65

An investment of money, In a common enterprise. With the expectation of profit through the efforts of a third party

NASAA is a representative body made up of securities regulators from Canada, Mexico, and the 50 states and the territories of the United States. This association is responsible for creating, updating, and maintaining the state licensing exams. NASAA also creates Model Rules under the Uniform Securities Act and issues Statements of Policy to help interpret the Act. State securities laws are commonly referred to as blue-sky laws.

A security is an investment contract offered through a legal entity managing the efforts for an expected profit.

<p>A person is defined as a natural individual or legal entity that can transact securities business. Market participants are included under the definition of a person.</p> Signup and view all the answers

<p>Securities exchanges are auction markets where exchange-listed securities are bought and sold. Exchanges have listing requirements that issuers must meet. Issuers that do not meet the listing requirements of the exchanges or do not want their securities listed will trade their securities over-the-counter. The over-the-counter (OTC) market is a negotiated market where unlisted securities are bought and sold.</p> Signup and view all the answers

<p>A retail investor is part of the general public.</p> Signup and view all the answers

<p>Federal law, Rule 501 of Regulation D, defines an accredited investor as an investor that meets one of the following criteria:</p> <p>Natural persons with individual or joint net worth of $1 million (including spousal equivalents) An individual with an annual income of $200,000 for the past 2 years or a couple (including spousal equivalents) with joint income of $300,000 that expects that income level to remain An individual holding a Series 7, Series 65, or a Series 82 license An employee of private funds if deemed knowledgeable (officers, directors, general partners, trustees, advisory board members, and employees that participate in the investment activities) Investment advisers (federal, state, and exempt reporting) Rural business investment companies (RBICs) Any bank, investment company, and insurance company, regardless of assets Any entity with assets in excess of $5 million, including limited liability companies, family offices and their clients, non-profit institutions (501(c)(3) trusts), partnerships, ERISA-qualified retirement plans, and corporations with assets over $5 million An officer or director of the issuer</p> Signup and view all the answers

<p>An institutional investor is an entity that makes security transactions on a large scale for their own accounts or for institutional clients, such as insurance or investment companies, trusts, broker-dealers, investment advisers, banks, savings institutions, government agencies, or employee benefit plans.</p> Signup and view all the answers

<p>A qualified institutional buyer (QIB) is an institutional investor that owns and invests a minimum of $100 million in securities on a discretionary basis. An individual cannot qualify as a QIB.</p> Signup and view all the answers

<p>An issuer is a legal entity, including a corporation, municipality, or the federal government, offering securities to the public to raise capital. Issuers may sell equity (stocks) or debt (bonds) securities to raise money. Issuers enlist the help of other firms to assist in the process of issuing securities to the public.</p> Signup and view all the answers

<p>Trustee – A firm, such as a trust company, commercial bank, or similar financial institution, hired by bond issuers to protect the bondholders’ interests.</p> Signup and view all the answers

<p>Registrar – An entity that works with the transfer agent to keep current files of bond and stock owners. They ensure that the amount of stock in circulation does not exceed the authorized amount.</p> Signup and view all the answers

<p>A market maker is a dealer always ready to buy and sell securities for their own account by maintaining a quote of buy and sell prices.</p> Signup and view all the answers

<p>An associated person is any partner, officer, director, branch manager, person under common control, or employee of a broker or dealer. A registered representative is an associated person.</p> Signup and view all the answers

<p>agency/principal</p> Signup and view all the answers

<p>An investment adviser (IA) is a firm in the business of providing advice on securities for compensation.</p> Signup and view all the answers

<p>20 days/info available but no offers</p> Signup and view all the answers

<p>The preliminary prospectus (red herring) contains material information about the offering, including an offering price range for the new issue.</p> Signup and view all the answers

<p>While advertising is generally prohibited during the cooling-off period, one exception is a simple ad describing the nature of the offering and the syndicate members from whom a prospectus may be obtained.</p> Signup and view all the answers

<p>Exact number of shares available Where or how shares may be purchased The offering price All material financial information concerning the issuer, its executive officers, and its board of directors An application to purchase</p> Signup and view all the answers

<p>The auction market is where buying and selling of securities occurs on stock exchanges, such as the New York Stock Exchange (NYSE). These exchanges are auction markets where buyers and sellers come together and trade listed stocks and options that are registered for public trading.</p> Signup and view all the answers

<p>The over-the-counter market is for the trading of non-Nasdaq and non-exchange listed securities. This market is a negotiated market. The securities traded in this market are unlisted securities.</p> Signup and view all the answers

<p>The third market is for exchange-listed securities traded OTC.</p> Signup and view all the answers

<p>The fourth market is for direct trading between institutions. These trades are also handled OTC. Electronic communication networks (ECNs)</p> Signup and view all the answers

<p>The bid price is the price a customer receives on sale of a security and the price the market maker is willing to pay to buy the security from the investor. A market maker will always display a bid price and the number of shares it is willing to buy.</p> <p>The ask (offer) price is the price a customer pays when purchasing securities in the secondary market. The market maker sells the security to the customer at the ask price. Assume the ask price is always higher than the bid price in the secondary market. A market maker will always display an ask price and the number of shares it is willing to sell. The size of the quote is expressed in round lots.</p> Signup and view all the answers

<p>Cost basis is the original purchase price of a security plus any costs associated with that purchase, and it is often called tax basis.</p> Signup and view all the answers

<p>Regular-way settlement for most securities occurs 1 business day following the trade date. This is abbreviated as T+1. Regular-way settlement for cash or cash-equivalent securities occurs the same business day as the trade date, or T+0. The trade date and settlement date are the same (T=S).</p> Signup and view all the answers

<p>Interpositioning is when a broker-dealer introduces a third party between their firm and the customer. Interpositioning is prohibited unless it results in a better price to the customer than the broker-dealer alone could obtain</p> Signup and view all the answers

<p>A corporation’s capitalization (capital structure) is the total amount of money invested in the entity. This includes the amount of equity (stock) sold and the amount of debt (bonds or debentures) issued.</p> Signup and view all the answers

