____ _____ charged by the firm - the fund's _____ _____ based on ______ only - a graph of the ________ of the fund versus a _____-______ _____ - the performance of the fund for ___ _____ or the ____ of the fund, whichever is _____ - no implication that a mutual fund is ______ than other investments - the _____ of graphs and charts
100
If the portfolio has 100% of its assets tied to an index, such as an index fund, the portfolio will have an R-squared of ____, and the performance of the portfolio will mirror the performance of the index.
8 9 do not call list 5 name address phone number do not call list calling fax
In accordance with the Telephone Consumer Protection Act of 1991, all firms must: - call only between the hours of ____AM and ____PM - maintain a ____-____-____ _____- individuals placed on the list may not be contacted by anyone at the firm for ____ years - give the prospect the firm's _____, ______, and _____ ______ when soliciting - follow adequate policies and procedures to maintain a _____-_____-_____ _____ - train representatives on ______ policies and use of the do-not-call list - ensure that any _____ solicitations have the firm's name, address, and phone number
business noncustomers home
In accordance with the Telephone Consumer Protection Act of 1991, calls may be made prior to 8am or after 9pm to places of ______- the time regulation only relates to contacting __________ at _____.
issuer
In an issuer or primary transaction, the _____ receives the proceeds from the sale.
dollar weighted return
In evaluating the performance of a manager overseeing an account where the investor will be making contributions and withdrawals, the investor should evaluate the performance using the ______-_______ _______ method.
cost basis cost base price paid commissions fees
In order to determine a gain or loss, investors must first calculate the _____ ______, or _____ ______; in most cases, it is equal to the _____ the investor _____ for the shares + any ________ or ______ paid in connection with the purchase.
abandoned escheatment bookkeeping asset classes
In the event an account owner cannot be located after a significant effort by the broker dealer or investment adviser, the account will be considered to be _______ and the state will claim the account through the ________ process; the state will hold the account in its records as a _________ entry; the former account owner or their estate may make a claim for the assets if they become aware of the existence of the account- the amount of time that passes prior to an asset being deemed this way and being turned to the state varies between ____ _____ and from state to state.
pricing power margins profits
In the most severe recessions, falling prices erode businesses' _____ _____, _____, and ______ as deflation takes hold.
C
In the securities industry, which of the following is the ultimate industry authority with regards to conduct? a) NYSE b) SRO c) SEC d) FINRA
14,000
Individuals may give gifts of up to $______ per person per year without incurring any tax liability; if a gift in excess is given the donor owes a _____ tax.
public media
Information becomes public once it has been disseminated over _____ ______.
broker dealers investment advisers investment insurance banks trusts savings loans government employment benefit 100 50,000,000
Institutional investors include: - _____ ______ - _______ ______ - _______ companies - ________ companies - ______ - ______ - ______ and ______ - ________ agencies - _______ ______ plans with more than _____ participants - any non-natural person with more than $_________ in assets
Investment Adviser Registration Database
Investment advisers will file Form ADV and all of the required parts based on their business profile and place of registration through the ______ _____ _____ ______.
money market funds government bonds municipal bonds high grade corporate bonds
Investments for preservation of capital (very conservative investors most concerned with keeping the money they have saved) include: - ______ ______ _____ - _______ _____ - _______ _____ - _____ _____ _______ _____
more
Investments with higher SDs contain _____ risk.
secondary market selling exchange Nasdaq
Investor-to-investor transactions are known as ______ _____ transactions: in this type of transaction, the _____ security owner receives the proceeds from the sale; may take place on a centralized _____ or in the OTC market known as _____.
investment income municipal bonds
Investors may deduct margin interest only to the extent of their _______ ______; investors may not deduct margin interest from ________ ______.
solicitor's brochure
Investors who are introduced to an adviser through the use of a solicitor must be provided with the _____ ______.
FIFO share identification average cost
Investors who have been accumulating shred through multiple purchases must determine their cost base at the time of sale through 1 of the following methods: - ______ - _____ ___________ - ______ _____
500 5000000 quarterly annual proxies
Issuers of securities with more than _____ shareholders and with assets exceeding $__________ must register with the SEC, file _______ and _______ reports, and solicit ______ from stockholders.
any low speculative
It is inappropriate for an adviser to make blanket recommendations in ____ security, especially ____-priced _______ securities.
compensated
It must be disclosed if the individual giving the testimonial was _________ in any way.
continuous regular supervisory management
Key meaning to the definition of an investment counsel are the key words: "_____ and _____ _______ or ________ services" (a person who provides a wide range of services indicates that the professional in question is NOT principally involved in giving investment advice).
1 day 1 year British Bankers Association
LIBOR loans range from ___ ____ to ___ ____ and the rate is calculated by the ______ ______ _______ in a variety of currencies including euros, US dollars, and yen.
unemployment corporate profits labor consumer debt commercial industrial loans business loans
Lagging indicators include: - average duration of ________ - ______ _____ - _____ costs - _______ _____ levels - ________ and ________ _____ - ______ _____
building permits stock market money supply consumer goods unemployment raw materials borrowing work week manufacturing durable goods
Leading indicators include: - _______ ______ - _____ ______ prices - _____ ______ - new orders for ______ _____ - average weekly initial claims in _________ - changes in ____ ______ prices - changes in consumer or business ______ - average _____ _____ for _________ - changes in inventories of ______ _____
bank lending institution personal outside business agents same
Loans may be made between an agent or a customer if the customer is a _____ or other ______ _______, where a ______ or ______ ______ relationship exists and that is the basis for the loan, or between two ______ registered at the _____ firm.
15 ordinary 20 high
Long-term capital gains on assets held for more than 1 year will be taxed at a max. rate of ____% for _______ income earners and at a rate of _____% for _____ income earners.
10 after
Member firms that have been established for more than 12 months may file retail communications with FINRA ____ days _____ the communication is first used.
price stability
Milton Friedman, founder of the monetarist movement, believes that the main focus of central banks should be on ____ ______.
money supply bias
Monetarists believe that a well-managed ____ _____, with an increasing _____, will produce price stability and will promote the overall health of the economy.
penny stocks small cap stocks growth stocks junk bonds
More speculative investments include: - _____ _____ - _____ ____ _____ - some ______ _____ - _____ _____
mutual funds annually NAV flat
Most ____ _____ charge an asset-based distribution dee to cover expenses related to the promotion and distribution of the fund's shares; the amount of the fee will be determined _______ as a percentage of the ____ or as a ____ fee.
private SIPC
Most broker dealers carry additional ______ insurance to cover larger accounts, but _____ is the industry-funded insurance and is required by all broker dealers.
hedge speculate
Most invested will use futures as a _____ or to _____ on the value of the underlying commodity or instrument.
limited
Most powers of attorney in the investment world are _____ powers of attorney that allow an investment professional to purchase and sell securities without speaking to a client first.