<p>1st</p> <p>Secured creditors (includes secured bondholders)</p> <p>2nd</p> <p>Taxes, unpaid wages, trade creditors</p> <p>3rd</p> <p>Debenture holders</p> <p>4th</p> <p>Subordinated debenture holders</p> <p>5th</p> <p>Preferred shareholders</p> <p>6th</p> <p>Common shareholders</p> Signup and view all the answers

<p>The corporation may offer to buy back outstanding shares from the existing shareholders. Has no voting rights Does not receive dividends Is purchased by the issuer to increase earnings per share</p> Signup and view all the answers

<p>issued - treasury</p> Signup and view all the answers

<p>When voting for members of the board, the number of statutory votes is the maximum that may be voted for each available seat on the board. If there are 5 candidates running for 3 available seats on the board of directors, an investor who owns 1,000 shares will have 1,000 votes per seat (total 3,000 votes), while a smaller investor owning 100 shares will only have 100 votes per seat (total 300 votes).</p> <p>The stockholder may cast one vote per share owned for each directorship position under the statutory method.</p> Signup and view all the answers

<p>Cumulative voting states the maximum number of votes is based on the number of shares multiplied by the open seats and allows shareholders to earmark their votes in any fashion they choose. Using the previous example of 5 candidates running for 3 open board positions, an investor who owns 1,000 shares will have 3,000 votes (1,000 x 3), while a smaller investor owning 100 shares will only have 300 votes (100 x 3). The votes may be divided evenly among desired candidates or weighted in favor of one candidate.</p> Signup and view all the answers

<p>Declaration Date – The date on which the board of directors announces the company will pay a dividend to shareholders. Ex-dividend Date – On this day, the security begins to trade without the value of the dividend in the stock price. The ex-dividend date is the same day as the record date. Record Date – The date on which an investor must own the stock to receive the dividend. This date is set by the board of directors. Only shareholders of record receive a dividend. Payable Date – The date on which the company pays the dividend to the shareholders of record. This date is set by the board of directors and is usually a week or more after the record date, so the company has sufficient time to ensure all shareholders entitled to receive the payment are accurately paid.</p> Signup and view all the answers

<p>Like common stock, preferred stock is an equity security that offers ownership interest to investors. Preferred stock can only be issued by a corporation after common stock has been distributed. Preferred stock receives preferential treatment over common stock regarding dividend payments and bankruptcy proceedings. Even though preferred stock has this “preferential treatment” over common stock, remember that dividends are not guaranteed for any class of stock, including preferred. In the event the corporation goes bankrupt, the preferred stock has a higher claim to assets over the common stock. This means that preferred stock will receive dividends and principal back before a common stock receives a payment in the event of bankruptcy.</p> <p>Preferred shareholders own “non-voting” stock and have no control over electing board members. These investors are more interested in the income stream that the shares are expected to provide through quarterly dividends. Preferred stock usually offers investors a higher dividend rate than is paid on the common stock.</p> Signup and view all the answers

<p>inverse</p> Signup and view all the answers

<p>In a straight preferred issue, the stock pays a dividend, as stated on the certificate, as a dollar amount or percent of par value ($100).</p> Signup and view all the answers

<p>This class of stock affords the holder the ability to make up any past dividends owed to the holder that have not yet been paid out. Any back dividends owed to the holder (dividends in arrears) plus the current year dividend must be paid out to the cumulative preferred stock holder before the common stock receives a dividend.</p> Signup and view all the answers

<p>Participating issues allow for preferred stockholders to potentially receive extra dividends above and beyond the stated dividend. Usually, the additional dividends are distributed if the company exceeds a specified level of earnings (growth) and may be triggered whenever the dividend for common stockholders exceeds that of preferred stockholders. The extra dividend must be declared by the board of directors and distributed after the preferred and common stock dividends have been paid. Participating issues often carry a lower dividend rate as compared to traditional preferred but have the potential to receive higher dividends based on the company’s growth.</p> Signup and view all the answers

<p>An adjustable-rate, floating-rate, or variable-rate preferred stock has a dividend rate that adjusts periodically, on specific dates, based upon current market interest rates. When interest rates rise in the market, these securities will have their dividend rate adjusted higher and when interest rates in the market fall, their dividend rate will be adjusted lower. The trading price tends to stay very close to the security’s par value due to these adjustments.</p> Signup and view all the answers

<p>Investors seeking a broader investment of equity securities may choose to purchase stocks from international emerging markets. Foreign stocks provide potentially higher returns due to the currency risk and political risk associated with the security. Due to the aggressive nature of foreign stocks, U.S. investors pay higher fees and assume higher risk compared to the foreign stock’s domestic counterpart. Most U.S. investors purchase foreign company stock that is listed on the NYSE by purchasing American depositary receipts.</p> Signup and view all the answers

<p>voting rights</p> Signup and view all the answers

<p>rights, warrants, options</p> Signup and view all the answers

<p>When corporations issue additional common stock shares to the public, they may offer existing shareholders the ability to maintain their proportionate ownership in the company. This is often referred to as an anti-dilution right. Corporations do this by having a rights offering and giving their current shareholders preemptive rights, also called subscription rights, or rights. Preemptive rights allow existing shareholders the ability to purchase the new shares, usually at a discount to the market price, in an amount that is proportionate to their current ownership. Rights are short term and traditionally expire in 30 days or less.</p> Signup and view all the answers

<p>Warrants, like rights, give the holder the ability, but not the obligation, to buy a specified number of common stock shares at a predetermined price on a specified future date. The price is set above the current market value of the stock. Warrants are long term or perpetual (no expiration date). The most common warrants are typically issued with a 5-year life. Like rights, warrants trade in the secondary market independent of the underlying stock.</p> Signup and view all the answers

<p>short term/long term</p> Signup and view all the answers

<p>below/above</p> Signup and view all the answers

<p>Provides the holder the right to BUY a specific stock, and the writer an obligation to SELL the specific stock, at the agreed (strike) price.</p> Signup and view all the answers

<p>Provides the holder the right to SELL a specific stock, and the writer of the contract an obligation to BUY a specific stock, at the agreed (strike) price.</p> Signup and view all the answers

<p>Covered – An option writer that owns the same amount or more of the underlying security is said to be covered.</p> Signup and view all the answers