C
Mr. and Mrs. Jones, a couple in their early 40s, enjoy watching their son play baseball on the weekends. He is planning to go to college in 11 years from September, and they are looking to start saving for their college cost expenses. What would you recommend? a) educational IRA b) growth fund c) Treasury STRIP d) custodial account
guarantees profit loss
No representative, broker dealer, or investment adviser may make any _______ of any kind- a _____ cannot be guaranteed, and a promise of no ____ may not be made.
type description securities price use underwriter's discount date type description underwriting business history biographical officers directors large stockholders financial risks legal matters SEC disclaimer
Once issuer's registration statement becomes effective, final prospectus must include: - _____ and ______ of _______ - _____ of the security - _____ of the proceeds - __________ _______ - _____ of offering - _____ and _______ of _________ - ______ ______ of issuer - ________ data for company ______ and ______ - info. regarding _____ ________ - company _______ data - _____ to purchaser - _____ ______ concerning the company - _____ ________
SEC
One of the biggest components of the Securities and Exchange Act pf 1934 was the creation of the _____.
independently inversely
Optimal portfolio performance is achieved by constructing a portfolio whose securities' prices move ________ and _______ to one another.
.75
Other mutual funds that do not call themselves no-load funds are limited to a 12B-1 fee that is ____% of assets, and the amount of the fee must be reasonably related to the anticipated level of expenses incurred for promotion and distributions.
300 civil criminal sued criminal 1,000,000 20
Penalties prescribed by the Insider Trading Act of 1988: - a fine of _____% of the amount of the gain or of the loss avoided for the person who acts on the information - a _____ or _______ fine for the person who divulges the information - insider traders may be ______ by the affected parties - _______ prosecutions that may result in a fine of up to $_________ and _____ years in prison
positive
Portfolio managers whose portfolios have ______ alphas are adding value through their asset selection.
issuer underwriters officers directors registration statement accountants attorneys
Purchasers of a misrepresented security may be entitled to financial relief from any or all of the following: - the ______ - the _________ - ______ and _______ - all parties who signed the ______ _______ - ______ and _______ who helped prepare the registration statement
more
Raising money through the issuance of common stock is considered to be a ______ conservative method for raising capital because it does not require the corporation to pay money back.
20 years 500,000
Registered Reps who aid the laundering of money are subject to prosecution and face up to ____ ______ in prison and a $______ fine per transaction- the rep does not even have to be involved in the scheme or known about it to be prosecuted.
preparer
Research prepared by outside parties must disclose the name of the _______.
national securities exchange
Research reports concerning only securities listed on a ______ ________ ______ are excluded from Rule 2210's filing requirements.
supervisory analyst
Research reports must be approved by a _______ _______.
10 prior
Retail communications regarding investment companies, ETF sponsors, and variable annuities must be filed ____ days _____ to first use if the communication contains non-standardized performance rankings.
separate 500,000
SIPC does not consider a margin account and a cash account as ______ customers and the customer would be covered for the maximum $________.
commodities lobby
SIPC does not offer coverage for ________ contracts, and all member firms must display the SIPC sign in the ______ of the firm.
SEC registration broker dealers agents exchanges FINRA net capital short insider proxies segregation Federal Reserve Board client accounts
Securities Exchange Act of 1934: - created the _____ - requires ________ of _____ _____ and ______ - regulates the _______ and ______ - requires ____ _____ for broker dealers - regulates _____ sales - regulates ______ transactions - requires public companies to solicit _____ - requires _________ of customer and firm assets - authorizes the ______ ______ _____ to regulate the extension of credit for securities purchases under ______ ____ - regulates the handling of ______ _______
qualified purchaser resides
Securities sold to qualified purchasers are not required to register in the state where the _____ _____ _____.
discount federal funds broker call loan prime
Several key interest rates upon which all other rates depend: - ______ rate - ______ _____ rate - ______ _____ _____ rate - ______ rate
10 prior
Should FINRA determine that a member firm is making false or misleading statements in its retail communications with the public, FINRA may require the member to file all of its retail communications with the public with the association ____ days _____ to first use.
expert
Should the individual's testimony imply that the person is an ______, a statement regarding the person's qualifications as such must be contained in the ad or sales literature.
corporate bonds municipal bonds government bonds preferred stocks money market funds bond funds
Some investments that will help generate additional income to help meet monthly expenses are: - _______ _____ - _______ _____ - ________ _____ - _______ ______ - _____ ______ _____ - _____ _____
deflation
Steep fall in demand is more likely to lead to ______ during a depression.
quarterly return sales load
The 12B-1 fee will be charged to the shares _____, reducing the investor's overall _____ on the fund; because it reduces the return, it is a type of ____ ____.
retail communication institutional communication correspondence
The 3 categories of member communication are: 1) _____ __________ 2) _______ ___________ 3) ______________
jawbone market
The FOMC issues statements that can "_______" investors to take certain actions and sets a benchmark for what it believes the fed funds rate should be; however, the ______ is the ultimate factor in setting the fed funds rate.
reserve requirement discount rate target rates US Government securities open market operations money moral suasion
The Fed may: - change the _____ ________ for member banks - change the _______ ____ to member banks - set _____ _____ for federal fund loans - buy and sell ____ ______ securities through _____ ______ ______ - change the amount of ______ in circulation - use _____ ______
C
The Federal Reserve Board sets all of the following EXCEPT: a) monetary policy b) reserve requirement c) government spending d) discount rate
money supply interest rates
The Federal Reserve Board will try to steer the economy through the business cycle by adjusting the level of _____ _____ and ______ _____.
investment money common enterprise expectation profit management third party
The Howey test states that a security must meet the following 4 characteristics: 1) It must be an _______ of _____. 2) It must involve a _____ ______. 3) It must give the investor an _______ of a _____. 4) It must entail the _______ of a ____ ____.
enforcement regulators
The MSRB has no _______ division- its rules are enforced by other _______.
10
The SEC will pay a reward of up to _____% to informants who turn in individuals who trade on inside information.
500,000 250,000
The SIPC covers customers for up to $________ per separate customer; of the total, $_______ may be in cash.
Federal Reserve Board
The Securities Act of 1934 gave authority to the ______ ______ _____ to regulate the extension of credit by broker dealers for the purchase of securities by their customers.
D
The Securities Exchange Act of 1934 regulates which market? a) Third b) Fourth c) Primary d) Secondary
Howey test
The Supreme Court used the _____ ____ to determine a security.
C
The Uniform Securities Act defines an issuer as which of the following? a) a broker dealer b) a bank c) a corporation proposing the sale of common shares d) a savings and loan
Black Scholes model
The ____ ____ ____ is a popular option pricing model used by many investors to determine the value of options.
Investment Advisors Act of 1940
The ______ _____ ____ ___ _____ provides a strict definition as to which professionals may call themselves an investment counsel.
Federal Trade Commission
The ______ ______ _______ requires banks and broker dealers to establish and maintain written identity theft protection programs that must be referenced in the broker dealer's written supervisory procedures manual; the program must be designed to detect red flags relating to the known suspicious activity employed during an attempt to identity theft and should be designed to allow the firm to respond quickly to any attempted identity theft to mitigate any potential damage.
primary
The ______ market consists exclusively of transactions between issuers of securities and investors- in this transaction, the issuer receives the proceeds of the sale.
SIPC
The ______ protects customers of a brokerage firm in such the same way that the FDIC protects customers of banks.
exchange rate
The amount of another country's currency that may be received for a country's domestic currency is known as the _____ _____.
electronically
The annual privacy notice ma be delivered _________ via the firm's website, as long as the customer has agreed to receive it this way in writing and it is clearly displayed.
assets-liabilities=net worth
The balance sheet equation is: _______________.
secondary
The big drawback to forwards is that there is no _______ market for the contracts.
firewall
The broker dealer must ensure that no inside information is passed between its investment banking and its retail trading departments by physically separating these divisions by a ________.
written supervisory
The broker dealer must maintain _______ _______ procedures to adequately guard against the wrongful use or dissemination of inside information between departments of its own firm.
net worth shareholders equity
The difference between the corporations assets and liabilities is its ____ _______; it is the ________ _______.
trough lowest highest wages savings expansionary
The economy bottoms out in the ______ and the GDP reaches its ______ level for the cycle; as GDP bottoms out, unemployment reaches its _______ level, _____ bottom out, and _______ bottom out; the economy is now poised to enter a new __________ phase and start the cycle over again.
consumers
The firm must give the privacy notice to ______ prior to sharing any nonpublic information with a nonaffiliated company.
5 years
The firm must maintain a list of all individuals who were deemed to be access persons in the last ___ _____.
existing delinquent debtor religious nonprofit
The following are exempt from the Telephone Consumer Protection Act of 1991: - calls to ______ customers - calls to _______ _____ - calls from a _______ or _______ organization
broker dealers banks all ofter financial institutions
The following regulations of the different lenders and the regulation that gave the FRB the authority to govern their activities: - Regulation T: _____ ______ - Regulation U: _____ - Regulation G: ____ _____ ______ ______
NPV=NPV of future cash flows-NPV of cash outflows
The formula for calculating an investment's NPV is: _________________
identity theft
The fraudulent practice of ______ ____ may be used by criminals in an attempt to obtain access to the assets or credit of another person.
FV=PV(1+R)^T
The future value of a sum invested today can be determined by using the following formula: __________________
A
The government has 2 tools it can use to try to influence the direction of the economy; they are: a) monetary policy and fiscal policy b) prime rate policy and fiscal policy c) monetary policy and prime rate policy d) fiscal policy and money market policy
higher
The higher the expectations are for inflation, the ______ the level of corresponding interest rates are for the period of high inflation.
greater
The larger and more complex the firm's business, the ______ the firm's net capital requirement.
retain
The member must ______ ALL correspondence, even if not reviewed.
hard copy
The member should, where practical, review all incoming ____ _____ correspondence- as letters received by the firm could contain cash, checks, securities, or complaints.
25,000 higher
The minimum amount of a fidelity bond is $_______; however, large firms are often required to carry a ______ amount.
D
The minimum financial requirement for an individual to be considered a qualified purchaser is: a) $1,000,000 b) $2,500,000 c) $5,000,000 individually or $10,000,000 jointly with a spouse d) $5,000,000 individually or jointly with a spouse
placement layering structuring integration
The money laundering process begins with the _______ of the funds- when the money is deposited in an account with the broker dealer; the second step is known as _______- consisting of multiple deposits in amounts less than $10,000; the funds will often be drawn from different financial institutions, known as ________; the launderers will then purchase and sell securities in the account- the _______ of the proceeds back into the banking system completes the process because at this point, the launderers may use the money to purchase goods and services if they appear to have come from legitimate sources.
common stocks common stock funds
The only investments for investors who are seeking capital appreciation over time want their money to grow in value are: - ______ _____ - ______ _____ _____
offering price proceeds issuer
The preliminary prospectus contains most of the same info. as the final prospectus, except for the ______ _____ and the _____ to the ______. `
chat room online forum generic advertising
The publication of a post in a ____ _____ or other _____ _____ will NOT require the prior approval of a principal so long as it does not promote the business of the member firm and does not provide investment advice; additionally, _____ _______ will also be exempt from the proper approval requirements.
S1 full disclosure document
The registration statement, formally known as an ____, is the issuers ____ _______ _______ for the registration of securities with the SEC.
red herring
The term ____ _____ originated from the fact that all preliminary prospectuses must have a statement printed in red ink on the front cover stating "these securities have not yet become registered with the SEC and therefore may not be sold."
guarantee
The term ______ means that another party, other than the user of the security, has guaranteed the payment of principal, interest or dividends; may only be done by 3 parties: US government, insurance company, parent company (obligations of a subsidiary).
61
The total number of days in the wash sale rule is ____.
higher increased exceed recession
The yield curve may become inverted, negative, or downward sloping during times when demand for short-term funds are running much ______ than the demand for longer-term loans; may also occur in times when the FRB has ________ short-term rates to combat an economy that is growing too quickly and threatening long-term price stability; with this type of yield curve, interest rates on short-term loans far ______ the interest rates on long-term loans; tends to normalize quickly and is often a precursor to a _______.
unlimited unified credit
There is an ______ marital deduction or _____ _____ that allows surviving spouses to inherit the entire estate tax-free.
size
There is no minimum ____ for an institutional account.
majority board of directors majority noninterested board of directors majority outstanding shares
Three votes required to initially approve and annually reapprove a 12B-1 fee: 1) ______ vote of the _____ ____ _____ 2) ______ vote of the ________ _____ ____ _____ 3) ______ vote of the ______ _____
sell
To ____ a security, its ownership must be conveyed for value.
divide annual income benefit annual interest rate
To determine the lump sum needed to provide income in perpetuity, ______ the ______ ______ ______ by the ______ _______ _____.
three annually
To start and continue a 12B-1 fee, ____ votes must initially approve the fee and ______ reapprove it.
majority noninterested board of directors majority outstanding shares
To terminate a 12B-1 fee, the only 2 votes required are: 1) ______ vote of the ______ ____ ___ _____ 2) ______ vote of the ______ _____
registration obligate prospectus sell prospectus
Tombstone ads MUST include the following: - statement that the securities ________ has not yet become effective - statement that responding to the ad does not ______ the prospect - statement as to where a _______ may be contained - statement that the ad does not constitute an offer to _____ the securities and that an offer may only be made by the _______
US credit 15
US investors who own securities issued in foreign countries will owe ____ taxes on any gains or income realized; in the event the foreign county withholds taxes, the investor may file for a _____ with the IRS at tax time; most foreign governments that withhold taxes will withhold _____%.
B
Under the USA, which of the following is an investment adviser? I. XYZ Advisers, Inc. II. Mr. Jones, owner of XYZ Advisers, Inc. III. the publisher of a market letter based on economic trends IV. a partner for XYZ who solicits new clients for XYZ advisers a) I only b) I and III c) I, II, and IV d) I, II, III, and IV
legal
When an adviser meets with a potential new client, the adviser must determine the ____ structure in which the client operates.