<p>Uncovered (Naked) – An option writer that does not own the underlying security of the option is said to be uncovered, or naked. A naked call writer has limited potential gain and unlimited potential loss.</p> Signup and view all the answers

<p>call is above the strike/put is below the strike price</p> Signup and view all the answers

<p>Income strategies generate income for the investor by selling (short) an option contract.</p> <p>Long stock with a short call (covered call writing) Short stock with a short call (uncovered call writing) Short stock with a short put</p> Signup and view all the answers

<p>Hedging is like buying insurance to protect a stock position. When hedging, an investor buys (long) an option contract.</p> <p>Long stock with a long put Short stock with a long call</p> Signup and view all the answers

<p>When an investor is uncertain which direction the market is moving, they can establish a straddle. A straddle is a position where an investor is long (or short) an equal number of both calls and puts on the same underlying stock.</p> Signup and view all the answers

<p>A long straddle involves the investor purchasing both a call and a put on the same stock with the same strike price and expiration date</p> Signup and view all the answers

<p>A short straddle involves the investor selling both a call and a put on the same stock with the same strike price and expiration date.</p> Signup and view all the answers

<p>When an investor purchases an option, it is called an opening purchase</p> Signup and view all the answers

<p>When an investor writes an option contract and sells it, this is an opening sale</p> Signup and view all the answers

<p>Opening purchases are covered with a closing sale.</p> <p>Opening sales are covered with a closing purchase.</p> Signup and view all the answers

<p>semi annual</p> Signup and view all the answers

<p>Some issuers sell bonds that have no coupon at all but, instead, are issued at a discount from par. The interest on a zero-coupon bond is the difference between the discounted purchase price and par. Although the interest is paid at maturity when the principal is repaid, the accruing interest, also called imputed interest, is taxed annually. The accreted value is the value, at any given time, of a debt instrument that accrues interest over multiple years.</p> Signup and view all the answers

<p>$10</p> Signup and view all the answers

<p>inverse</p> Signup and view all the answers

<p>When trading at par, a bond’s nominal yield, current yield, and yield to maturity are all equal to the coupon rate.</p> <p>When trading at a premium, the current yield is less than the nominal yield, and the YTM is always less than both the nominal and current yield.</p> <p>When trading at a discount, the current yield is higher than the nominal yield, and the YTM is always higher than both the nominal and current yield.</p> Signup and view all the answers

<p>An indenture, or trust indenture, is a legal agreement outlining the terms of the loan between the corporation and the bondholders. A trustee is appointed to represent the bondholders and protect their interests.</p> Signup and view all the answers

<p>Debentures are bond issues that are not secured by any form of collateral. Instead, they are backed by the general creditworthiness and reputation of the issuer. In other words, the issuer’s full faith, credit, and promise to pay.</p> Signup and view all the answers

<p>A given issuer may sell an issue of “straight” debentures and then follow up with an issuance of subordinated debentures, which have a secondary claim. In the event of bankruptcy, a subordinated debentures holder’s claim comes after secured bondholders and straight debenture holders, but before preferred and common stockholders. These bonds carry a higher default risk and have to pay a higher interest rate to investors.</p> Signup and view all the answers

<p>Convertible bonds are convertible into the common stock of the same issuer.</p> Signup and view all the answers

<p>Parity is an important concept to understand. Parity is achieved when the current market price of the convertible bond and the value of the stock at conversion are equal</p> Signup and view all the answers

<p>int rates drop</p> Signup and view all the answers

<p>An exchange-traded note (ETN) is an unsecured debt obligation of the financial institution issuing the security. The ETN’s principal is backed by the issuer and is subject to default on payments and to bankruptcy of the issuer. An ETN has a return that is linked to the performance of an index, with a promise to match the return of that index minus any costs.</p> Signup and view all the answers

<p>Structured product is a general term for investments that use derivatives to customize an underlying investment for a separate goal and return not available by the investment itself. Exchange-traded notes and market-linked CDs are considered structured products.</p> Signup and view all the answers

<p>T-bills are short-term debt instruments maturing in 1 year or less.</p> Signup and view all the answers

<p>Treasury notes (T-notes) are intermediate-term government securities that mature in 2-10 years.</p> Signup and view all the answers

<p>Treasury bonds (T-bonds) are long-term debt instruments issued with maturities greater than 10 years and up to 30 years.</p> Signup and view all the answers

<p>T-STRIPS (Separate Trading of Registered Interest and Principal Securities) are U.S. Treasury zero-coupon instruments backed by the U.S. government.</p> Signup and view all the answers

<p>A Treasury receipt (T-receipt) is a zero-coupon security, similar to a Treasury STRIPS, that was created and issued by broker-dealers. These receipts are backed by the interest and principal of Treasury securities (T-notes or T-bonds) that are owned by the broker-dealer and held in an escrow account.</p> Signup and view all the answers

<p>Treasury Inflation Protected Securities (TIPS) are U.S. government debt securities where the principal amount is adjusted every 6 months based on changes in the Consumer Price Index (CPI). If there is inflation, the CPI rises, and the principal amount increases. If there is deflation, the CPI declines, and the principal amount decreases.</p> Signup and view all the answers

<p>Asset-backed securities (ABS) are a form of pooled fixed-income investment. They were created to take advantage of the higher interest rates associated with certain debt. Asset-backed securities do not usually hold mortgage loans. The debt pool typically includes auto loans, credit card debt, and consumer loans.</p> Signup and view all the answers

<p>General obligation bonds (GO bonds) are issued by states, counties, cities, towns, and other political subdivisions. These bonds are backed by the full faith, credit, and taxing power of the issuer.</p> Signup and view all the answers

<p>NO</p> Signup and view all the answers

<p>Revenue bonds are issued by municipal authorities to finance specific projects being constructed, such as toll roads, parking structures, airports, convention centers, or local sports stadiums. The projects are designed to be self-supporting. Fees from the users of these facilities, such as tolls or ticket sales, are collected to pay back the debt (principal and interest) due on a revenue issue.</p> Signup and view all the answers

<p>Industrial development revenue bonds (IDRs) may be considered private activity bonds and are a type of revenue bond issued to finance the construction or acquisition of a commercial facility that will be leased to a private entity (corporation).</p> Signup and view all the answers