20 days
When an issuer files a registration statement with the SEC, the SEC will review the registration statement for a minimum of ____ ____.
frequency size commissions profitability
When determining if an account has been churned, regulators will look at the _______ of the transactions, the _____ of the transactions, and the amount of ________ earned by the representative; customer _______ is not a concern when determining if an account has been churned.
assets liabilities net worth discretionary cash flow income
When developing a client's profile, advisers should calculate the client's: - _____ - _______ - ___ _____ - monthly _______ ____ _____ or ______
donor donor's
When gifts are made to family members or other individuals, the _____ does not receive any tax deduction; the ______ cost base will transfer to the recipient for tax purposes.
profit protected loss continuous market conditions
When recommending or advertising a periodic payment plan, the following must be disclosed: - a statement that _____ is not guaranteed - a statement that investors are not _______ from a ____ - a statement that the plan involves _______ investments, regardless of _____ ______
D
Which of the following acts gave the NASD the authority to regulate the OTC market? a) The NASD Act of 1929 b) The Securities Act of 1933 c) The Securities Act of 1934 d) The Maloney Act of 1938
D
Which of the following could be subject to an investor's AMT? a) a limited partnership b) an open-end mutual fund c) a convertible preferred stock owned by a wealthy investor d) an industrial revenue bond
D
Which of the following individuals is considered to be an agent? a) an individual who represents a bank as the issuer of securities b) an individual who represents a corporate issuer in the sale of large denomination commercial paper c) an individual represents a Canadian province d) an individual represents an out-of-state broker dealer selling securities to residents
A
Which of the following is NOT a broker dealer? I. A firm with no office in the state that transacts business only with existing customers who do not reside within the state. II. A firm with no office in the state that transacts business only with broker dealers in the state. III. A firm with an office in state that only transacts business with other broker dealers. IV. A firm with no office in the state that only transacts business with wealthy clients in state. a) I and II b) II and IV c) I, II, and IV, d) I, II, III, and IV
D
Which of the following is NOT a federally covered security? a) a security issued by an investment company b) a security issued by a unit investment trust (UIT) c) exchange-listed common shares d) a security listed on the Nasdaq OTC BB
D
Which of the following is NOT a violation? a) Recommending a security because of its future price appreciation. b) Recommending a mutual fund based on a pending dividend to an investor seeking income. c) Implying that FINRA has approved the firm. d) Showing a client the past performance of a mutual fund for the last 3 years since its inception.
C
Which of the following is NOT considered a sale of a security? a) a gift of assessable stock b) a contract to convey ownership for value c) a pledge of securities as collateral for a margin loan d) a bonus of securities
C
Which of the following is NOT considered to be a person under the Uniform Securities Act (USA)? a) a joint stock company b) a trust c) a 17-year-old honor student d) a government agency
D
Which of the following is NOT one of the Howey test criteria for determining whether an investment is a security? a) third-party management b) investment of money c) a common enterprise d) the promise of a profit
D
Which of the following is considered a qualified purchaser? a) an individual with $1,000,000 in investments held jointly with a spouse and with an annual income of $375,000 b) a publicly held company with at least $5,000,000 in net assets c) a pension plan with $2,000,000 in assets d) a family-owned business with at least $5,000,000 in assets
A
Which of the following is considered an investment adviser? a) the publisher of a market report based on market internals b) a publisher of a financial newspaper c) an accountant d) a person paid a commission for executing a securities transaction
D
Which of the following is true regarding the purchase of stock just prior to the ex date? a) If the investor buys shares just prior to the ex date, he will have part of his investment money returned as the dividend. b) After the investor's money is returned, he will still be liable for taxes on the dividend amount. c) A registered representative may not use the pending dividend payment as the sole basis for recommending the stock for purchase. d) All of the above.
D
Which one of the following interest rates is controlled by the Federal Reserve Board? a) prime rate b) federal funds rate c) broker call loan rate d) discount rate
sample train document
While review of all correspondence (email) may not be practical for the member, the member may set up procedures to review a ______ of all correspondence, both electronic and hard copy- if reviewing this way, the member must _____ its associates on the firm's procedures relating to correspondence and must ________ the training to ensure that the procedures are followed.
increase prosperity increased
With normal, ascending, positive, or upward sloping yield curve, the level of interest rates _______ as the term of the maturity increases; present during times of economic _______ and depicts the expectation of _______ interest rates in the future.
prohibited seniors
Without strict compliance to conduct and disclosure rules, The North American Securities Administrators Association (NASAA) considers free lunch seminars a ________ practice- of particular concern are seminars that are marketed to ______.
B
XYZ common stock trades on a US stock exchange. XYZ common stock is an example of a(n): a) blue-chip security b) federally covered security c) exempt security d) security of an exempt issuer
D
You have recommended a collateralized mortgage obligation (CMO) to a sophisticated investor. Which of the following would the investor be most concerned with? a) default risk b) foreclosure risk c) interest rate risk d) prepayment risk
B
Your brokerage firm has placed an ad in the local newspaper advertising its new line of services being offered to investors. The firm must maintain the ad for how long? a) 24 months b) 36 months c) 12 months d) 18 months
C corporation
___ _______ would be the most suited for a business that needed to raise a substantial amount of capital or was projected to be very profitable.
CML SML
_____ is not based on alpha or beta, while the _____ is partially computed based on the beta of the single security in question.
institutional investors
______ _______ include: broker dealers, investment advisers, investment companies, insurance companies, banks, trusts, savings and loans, government agencies, employment benefit plans with more than $1,000,000 in assets.
Limited partnerships LLC S corporations
______ _______, _____s, and ___ _________ provide asset protection and avoid double taxation by distributing income and losses to the owners or members.
forwards
______ are often used in the currency markets by corporations and banks doing business internationally- if a corporation knows it needs to make purchase in foreign currency 3 months from now, it can arrange to purchase the currency from a bank the day before the payment is due.
issuers
______ include: corporations, US government and agencies, state and local governments.
investment advisers
_______ ______ are prohibited from using testimonials or statements regarding a client's experience with the adviser as part of any advertisement or sales literature.
secondary
_______ market consists of all transactions between two investors that are executed on any of the exchanges or in the OTC market- the selling security holder receives the money, not the issuing corporation.
institutional
________ investors include: broker dealers, investment advisers, investment companies, insurance companies, banks, trusts, savings and loans, government agencies, employment benefit plans with more than $1,000,000 in assets.
fundamental
_________ analysts examine the company's financial statements and financial ratios to ascertain the company's overall financial performance.
LLC
_____s have become popular choices for smaller businesses as they allow for the flow through of taxes, are easily established, and provide the asset protection of a corporation.
FinCEN
a bureau of the US Department of Treasury with a mission to safeguard against money laundering and promote national security; collects, receives, and maintains financial transactions data, and analyzes and disseminates that data for law enforcement purposes and for building global cooperation with counterpart organizations in other countries and with international bodies; will email a list of individuals and entities to a designated principal every few weeks, and the principal is required to check the list against the firm's customer list
IARD
a centralized clearinghouse for all investment adviser registrations; allows advisers to electronically file all required registration documents, disclosures, and any required updates or amendments; used by the SEC and NASAA to review all investment adviser registration data
trust indenture
a contract between the issuer and the trustee in a corporate bond issue, where the trustee, appointed by the corporation who is usually a bank or trust company, acts on behalf of all the bondholders and ensures that the issuer is in compliance with all the promises and covenants made to the bondholders
painting the tape
a manipulative act by two or more parties designed to create false activity in the security without any beneficial change in ownership; the increased activity is used to attract new buyers
capping
a manipulative act designed to keep a stock price from rising or to keep the price down
pegging
a manipulative act designed to keep a stock price up or to keep the price from falling
recession
a period of declining GDP, which lasts at least 6 months or 2 quarters; may vary in degree of severity and in duration; extended ones may last up to 18 months and may be accompanies by steep downturns in economic output; generally triggered by an overall decrease in spending by businesses and consumers- as this happens, overall demand falls-they reduce spending often as a cautionary measure in response to an economic event or shock (financial crisis or busting of bubble in inflated asset class s/a real estate or stock market)
broker dealer
a person or a firm that maintains a place of business and affects transactions in the securities markets for its own account or for the account of others; must be registered in its home state as well as in the states of its individual clients
institutional investor
a person or firm that trades securities for his or her own account or for the accounts of others; generally limited to large financial companies; because of their size and sophistication, they are covered by fewer protective laws; there is no minimum size to this type of account; include: broker dealers, investment advisers, investment companies, insurance companies, banks, trusts, savings and loans, government agencies, employment benefit plans with more than 100 participants, and any non-natural person with more than $50,000,000 in assets
institutional investor
a person or firm who trades securities for his or her own account or for the accounts of others; generally limited to large financial companies; because of their size and sophistication, they are covered by fewer protective laws
investment adviser representative
a person who is under the control of the investment adviser and includes: officers and directors, partners, solicitors, supervisors
unauthorized transaction
a transaction that is made for the benefit of a customer's account at a time when the customer has no knowledge of the trade and the adviser does not have discretionary power over the account
strategic asset allocation
allocating a client's assets over various asset classes to achieve a given investment objective; as the investment results of the different asset classes varies over time, the assets must be rebalanced
preliminary prospectus
allows registered reps to obtain indications of interest when provided; also known as a red herring; must be delivered in hard copy to all interested parties; is an investor's or broker dealer's statement that it may be interested in purchasing the securities being offered; contains most of the same info. as the final, except the offering price and the proceeds to the issuer; ALL information is subject to change or revision
blind recruiting ad
an ad placed by the member firm for the specific purpose of finding job applicants; the only form of advertising that does not require the member's name to appear in the ad; may not distort the opportunities or salaries if the advertised position
Maloney Act of 1938
an amendment to the Securities Exchange Act of 1934 that allowed the creation of the National Association of Securities Dealers (NASD)
tombstone ad
an announcement of a new security offering coming to market; may be run while the securities are still in registration with the SEC and may only include: description of the securities, description of the business, description of the transaction, required disclaimers, time and place of any stockholder meetings regarding the sale of the securities
partnership
an association of two or more people who are either in business together or who hold assets in one; the agreement will detail each partner's ownership interest and authority to act on behalf of the partnership
nonperson
an individual or entity that may not enter into a legally binding contract and therefore may not transact business in the securities market
federally covered investment adviser
an investment adviser who meets the requirements for assets under management and is registered with the SEC
SRO
an organization what regulates its own members, such as the NYSE or FINRA
private investment company
an unregistered investment company or hedge fund that raises funds through the sale of securities to qualified purchasers for any business purpose
fraud
any act that is employed to obtain an unfair advantage over another party
offer
any attempt to solicit the purchase or sale of a security for value; considered to have been made in the state where it originated, as well as in the state where it is received or directed
retail investor
any investor that does not meet the definition of an institutional investor
insider
any officer, director, 10% stockholder, or anyone who is in possession of nonpublic material information, as well as the spouse of any such person; also considered: accountants, attorneys, investment bankers
issuer
any person that issues or simply proposes to issue a security
solicitor
any person who for compensation actively seeks new business for an investment adviser; can also include professionals who refer clients to the investment adviser for a fee
investment adviser
any person who is actively involved in and receives a fee for: issuing research reports or analysis, publishing a market letter based on market developments or conditions, advising clients as to the advisability of the purchase or sale of a security, providing investment advisory services as a complement to their services and claiming to provide such services for a fee, presenting him-or herself as this title- also known as the shingle rule, providing advice about selecting portfolio managers or asset allocation, nationally recognized statistical ratings organizations such as Moody's, serving as a pension consultant
additional paid in surplus
any sum paid over par by investors when the shares were issued by the company
institutional communication
any written communication distributed or made available exclusively to institutional investors; may be distributed in hard copy or electronic formats; do not have to be approved by a registered principal prior to first use so long as the member firm has established policies and procedures regarding the use of these communications and has trained its employees on the proper use of these communications; also exempt from FINRA's filing requirement, but must still be maintained by a member for 3 years
retail communications
any written communication distributed or made available to 25 or more retail investors in a 30-day period; may be distributed in hard copy or electric formats; now contain all components of advertising and sales literature; all must be approved by a registered principal prior to first use; all must be maintained by member for 3 years
access person
anyone employed by the investment adviser who has access to nonpublic information relating to activity and holdings in client accounts in the investment adviser's portfolio account; also person who makes recommendations to clients or has access to recommendations prior to the release of such recommendations; all the firm's officers and directors are classified as this at advisory firms where the primary business is providing investment advice; all MUST report their personal transactions to the firm's chief compliance officer or duly designated compliance officer
pension consultant
anyone who advises employees on how to fund their employee benefit plans; also considered is someone who advises employees on the selection of asset managers or investment advisers for the plan
nonissuer
anyone who does not issue or propose to issue a security
customer
anyone who has an ongoing relationship with the firm (has an account)
security
anything that can be exchanged for value that involves a risk to the holder; also represents an investment in an entity managed by a third party
Partiot Act
as incorporated in the Bank Secrecy Act, requires broker dealers to have written policies and procedures designed to detect suspicious activity; firm must designate a principal to ensure compliance with the firm's policies and to train firm personnel; firm required to file a Suspicious Activity Report for any transaction of more than $5,000 that appears questionable; the firm must ensure its customers do not appear on any list of known or suspected terrorists
intangible assets
assets that belong to the company that include goodwill, trademarks, patents, and contract rights
fixed assets
assets that have long, useful life and are used by the company in the operation of its business; include plant and equipment and property and real estate
efficient market theory
believes that all of the available information is priced into the market at any given time and that it is impossible to beat the market by taking advantage of price or time inefficiencies; proponents may follow in three ways
net present value
calculated for an income-producing investment by discounting the series of future payments produced by the investment into the current value of one lump sum
annualized return
can be determined once the holding period return has been calculated; will allow investors to compare the investment's return against the performance against relevant benchmarks; if security was held for less than 1 year, results must be multiplied to determine this return; if security was held for more than 1 year, results must be divided to determine this return
Sharpe ratio
can measure a portfolio's risk-adjusted return; tells investors how well they are being compensated for the investment risk they are assuming; takes the portfolio's return (R) and subtracts the risk-free return (RFR) offered on the short-term Treasury bills (usually 90 days) to determine the level of return that the investor earned over the risk-free return; risk premium is then divided by the portfolio's standard deviation (SD)
coincident indicators
changes in the economy cause an immediate change in the activity level of these indicators; as the business cycle changes, the level of activity in these indicators can confirm where the economy is; include GDP, industrial production, personal income, employment, average number of hours worked, manufacturing and trade sales, nonagricultural employment
depression
characterized by a decline in GDP, which lasts at least 18 months or 6 consecutive quarters; most severe type of recession and is accompanied by extremely high levels of unemployment and frozen credit markets
limited partnership
consists of at least one general partner and one or more limited partners; duty of the general partner to manage the partnership in accordance with the partnership's objectives; limited partners put up the investment capital required but may not exercise management control over the partnership
correspondence
consists of electronic and written communications between the member and up to 25 retail investors in a 30-day period
fiscal policy
controlled by the president and Congress and determines how they manage the budget and government expenditures to help steer the economy through the business cycle; assumes the government can influence the economy by adjusting its level of spending and taxation
S corporation
corporation that allows the income to flow through to the owners and to be taxed as ordinary income; cannot be owned by more than 75 people; must be organized as a domestic corporation
C corporation
corporation that is taxed at the corporate rate independent from the owners' tax rates
funded debt
corporation's debt that becomes due in 5 years or more
NASD
created by the Maloney Act of 1938; now part of FINRA; SRO for the OTC market and its purpose is to regulate the broker dealers that conduct business in the OTC market
long-term liabilities
debts that will become due after 12 months; include bonds, mortgages, and notes
capital market line
developed by proponents of CAPM developed to evaluate and measure the expected returns of a diversified portfolio relative to the expected returns of the market and the expected risk-free return; also measures the standard deviation of the portfolio relative to the standard deviation of the market
sole proprietorship
easily established to allow a person to conduct business under a trade name; for all intents and purposes it is an extension of the proprietor; all taxes are reported on the individual's return and there is no asset protection
Keynesian economics
economic model that believes that a mixed economy based on private and public sector efforts will produce desired economic conditions; believe that an active policy response from public sector in the form of government spending (fiscal policy) and adjustments made to the money supply (monetary policy) is required
monetary economics
economic model that believes that the supply of money in the economy can influence the direction of the economy and prices as a whole; during times of low demand and high unemployment the economy can be stimulated by increasing the money supply- as more money enters the system interest rates call increasing demand; as more money enters the system, the value of the currency tends to decline, and during times of expansionary monetary policy, inflation may increase
Insider Trading and Securities Fraud Enforcement Act of 1988
established guidelines and controls for the use and dissemination of nonpublic material information; it is unlawful for an insider to use material nonpublic information to profit from a forthcoming move in the stock price; it is also unlawful for an insider to divulge any nonpublic information to any outside party; trading on inside information has always been a violation of the Securities Exchange Act of 1934, but this act prescribed penalties for violators
Securities Acts Amendments of 1975
gave the authority to the MSRB to regulate the issuance and trading of municipal bonds
generic advertising
generally designed to promote firm awareness and to advertise the products and services generally offered through the firm; will generally include: securities products offered (stocks, bonds, mutual funds, etc.), contact name, number, and address, and types of accounts offered (individual, IRA, 401K, etc.)