<p>The protective covenants of the bond indenture are of great importance to investors. There are covenants that are typical to most bond issues. The rate covenant is a pledge by the issuer to set rates at a level sufficient to meet operation and maintenance expenses, renewal and replacement expenses, and debt service requirements. There may also be a safety margin requirement, such as 20% over what is necessary (120% revenue coverage).</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>Tax-Equivalent Yield = Interest on Municipal Bond ÷ (100% - Tax Bracket)</p> Signup and view all the answers

<p>Yankee bonds are international debt issued by foreign governments and corporations. They are issued in the United States, denominated in U.S. dollars, and traded in the U.S. markets. For investors, Yankee bonds provide exposure to foreign debt markets without exchange-rate/currency risk. The issuers bear the exchange-rate risk. These bonds are registered with the SEC and allow foreign entities to borrow U.S. dollars.</p> Signup and view all the answers

<p>Sovereign debt is that of a foreign government, and it is issued in a foreign currency. This type of debt is not always liquid and is subject to exchange-rate risk along with interest-rate risk and political risk.</p> Signup and view all the answers

<p>Eurobonds can be denominated in any currency. They are issued in one country but denominated in a different country’s currency. The market where they are offered could be different from both the country of currency denomination and the country of issuance. So, there could be 3 different countries involved. These types of bonds can be positively or negatively influenced by interest rate movements in the country of the bond’s denomination.</p> Signup and view all the answers

<p>Eurodollar bonds are specific types of eurobonds that are issued outside the United States by foreign and international entities which are dollar denominated and pay principal and interest in U.S. dollars.</p> Signup and view all the answers

<p>less than a year. t bills, com paper., bankers acceptances</p> Signup and view all the answers

<p>Commercial paper is a short-term, unsecured debt instrument issued by a corporation as a promissory note to help finance accounts receivable and seasonal inventory overages. It is issued at a discount and must have a maturity of less than 270 days. Additionally, they must have a minimum face amount of $50,000 and be in one of the top three highest ratings by Moody’s or S&amp;P.</p> Signup and view all the answers

<p>Bankers' acceptances (BAs) are debt securities used to finance foreign trade. When money is due from a foreign company, the U.S. corporation may sell this debt to the bank as a letter of credit at a discounted price. The U.S. company is effectively paid sooner, and the bank earns the difference between the purchase price and the face value of the money owed.</p> Signup and view all the answers

<p>The Investment Company Act of 1940 defines an investment company as being in the business of holding and managing a portfolio of securities for its investors or that has at least 40% of its total assets held in investment securities. In addition, the company must have at least $100,000 in net assets and a clearly defined investment objective under which it operates. Any investment company with 100 or more investors must register with the SEC under the Investment Company Act of 1940 and the Securities Act of 1933 unless they are exempt from registration requirements.</p> Signup and view all the answers

<p>A unit investment trust (UIT) is established or organized under a trust indenture. The trust is operated by a board of trustees who establishes its investment objective and supervises the operations. Trusts are created to hold investor funds and securities.</p> Signup and view all the answers

<p>A management investment company (or management company) is organized as a corporation, operates under the direction of a board of directors, and issues shares of undivided interest to investors.</p> Signup and view all the answers

<p>A closed-end management company (closed-end fund) begins with a single primary offering to raise capital, like a publicly traded corporation. A fixed number of common stocks, preferred stocks, and/or bonds of the closed-end fund are registered with the SEC and sold, by prospectus, through an IPO in the primary market. Only full shares may be purchased, with each share representing an undivided interest in a professionally managed portfolio of securities. Closed-end funds can issue common stock, preferred stock, and/or bonds (debt securities).</p> Signup and view all the answers

<p>An open-end management company (open-end fund) is most commonly known as a mutual fund, and these terms will be used interchangeably. The investment company registers the common shares of a mutual fund with the SEC and does not specify exactly how many shares it will issue. Mutual funds continuously offer new shares to investors in the primary market,</p> Signup and view all the answers

<p>NAV</p> Signup and view all the answers

<p>yes</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>75-5-10</p> Signup and view all the answers

<p>40</p> Signup and view all the answers

<p>Expense Ratio = Fund Expenses ÷ Average Net Assets</p> Signup and view all the answers

<p>Sales charges are NOT fund expenses, are not part of the expense ratio, and apply only to mutual funds.</p> Signup and view all the answers

<p>the underwriter</p> Signup and view all the answers

<p>10 bil or more</p> Signup and view all the answers

<p>2-10 bil</p> Signup and view all the answers

<p>300 mil-2 bil</p> Signup and view all the answers

<p>Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash (including cash equivalents and currencies). The fund’s objective states the proportions of assets in which the fund will seek to invest (such as 50% equities, 40% bonds, and 10% cash).</p> Signup and view all the answers

<p>yes</p> Signup and view all the answers

<p>Fundamental analysis derives the value of securities through publicly available information regarding a corporation’s financial status. It stipulates that if a company is doing well in the marketplace, then its securities should also perform well in the securities marketplace.</p> Signup and view all the answers

<p>The balance sheet is a statement of a company’s financial position at a specific point in time. It is a detailed summary reporting the balances of the company’s:</p> <p>Assets – what is owned by the corporation Liabilities – what is owed by the corporation Stockholder (shareholder) equity/net worth</p> Signup and view all the answers

<p>Current assets include cash and accounts receivable, marketable securities, and any inventory that is expected to be converted into cash within the next 12 months. Inventory is the least liquid of the current assets and is usually listed last.</p> Signup and view all the answers

<p>Current liabilities are obligations or short-term debt due within the next 12 months. Current liabilities include accounts payable, wages, accrued taxes, and the portion of long-term debt that is payable within the next 12 months.</p> Signup and view all the answers

<p>Long-term liabilities are obligations or debt that is due after the next 12 months. This includes mortgages and corporate bonds issued with maturities beyond the next 12 months. Long-term debt is also called funded debt.</p> Signup and view all the answers

<p>Retained earnings are the profits of the company that have not been distributed as dividends and are retained by the company for reinvestment purposes.</p> Signup and view all the answers

<p>Capital stock at par represents the amount paid by the owners at the valuation price listed on common and preferred stock. This is usually $100 for preferred stock, and common stock is usually issued at a nominal value, such as $1.00 or $.01.</p> Signup and view all the answers