call option
gives the buyer the right to buy, or to call, the stock from the option seller at a specified price for a certain period of time; the sale obligates the seller to deliver or sell that stock to the buyer at that specified price for a certain period of time
put option
gives the buyer the right to sell or to "put" the stock to the seller at a specified price for a certain period of time; the sale of the option obligates the seller to buy the stock form the buyer at that specified price for a certain period of time
Securities Investor Protection Corporation
government-sponsored corporation that provides protection to its customers in the event of a broker dealer's failure; all broker dealers that are registered with the SEC are required to be members; all broker dealers are required to pay annual dues to it's insurance fund to cover losses due to a broker dealer's failure- if a broker dealer fails to pay this assessment, it may not transact business until it is paid
current assets
include cash and assets that can be converted into cash within 12 months; include money market instruments, marketable securities, accounts receivable net of any delinquent debts, inventory including work in progress, and prepaid expenses
M2
includes M1 (cash and demand deposits) plus money market instruments, time deposits of less than $100,000, negotiable CDs exceeding $100,000, overnight repurchase agreements
M3
includes all measures in M1 (cash and demand deposits) and M2 (money market instruments, time deposits of less than $100,000, negotiable CDs exceeding $100,000, overnight repurchase agreements) plus time deposits greater than $100,000 and repurchase agreements with maturities greater than 1 day
gross estate
includes all of an individual's assets owned at the time of death, including assets places in any revocable trusts
leading indicators
indicators that are business conditions that change prior to a change in the overall economy; can be used as a gauge for the future direction of the economy; include building permits, stock market prices, money supply (M2), new orders for consumer goods, average weekly initial claims in unemployment, changes in raw material prices, changes in consumer or business borrowing, average work week for manufacturing, changes in inventories of durable goods
lagging indicators
indicators that will only change after the state of the economy has changed direction; can be used to confirm the new direction of the economy; include average duration of unemployment, corporate profits, labor costs, consumer debt levels, commercial and industrial loans, and business loans
material information
information regarding a situation or development that will materially affect the company in the present or future
nonpublic information
information that is not known by people outside of the company
material fact
information that the investor would need to know in order to make a well-informed investment decision
DEA
inspects a broker dealer's books and records and can also be the NYSE or FINRA
Uniform Securities Act
laid out model legislation for all states in an effort to make each state's rules and regulations more uniform and easier to address; sets minimum qualification standards for each state securities administrator; also prohibits the state securities administrator from using the post for personal benefit or from disclosing information, gives the state securities administrator authority to enforce the rules of the USA within that state, gives the administrator the ability to set certain registration requirements fro broker dealers, agents, and investment advisers, permits state administrators to set fee and testing requirements within the state, allows administrators to suspend or revoke the state registration of a broker dealer, agent, investment advisor, security, to a security's exemption from registration, and sets civil and criminal penalties for violations
corporations
legal entity with a perpetual life independent from its owners; taxed depending on how it is organized
consumer price index
made up of a basket of goods and services that consumers most often use in their daily lives; used to measure the rate of change in overall prices
forward looking statements
may be used by issuers to provide details about its future prospects to purchasers; must be identified by key words such as expect, predict, estimate, anticipate, or potential- used so that the reader clearly understands the statements are management's projections
standard deviation
measures both systematic and unsystematic risk in the volatility of the return of a security versus its expected return
beta
measures systematic risk in the price volatility of a security relative to the market as a whole
R squared
measures the degree to which a portfolio's performance is designed to mirror the return of a standard benchmark or index; the higher this value, the higher the degree of correlation to the index; values range from 0-100, with the lower values having lower correlation to the index
balance of payments
measures the net inflow (surplus) or outflow (deficit) of money; largest component is the balance of trade
share identification
method for determining cost base at the time of sale where the investor can specify which shares are being sold through keeping a record of the purchase prices and dates of shares purchased, the investor may elect to sell the shares that create the most favorable tax consequences
average cost
method for determining cost base at time of sale where they use the following formula: = total dollars invested/ total # shares purchased; once an investor elects to use this method to calculate gains and losses, the method used cannot be changed without IRS approval
dollar weighted return method
method of evaluating performance in an account where investor will be making contributions and withdrawals; can be used to determine the IRR of a portfolio taking into consideration the cash flows in and out of the account
SEC disclaimer
must appear on the cover of all prospectuses; states "these securities have not been approved or disapproved by the SEC nor have any representations been made about the accuracy or the adequacy of the information"
final prospectus
must be given to all purchasers of new issues before any sales are allowed; serves as the issuer's full disclosure document for the purchaser of the securities
investment counsel
must be principally in the business of giving continuous investment advice and must supervise or manage the accounts; act does not define how much of the professional's time must be dedicated to providing advice, just that the principal business is giving advice
privacy notice
must describe the type of information that is collected and the type of nonaffiliated parties with whom it may be shared
liabilities
obligations that must be paid within 12 months; listed in the order in which they become due; include wages payable including salaries and commissions owed to employees, accounts payable to vendors and suppliers, current portion of long-term debt (any portion due within 12 months), taxes due within 12 months, and short-term notes due within 12 months
wash sale
occurs when an investor sells a security at a loss and shortly after repurchases the security or a security that is substantially the same (call options, rights, warrants, and convertibles) to reestablish the position and claim it for tax purposes and deduct the loss from ordinary income; IRS will disallow the loss; in order to claim the loss, the investor must have held the securities for 30 days and must wait at least 30 days before repurchasing the same securities or same
disintermediation
occurs when people take their money out of low yielding accounts offered by financial intermediaries or banks and invest money in higher yielding investments
moral suasion
often used by the Federal Reserve Board as a way to influence the economy; the Fed is very powerful and closely watched, so by simply implying or expressing their views on the economy, they can slightly influence it
family limited partnership
often used for estate planning- parents may place significant assets into this as a way to transfer ownership; usually the parents will act as general partners and will transfer limited partnership interests to their children; interests transferred may be subject to gift taxes (will usually be lower than without the partnership)
capital asset pricing model
operates under the assumption that investors are risk averse; investors who take on risk through the purchase of an investment must be compensated for that risk though a higher expected rate of return known as the risk premium; securities with higher betas must offer investors a higher expected return in order fro the investor to be compensated for taking on the additional risk associated with that investment
stop order
order that can be used by investors to limit to guard against a loss or to protect a profit; placed away from the market in case the stock starts to move against the investor; not a "live" order- has to be elected; elected and becomes a live order when the stock trades at or through the stop price (trigger price); once the stock has traded through this price, the order becomes a market order to either buy or sell the stock, depending on the type of order that was placed