<p>Acid Test = (Current Assets minus Inventory) ÷ Current Liabilities</p> Signup and view all the answers

<p>corporation’s capitalization is the total amount of money invested in the entity. This includes the amount of equity (stock) sold and the amount of debt (bonds or debentures) issued. If a corporation has sold $40 million in stock and $30 million in bonds, its current capitalization is $70 million.</p> Signup and view all the answers

<p>The debt-to-equity ratio is a financial tool used to determine and compare a company’s debt financing with its equity financing. It is a leverage ratio that specifically measures a company’s ability to meet its long-term debt obligations. A company that uses a larger amount of debt (in proportion to its equity) to finance its assets has a higher debt-to-equity ratio and is highly leveraged. This means the company may have difficulty meeting its long-term debt oblig</p> Signup and view all the answers

<p>In addition to the balance sheet, the income statement provides fundamental analysts with critical information about a corporation’s financial position. An income statement, also called a profit and loss statement, shows the incoming revenues and outgoing expenses over a specified period, such as the fiscal quarter or year. This is used to determine the profitability of a company.</p> Signup and view all the answers

<p>As the name implies, bond interest coverage measures how well the company can pay its bond interest. It is computed by dividing the operating profit by the annual interest payment on the outstanding bonds. We will need to do some extra calculations for this one.</p> <p>Cost of Sales = Operating Expenses ($4,200) + Cost of Goods Sold ($9,000) = $13,200</p> <p>Operating Profit = Net Sales ($24,500) - Cost of Sales ($13,200) = $11,300</p> <p>For XYZ Corporation</p> <p>Bond Interest Coverage Ratio = Operating Profit ($11,300) ÷ Bond Interest $500) = 22.6%</p> <p>This means that XYZ has enough operating profit to pay their bond interest more than 22 times.</p> Signup and view all the answers

<p>The cash flow statement measures inflows and outflows of the company’s cash and cash equivalents. Cash flow tends to be a good indication of a company’s ability to pay its bills. The cash flow statement breaks down the cash flows into three areas.</p> <p>Cash flow from operations measures the cash flow from the business activities of the corporation. This includes cash received from the sale of products and services (in-flows) and payments going out to suppliers and employee salaries (out-flows). Cash flow from investments comes from gains or losses on corporate investments. Cash flow from financing accounts for the cash flows from financing activities like raising capital from stock issuance and the paying out of dividends.</p> Signup and view all the answers

<p>Diluted earnings per share takes into consideration the effect convertible securities have on earnings if they are exercised. This includes all convertible preferred shares, convertible bonds, stock options, and warrants that the corporation has outstanding. This will always be lower than EPS unless there are no outstanding convertibles. This formula can be very complicated if the corporation has several different convertibles outstanding. So, the divisor of the above formula becomes common shares outstanding + all diluted shares.</p> Signup and view all the answers

<p>Price earnings multiple (PE ratio) measures the stock price of a corporation and compares it to the earnings per share. The PE ratio represents the price an investor pays in relation to corporate earnings per share. If a corporation has reported earnings per share of $2.50 and the stock is trading at $30, the PE ratio is 12. The PE ratio is calculated by dividing the stock price by the earnings per share.</p> <p>PE Ratio = Stock Price ÷ Earnings Per Share</p> Signup and view all the answers

<p>Accrual accounting used by public corporations, records revenues when earned and records expenses when they occur. These transactions typically occur before any cash is received or payments are made. Accrual accounting provides a better picture of the company’s finances because all assets and liabilities are recorded for the specific time-period.</p> Signup and view all the answers

<p>Audited annual financial statement</p> Signup and view all the answers

<p>10-Q - Quarterly unaudited financial statement</p> Signup and view all the answers

<p>8-K - Report of significant events</p> Signup and view all the answers

<p>Technical analysis is a method of analyzing the value of securities by studying historical prices, price movement, and the trading volume of a specific security</p> Signup and view all the answers

<p>Resistance occurs when a security’s price rises and, after it reaches a certain level, it goes back down. It seems to refuse to go above that point.</p> Signup and view all the answers

<p>Support occurs when the security’s price is going down, and after it reaches a certain level, it goes back up. In this instance, the price seems to refuse to go below.</p> Signup and view all the answers

<p>Breakout represents a security that begins to trade past or breaks through the resistance level. This is usually accompanied with heavy trading volume that will cause the price to continue upward. This may create a new and higher resistance level if sustained over time. It is considered a bullish trend.</p> Signup and view all the answers

<p>Breakthrough (breakdown) represents a security that trades or breaks down below the support level and continues in a downward trend. Similar to a breakout, heavy trading volume will cause the price to continue downward. This also may create a lower support level. This is considered a bearish trend.</p> Signup and view all the answers

<p>If stock values are decreasing while volume is increasing, the fall is expected to continue. If this is occurring while volume is decreasing, the market is said to be oversold, and a bullish market is expected.</p> Signup and view all the answers

<p>This all works the same for increasing stock values, or a rising market. If the market is rising on increasing volume, it is expected to continue. If it is occurring with decreasing volume, the market is said to be overbought, and a downturn is expected.</p> Signup and view all the answers

<p>Fundamental analysts determine what to buy or sell.</p> <p>Technical analysts determine when to buy or sell.</p> Signup and view all the answers

<p>Full-time status (minimum 1,000 hours per year) Employed for 12 months (1 year) or more At least 21 years old</p> Signup and view all the answers

<p>o help individuals who are late to start retirement planning, Congress instituted special “catch-up” provisions. Employees over age 50 can make additional contributions to a qualified plan. S</p> Signup and view all the answers

<p>AGE 73</p> Signup and view all the answers

<p>Early distributions (distributions prior to age 59½) may be subject to a 10% penalty on the taxable portion of the distribution. The 10% tax does not apply to:</p> <p>Death or disability of the employee Terminal illness Qualified medical expenses (those exceeding 7.5% of AGI) Qualified birth or adoption expenses ($5,000 per taxpayer) Federally declared disasters (up to $22,000 per affected individual) Substantially equal periodic payments based on life expectancy until age 59½ or 5 years, whichever is later (permitted under IRC Rule 72(t)) Domestic abuse victims (maximum is the lesser of $10,000 or 50% of account value) Family or personal emergencies (maximum of $1,000) Withdrawals from emergency savings accounts linked to employer-sponsored plans</p> Signup and view all the answers

<p>A defined benefit plan, or traditional pension plan, promises the employee a specific monthly payout that they will receive on retirement. Monthly benefits are calculated based on the employee’s age, years of service, and highest salary (or average of the last 3 years). These plans are designed to benefit older employees, who are closer to retirement age.</p> Signup and view all the answers

<p>A defined contribution plan is a qualified retirement plan in which employees direct the employer to withhold a “defined” amount of compensation for contribution to a plan maintained by the employer. The contribution may be defined as a stated dollar amount or a percentage. The participant does not know how much the plan will ultimately provide to the employee upon retiring.</p> Signup and view all the answers

<p>A 401(k) plan is a type of defined contribution plan offered by private and public companies. With this plan type, the employee makes elective pretax contributions through payroll deductions. T</p> Signup and view all the answers

<p>SEP plans can be established by corporations, partnerships, or sole proprietors (self-employed) and are designed to be a simple and cost-efficient way for smaller employers to meet their employees’ retirement needs. An individual retirement account (IRA) is established for each employee, which is fully funded by the employer</p> Signup and view all the answers

<p>A SIMPLE plan can be adopted by small businesses (self-employed, sole proprietors, partnerships, and corporations) that employ 100 or fewer people and do not have another qualified plan available. To be eligible, the employee must have earned at least $5,000 in compensation during any 2 years before the current calendar year and be expected to earn at least $5,000 for the current calendar year. These requirements are the maximum and can be reduced by the employer.</p> Signup and view all the answers

<p>403(b) plans were originally referred to as tax-sheltered annuities (TSAs). Though they originally only held annuities, these plans are now often funded with investment companies, such as mutual funds, as well as variable annuities. This plan was created and authorized under the provisions of Section 403(b) of the IRC. These plans are available for eligible employees of public-school systems and qualified 501(c)(3) nonprofit organizations, including religious organizations, colleges, universities, hospitals, and museums. Since the employer is a nonprofit organization, contributions are not tax deductible to the employer.</p> Signup and view all the answers

<p>qualified domestic relations order (QDRO) is a court order requiring one individual, such as a spouse, to give up a portion of their employer-sponsored retirement plan in the event of divorce or separation. The QDRO does not affect individual retirement accounts. A QDRO waives the 10% premature distribution penalty from the retirement plan.</p> Signup and view all the answers

<p>A deferred compensation arrangement is a nonqualified retirement plan in which employees defer a portion of their income to a specified later date. The premise behind these plans is that the employee will receive the income and pay taxes based on a lower tax bracket.</p> Signup and view all the answers

<p>yes</p> Signup and view all the answers

<p>457 plans are nonqualified deferred compensation plans that function much like qualified retirement plans. There are 2 basic types of plans: government and nongovernment. Government plans may be offered by governments for all eligible employees, and nongovernment plans may be offered by tax-exempt organizations, other than churches, with the eligibility usually limited to managers, highly compensated employees, and independent contractors</p> Signup and view all the answers

<p>The maximum annual contribution per person is the lesser of the specified annual limit or 100% of earned income.</p> Signup and view all the answers

<p>life insurance</p> Signup and view all the answers

<p>If a rollover occurs due to moving assets from a qualified employer-sponsored plan into an IRA in a lump sum, the 60-day rollover rule applies. However, the employer is required to withhold 20% of the distribution and send this amount to the IRS. This 20% withholding may be refunded when the customer files their next tax return.</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>Investors can contribute up to $2,000 per year into a Coverdell to help fund a child’s education.</p> Signup and view all the answers

<p>Under Section 529 of the IRC, Congress authorized the creation of state-sponsored qualified tuition programs, also referred to as QTPs. Contributions to these qualified plans are considered gifts under the federal tax code, and eligibility for participation is not subject to income limitations.</p> Signup and view all the answers

<p>They are municipal fund securities regulated by the MSRB Maximum contribution determined by individual plan or state Contributions are nondeductible No taxation on earnings used for qualified education expenses Account balances may be transferred to another relative No income limits for eligibility No requirement to use before age 30 Contributions can continue after age 18</p> Signup and view all the answers

<p>POP/NAV</p> Signup and view all the answers

<p>Mutual funds do not trade throughout the day in the secondary marketplace like stocks, bonds, or closed-end funds. All requests for purchase and redemptions of shares are held and processed at the end of the trading day, 4 p.m. Eastern time, based on the hours of the New York Stock Exchange. Buyers and redeemers transact business at the next calculated price. This rule is called forward pricing since the actual cost per share is determined after the buy or redemption order has been placed, rather than using the “intraday” price at the time an order is placed. A customer’s buy or redemption order must be placed before the end of business at 4 p.m.</p> Signup and view all the answers

<p>Net Asset Value Per Share = Net Assets ÷ Number of Shares Outstanding</p> Signup and view all the answers

<p>Increase in value of securities held Fund receives dividends or interest from securities held</p> Signup and view all the answers

<p>Decrease in value of securities held Fund distributes dividends to shareholders (reflected on ex-dividend date)</p> Signup and view all the answers

<p>Shareholder redemptions Shareholder purchases</p> Signup and view all the answers

<p>The public offering price (POP) is the price at which an investor buys shares of a mutual fund.</p> Signup and view all the answers

<p>Under FINRA rules, mutual fund sales charges cannot exceed 8.5%</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>Maximum to pay marketing and distribution is 0.75%, to attract new investors Maximum shareholder services expense 0.25% Total 12b-1 fee not to exceed 1%</p> Signup and view all the answers

<p>Some mutual funds charge redemption fees upon the redemption of fund shares. This fee is usually charged by the fund to discourage short-term traders by assessing the fee on clients who have not held their shares for some minimum designated time.</p> Signup and view all the answers

<p>The Class A share structure is the traditional price structure used by the mutual fund industry. For a Class A share, front-end load,</p> Signup and view all the answers