buy stop order
order that is placed above the market and is used to protect against a loss or to protect a profit on a short sale of stock; could also be used by a technical analyst to get long the stock after the stock breaks through resistance
sell stop order
order that is placed below the market and is used to protect against a loss or to protect a profit on the purchase of a stock; could also be used by a technical analyst to get short the stock after the stock breaks through support
buy limit order
order that sets the maximum price that the investor will pay for the security; the order may never be executed at a price HIGHER than the investor's limit price; although the order guarantees that the investor will not pay over a certain price, it does not guarantee that the order will be executed; if the stock continues to trade higher away from the investor's limit price, the investor will not purchase the stock and may miss a chance to realize a profit
sell limit order
order that sets the minimum price that the investor will accept for the security; the order may never be executed at a price LOWER than the investor's limit price; although the order guarantees that the investor will not receive less than a certain price, it does not guarantee that the order will be executes; if the stock continues to trade lower away from the investor's limit price, the investor will not sell the stock and may miss a chance to realize a profit to may realize a loss as a result
market order
order that will guarantee that the investor's order is executed as soon as the order is presented to the market; order to either buy or sell guarantees the execution but not the price at which the order will be executed; when presented for execution, the market may be very different from the market that was displayed when the order was entered- as a result, the investor does not know the exact price at which the order will be executed
forwards
privately negotiated contracts for the purchase and sale of a commodity or financial instrument
retained earnings
profits that have been kept by the corporation; also called earned surplus
Regulation S-AM
prohibits broker dealers from soliciting business based upon information received from affiliated third parties unless the potential marketing had been clearly disclosed to the potential customer, and the potential customer was provided an opportunity to opt out and did not opt out
solicitor's brochure
provides the client with the details of the solicitor's relationship with the adviser and the compensation arrangement, including the amount of the management fee paid to the solicitor; if the client is paying a higher fee by being introduced to the adviser by the solicitor it must also be disclosed; the solicitor's professional background is NOT required to be disclosed
prime rate
rate that banks charge their largest and most creditworthy corporate customers on loans; has lost a lot of significance in recent years because mortgage lenders are now basing their rates on other rates, such as 10-year T-note; very important for consumer spending because most credit card interest rates are based on this rate plus a margin
federal funds rate
rate that member banks charge each other for overnight loans; widely watched as an indicator for the direction of short-term interest rates
capitalization
refers to the sources and makeup of the company's financial picture; long-term debt and equity accounts including par value of common and preferred and paid in and earned surplus are used to determine this
Public Utilities Holding Company Act of 1935
regulates all companies that are in business to provide retail distribution of gas and electric power; because the companies are governed by this act, their securities are exempt from state registration requirements
Investment Company Act of 1940
regulates companies that are in business to invest or reinvest money for the benefit of their investors; sets forth registration requirements for the three types of investment companies: management investment companies, unit investment trusts, face-amount companies
Telephone Consumer Protection Act of 1991
regulates how telemarketing calls are made by businesses; telemarketing calls that are designed to have customers invest in or purchase goods, services, or property must adhere to the strict guidelines of this act
Investment Advisers Act of 1940
regulates industry professionals who charge a fee for the advice they offer to clients; sets forth registration requirements for advisers as well as disclosure requirements relating to the adviser's: recommendation methods, types of securities recommended, professional background and qualifications, fees to be charged, method for computing and charging fees, types of clients
reserve requirement
required percentage of depositor's assets to be held in an account with the Federal Reserve by member banks; intended to ensure that all banks maintain a certain level of liquidity
Trust Indenture Act of 1939
requires that corporate bond issues in excess of $5,000,000 that are to be repaid during a term in excess of 1 year issue a trust indenture for the issue; only applies to corporate issuers- both federal and municipal issuers are exempt
Regulation S-P
requires that the firm maintain adequate procedures to protect the financial information of its customers; firms must guard against unauthorized access and must employ policies to ensure its safety; derived from the privacy rules of the Gramm-Leach-Bliley Act; firm must deliver: an initial privacy notice to customers when the account is opened and an annual privacy notice to all customers; also states that a firm may not disclose non-public personal information to nonaffiliated companies for clients who have opted out of the list- method for opting out may not be unreasonable (reasonable methods are emails or a toll-free number); rule also differentiates between who is a customer and a consumer
holding period return
return that equals the total return from any cash flow plus or minus any capital appreciation or depreciation realized during the time the investment was held
total return
return that takes all dividend or interest cash flow into consideration; if the investment has increased in value, the sum of the cash flow is added to any capital appreciation- causing the return to be higher; if the security has fallen in value, the total of the cash flow may be partially or totally offset
credit risk
risk of default inherent in debt securities; an investor may lose all or part of an investment because the issuer has defaulted and cannot pay the interest or principal payments owed to the investor
nonsystematic risk
risk that pertains to one company or industry
legislative risk
risk that the government will do something that adversely affects an investment
FINRA Rule 2210
rule that replaces the advertising and sales literature rules previously used to regulate member communications with the public; streamlines member communication rules and reduces the number of communication categories from 6 to 3; 3 categories of member communication are: retail communication, institutional communication, and correspondence
Securities Exchange Act of 1934
second major piece of legislation that resulted from the market crash of 1929; regulates the secondary market that consists of investor to investor transactions (all transactions between two investors that are executed on any of the exchanges or in the OTC market); also regulates all individuals and firms that conduct business in the securities industry
Uniform Prudent Investors Act of 1994
sets the basic standards by which all investment professionals acting in a fiduciary capacity must abide; updates the requirements and definitions of prudent standards in lights of the application of modern portfolio theory and the advancement in understanding the behavior of capital markets; laid out fundamental changes in the approach to prudent investing for investment professionals acing in a fiduciary capacity
balance sheet
shows an investor everything that the corporation owns (assets) and everything it owes (liabilities) at the time it was prepared; it is a snapshot of the company's financial health the day it was created
consumer
someone who is providing information to the firm and is considering becoming a customer or who has purchased a product from the firms and has no other contact with the firm
strong-form efficiency
states that the current price of a security reflects all information known and unknown to the public and that there is no opportunity to earn excess returns
modern portfolio theory
states that the expected rate of return for an investment is the sum of its weighted returns; an investment's weighted return is its possible return multiplied by the likelihood of that return being realized
weak-form efficiency
states that the future price of a security cannot be predicted by studying the past price performance of the security; this form of the theory believes that technical analysis cannot produce excess returns
semi-strong form efficiency