<p>Class B shares assess a back-end sales charge, giving investors the ability to have their entire amount invested immediately into the fund. The sales charge may be levied at the time the shares are redeemed and based on the year withdrawn, rather than the time of purchase. A back-end load is referred to as a contingent deferred sales charge (CDSC).</p> Signup and view all the answers

<p>Class C shares are usually described as having a level-load pricing structure. This means the customer pays a fixed percentage each year. Class C shares charge customers an annual fee,</p> Signup and view all the answers

<p>Some funds do not levy sales charges and are considered no-load funds. No-load shares are purchased and redeemed directly from the fund and are not distributed through the use of an additional firm, such as an underwriter or broker-dealer.</p> Signup and view all the answers

<p>13 months</p> Signup and view all the answers

<p>90 days</p> Signup and view all the answers

<p>Rights of accumulation are privileges provided to shareholders by a mutual fund. Shareholders can use their existing account balances, combined with additional purchases, to qualify for breakpoints on any new money invested into the account. ROAs must be offered for at least 10 years and multiple accounts within the same fund family may be combined for reaching a breakpoint.</p> Signup and view all the answers

<p>Professional Portfolio Manager, diversity, min investment, safekeeping, tax simple, reduced sales charges, liquid, systematic</p> Signup and view all the answers

<p>16 months</p> Signup and view all the answers

<p>At or before the time of sale</p> Signup and view all the answers

<p>omitting prospectus is defined as a prospectus. It is permitted as a publication containing a summary of information found in a mutual fund prospectus.</p> Signup and view all the answers

<p>semi to sh/annual</p> Signup and view all the answers

<p>The statement of additional information contains supplementary information on many of the items found in the prospectus, such as fund holdings, transactions, and fees. Although there is no requirement for periodical mailing of the SAI to shareholders, this document must be furnished upon request.</p> Signup and view all the answers

<p>. This prevents double taxation (taxation at both the investment company and shareholder levels) on the same income. The ability to transfer the income tax liabilities to the investor is referred to as the conduit (or pipeline) theory.</p> Signup and view all the answers

<p>90%</p> Signup and view all the answers

<p>Average cost calculates gains or losses on shares redeemed based on the average purchase price of all shares owned in a mutual fund account. The cost of shares, including reinvested dividends and capital gains distributions, divided by the number of shares held, is used to compute the average cost of each share. The gain or loss on shares redeemed or exchanged is the difference between the proceeds of the redemption or exchange and the cost basis of the shares.</p> Signup and view all the answers

<p>Determines the cost basis by identifying the first shares purchased as the first shares sold or redeemed. This is usually the worst-case scenario if the account has appreciated. Redemption of investment company shares for more than the cost basis results in a capital gain for the investor. The investor’s capital gain tax implication is based on the investor’s holding period.</p> Signup and view all the answers

<p>A capital gain event occurs when the investor sells or redeems a security for more than the cost basis. Capital gain events for investors are taxable based on the investor’s holding period of the security. If the investor owned the security for 12 months or less, it is considered short-term, and the gain is taxable at ordinary income rates in the year sold or redeemed.</p> Signup and view all the answers

<p>A capital gain distribution occurs when the fund manager sells securities in the portfolio for a profit and then shares the profit with fund investors. According to the Investment Company Act of 1940, a fund can only pay out capital gain distributions on an annual basis. Capital gain distributions are considered long-term and are taxable to the investor in the year received at preferential rates, usually 15%. The holding period is based on the fund’s holding period for the underlying security, not the investor’s holding period on the fund shares. When a fund manager sells securities in the portfolio for a profit and has held them for 1 year or less, these short-term gains are passed on to the investors as ordinary dividends.</p> Signup and view all the answers

<p>Arealized capital gain is profit resulting from selling an investment at a price higher than the original purchase price or the adjusted cost basis.</p> Signup and view all the answers

<p>A realized capital loss is a loss resulting from selling an investment at a price lower than the original purchase price or the adjusted cost basis.</p> Signup and view all the answers

<p>taxable</p> Signup and view all the answers

<p>Includes the total purchase price of the investment if purchased with after-tax dollars An investor who reinvests dividends and/or capital gains to buy new shares of the fund receives an adjusted cost basis since taxes are paid on the distributions in the year received.</p> Signup and view all the answers

<p>An ETF is an exchange-listed product that invests in a portfolio of securities. Most ETFs track a specific index, such as the S&amp;P 500. ETFs are registered as either UITs or open-end investment companies, with the majority of them being registered as open-end investment companies.</p> Signup and view all the answers

<p>Inverse leveraged ETFs use a combination of leverage and the inverse fund concept. These are often called “ultra short” funds, since they are trying to obtain a return that is a multiple of the inverse ETF. This strategy is used as a hedge against market declines, with added focus on greater profits resulting from the declines. Leveraged, inverse, and inverse leveraged ETFs are more suitable for short-term investing</p> Signup and view all the answers

<p>Private equity is a type of pooled investment where a firm invests directly in companies, usually purchasing the private companies. Often it is a pool of investments in mature companies that are in a buyout position. Venture capital is like private equity but, with venture capital, the pool of investments is created from the equity of small startup companies and the fund is buying 50% or less of the startup to place into the pool of investments. The goal of a venture capital fund is to leave the startup companies through IPOs or a merger and acquisition.</p> Signup and view all the answers

<p>A real estate investment trust (REIT) is like a closed-end investment company, but it is a trust rather than a corporation. They are not investment companies and are not regulated under the Investment Company Act of 1940. However, REITs are registered securities under the Securities Act of 1933. A real estate investment trust invests in real estate (property), mortgages on real property, and/or shares of other REITs. Any uninvested cash may be used to purchase government securities. A REIT sells shares of beneficial interest to investors and is managed by a board of trustees.</p> Signup and view all the answers

<p>Under the IRC, special tax treatment is allowed for qualified REITs. To be considered qualified, the REIT must have at least 75% of its assets invested in real estate, cash, or Treasurys, a minimum of 75% of its gross income from real estate activities, and 90% of the ordinary income must be “passed through” (distributed) to unit holders. If this is done, the REIT is only taxed on the retained amount, and it would be considered a qualified REIT under the IRC Subchapter M. For investors, this eliminates the double taxation that is commonly seen with C corporations, where both the corporation and the shareholders pay taxes on the income.</p> <p>Also, unlike C corporations, REITs are not allowed to take advantage of the corporate dividend exclusion rules.</p> <p>Distributions from REITs are taxed as ordinary income at the taxpayer’s marginal rate. However, investors are allowed to deduct 20% of the income earned from REITs from their taxable income.</p> Signup and view all the answers