states that the market price of a security adjusts too rapidly to newly available information to achieve an excess return by trading on that information
assessable stock
stock that may require the holder to make additional payments as a term of ownership
classical economics
supply side economics; believes that lower taxes and less government regulation will stimulate growth and increase demand through higher employment; less regulation of business creates lower barriers to entry for employers and allows employers to produce goods at lower prices and to create more jobs; as result of lower prices, lower taxes, and higher employment, the aggregate demand in the economy will increase positively impacting the nation's GDP
market risk
systematic risk; the risk that is inherent in any investment in the markets
regressive tax
tax that levels the same tax rate on everyone regardless of their income- larger portion of lower earner's income will go towards the tax; examples: sales taxes, property taxes, gasoline taxes, and excise taxes
progressive tax
tax that levies a larger tax on higher income earners; examples: income and estate taxes
Federal Open Market Committee
the Fed's cost flexible tool; buys and sells US Government securities in the secondary market through open market operations in order to control the money supply
capital stock at par
the aggregate par for both common and preferred stock
IRR
the annualized average return expected during the life or holding period of an investment; is a discounted cash flow method used to determine the merits of an income-producing investment; the rate that would make the discounted present value of future cash flows equal to the current market price of the investment
interest rates
the cost of money; overall, determined by the supply and demand for money, along with any upward price movement in the cost of goods and services, known as inflation
trading ahead
the entering of an order for a security based on the prior knowledge of a soon to be released research report
front running
the entering of an order for the account of an agent or firm prior to entering a large customer order; the firm or agent is using the customer's order to profit on the order it has entered for its own account
broker call loan rate
the interest rate that banks charge on loans to broker dealers to finance their customers' margin purchases; broker dealers will obtain money to lend their customers from the bank and loan is callable or payable on demand b the broker dealer
discount rate
the interest rate that the Federal Reserve Bank charges on loans to member banks; bank may borrow money from the Federal Reserve by going to the discount window and being charged this rate- bank may then loan out borrowed funds at higher rate for a profit or use funds to meet reserve requirement shortfall; rate has become largely symbolic- borrowing directly from Federal Reserve is discouraged
M1
the largest and most liquid measure of the nation's money supply; includes cash and demand deposits (checking accounts)
LIBOR
the most widely used measure of short-term interest rates around the world; the market-driven interest rate charged by and between financial institutions, similar to the fed funds rate in the US
stockholders equity
the net worth of the company; broken up into capital stock at par, additional paid-in surplus, and retained earnings
deflation
the persistent decrease in prices; will erode corporate profits as weak demand in the marketplace drives prices for goods and services lower
inflation
the persistent increase in prices; will eat away at the purchasing power of the dollar and results in higher prices for goods and services
churning
the practice of making transactions that are excessive in size or frequency with the intention of generating higher commissions
reverse churning
the practice of placing inactive accounts or accounts that do not trade frequently into fee-based programs that charge an annual fee based on the assets in the account- will cause the total fees charged to the account to increase and makes this type of account unsuitable
capital risk
the risk that an investor may lose all or part of the capital that has been invested; investors who purchase securities are not assured of the return of their invested principal
timing risk
the risk that an investor will buy and sell at the wrong time and will lost money as a result
liquidity risk
the risk that an investor will not be able to liquidate an investment when needed or that the investor will not be able to liquidate the investment without adversely affecting its price
call risk
the risk that as interests rates decline, higher yielding bonds and preferred stocks will be called and investors will be forced to reinvest the proceeds at a lower rate or return or at a higher rate of risk to achieve the same return; only applies to preferred stocks and bonds with a call feature
opportunity risk
the risk that investors who hold long-term bonds until maturity must forgo the opportunities to invest that money in other potentially higher yielding investments
reinvestment risk
the risk that investors will not be able to receive the same return given the same amount of risk when interest rates decline and higher yielding bonds have been called or have matured; the investor is forced to either accept the lower rate or take more risk to obtain the same rate
interest rate risk
the risk that the price of bonds will fall as interest rates increase; as rates rise, the value of existing bonds falls- this subjects the bondholder to a loss if he or she needs to sell the bond
person
the term, as it is used in the USA, refers to any entity that may enter into a legally binding contract, and therefore, may transact business in the securities markets
SEC
the ultimate securities industry authority and a direct government body; five commissioners appointed to 5-year terms by the president with each requiring Senate approval- no more than 3 commissioners may be from one political party; not a SRO or DEA; all broker dealers, exchanges, agents, and securities must register with this authority
GDP
the value of all goods and services produced in a country including consumption, investments, government spending, and exports minus imports during a given year
contumacy
the willful display of contempt for the administrator's order; may result in the agent's or the firm's registration being revoked or other disciplinary action
testament trust
trust established to hold or distribute assets after a person's death under the terms of their will; assets placed in this type of trust are subject to both estate taxes and probate
complex trust
trust that may retain some or all of the income earned and the trust will pay taxes on the income that is not distributed to the beneficiaries
simple trust
trust where all income from the trust must be distributed to the beneficiaries in the year that the income is earned
irrevocable trust
trust where the grantor may not revoke the trust and take the assets back; the trust usually pays the taxes as its own entity or the beneficiaries of the trust are taxed on the income they receive; grantor is not generally taxed on the income generated unless the assets are held for the benefit of the grantor, the grantor's spouse, of if the grantor has an interest in the income greater than 5%
revocable trust
trust where the individual who established the trust and contributes assets to the trust, known as the grantor or settlor may revoke the trust and take the assets back; income generated is generally taxed as income to the grantor
futures
two-party contract where most are an agreement for the delivery of a specific amount of a commodity at a specific place and time; first traded for commodities such as wheat and gold, and over the years have expended to include financial (such as on Treasury securities), and most recently, single stock; the specific terms and conditions of the contracts are standardized and set by the exchanges on which they trade; the contract amount, delivery date, and type of settlement vary between the different contracts
active rebalancing
type of asset rebalancing that assumes a portfolio manager can effectively shift the asset allocation to take advantage of shifts in the performance of the various asset classes; if the portfolio manager thinks one asset class will outperform the other, it may rebalance the portfolio accordingly; alternatively, the portfolio manager can employ a buy-and-hold strategy, and let the allocations go where they may- would reduce transaction costs and tax consequences
systematic rebalancing
type of asset rebalancing that is designed to keep the original asset allocation model in place; as percentages shift, the portfolio manager would rebalance the assets to maintain the original percentages; can be done at regular intervals, such as quarterly, or whenever the asset allocation shifts by a certain percentage
security market line
used to measure the expected return of a risk-free rate of return
selling dividends
violation that occurs when advisers use a pending dividend payment as the sole basis of their recommendation to purchase a stock or mutual fund; using the pending dividend to create urgency on part of the investor to purchase the stock is a prime example