<p>Insurance companies typically allow the policyowner to borrow 75% to 90% of the cash value</p> Signup and view all the answers

<p>45 days</p> Signup and view all the answers

<p>Variable contract owners may convert or exchange their policy to whole life within 24 months from the date of issuance without evidence of insurability.</p> Signup and view all the answers

<p>Expense risk fee Mortality risk fee Investment management fee</p> Signup and view all the answers

<p>Withdrawals are treated as first-in, first-out (FIFO) based on the cost basis of the policy</p> Signup and view all the answers

<p>Fixed-indexed annuities (FIAs) are a variation of fixed annuities. They expose investors to the equity markets, offering an inflation hedge, while protecting investors from severe market downturns with guaranteed minimum rates.</p> Signup and view all the answers

<p>The assumed interest rate (AIR) is an arbitrary interest rate used by the insurance company to project the rate of growth of the separate account during the contract’s payout period. AIR is a benchmark percentage used in determining the amount of the initial payment and used as a comparison when determining future payments. The AIR benchmark remains unchanged throughout the life of the contract.</p> Signup and view all the answers

<p>investment management fee, mortality/expense fee, premium taxes, admin expense, charges for special features</p> Signup and view all the answers

<p>Partial surrenders and withdrawals made from an annuity are taxed on a LIFO basis, where earnings will be withdrawn first and subject to ordinary income tax.</p> Signup and view all the answers

<p>10%</p> Signup and view all the answers

<p>Life insurance to life insurance Annuity to annuity Life insurance to annuity</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>real accounts for inflation</p> Signup and view all the answers

<p>6mo/18 mo</p> Signup and view all the answers

<p>expansion,peak,contraction,trough</p> Signup and view all the answers

<p>Rising CPI traditionally causes interest rates to increase, causing bond prices to fall and yields to increase</p> Signup and view all the answers

<p>the fed</p> Signup and view all the answers

<p>Open market operations are the most frequently used monetary policy tool of the Fed.</p> Signup and view all the answers

<p>The discount rate is the only rate set by the Fed.</p> Signup and view all the answers

<p>The interest rate banks charge each other for loans.</p> Signup and view all the answers

<p>Also called the broker loan rate, it is the interest rate charged by banks on margin loans to broker-dealers against stock collateral.</p> Signup and view all the answers

<p>Fed funds rate Discount rate Call money rate (broker loan rate) Prime rate</p> Signup and view all the answers

<p>congress/govtspending/taxes</p> Signup and view all the answers

<p>Trading in foreign currencies, also called foreign exchange, occurs mainly between large banks in major international financial centers. This is known as the interbank market. This market, unlike U.S. exchanges, is not governed by the SEC or any other regulator, although the participant banks observe mutually beneficial rules (self-regulation).</p> Signup and view all the answers

<p>strong/weak</p> Signup and view all the answers

<p>The balance of payments is the flow of money between other countries and the U.S. A surplus occurs when more money is flowing into the country than flowing out. A deficit occurs when more money is flowing out of the country than flowing in.</p> Signup and view all the answers

<p>The balance of trade identifies the difference between the value of a country’s imports and exports of merchandise. Examples of merchandise included in the balance of trade are: cars, food, and clothing. A favorable trade balance exists when a country’s exports are greater than its imports, and an unfavorable trade balance occurs when a country’s imports exceed its exports.</p> Signup and view all the answers

<p>The positive yield curve, also known as a normal ascending yield curve, is an upward and outward sloping curve. The positive yield curve chart will have the horizontal (X-axis) representing months and years of maturity, and the vertical line (Y-axis) representing the return at each level of maturity. This yield curve is present during normal economic conditions. A normal yield curve indicates that bond issuers are willing to pay a higher coupon for the ability to use the money from the bond for a longer period. In turn, bond investors are willing to wait a longer period to get their principal back in return for the higher yield on the bond.</p> Signup and view all the answers

<p>The negative yield curve, also known as the inverted yield curve, flips the normal yield curve upside down and represents shorter maturities having higher yields than longer maturities. While this is not a common occurrence, inverted yields may occur right before a recession. In the past, this type of yield curve only occurred during very extreme economic conditions. When interest rates are very high in the market and the demand for money far exceeds the money supply, the cost of money or interest rates will increase.</p> Signup and view all the answers

<p>Credit spreads compare and chart two different types of bonds and their respective yields. The bonds have similar maturities, but different credit qualities. For example, government bonds and corporate bonds are charted on the same graph. Both bonds will show an upward sloping normal yield curve due to the higher returns attained as the maturity is lengthened.</p> Signup and view all the answers

<p>A widening credit spread shows diverging yield curves and signifies investors are expecting increasing defaults with corporate bonds and a weakening in the economy.</p> Signup and view all the answers

<p>The narrowing credit spread occurs when the two yields move closer together and signifies investors expecting fewer corporate defaults and a strengthening economy.</p> Signup and view all the answers

<p>Some leading indicators are the stock market, the money supply, housing starts, and initial claims for unemployment. A rising stock market, an increase in money supply, and an increase in the number of new housing starts could indicate a future robust economy.</p> Signup and view all the answers

<p>Coincident economic indicators are indicators that show the current economic situation. These indicators tend to occur at or around the same time as the changes occur. Coincident indicators include personal income, GDP (gross domestic product), industrial production, and employment levels.</p> Signup and view all the answers

<p>Lagging indicators include the average duration of unemployment, reported corporate profits, the average prime rate, and the average inflation rate.</p> Signup and view all the answers

<p>Total return includes interest, dividends, and capital appreciation. It also assumes the investor reinvests all distributions</p> Signup and view all the answers

<p>In the securities industry, the greater the risk taken, the greater the reward expected over time. Conversely, the less risk taken, the less reward expected over time. Every security carries certain inherent risks. This risk relationship is measured by the risk-adjusted return.</p> Signup and view all the answers

<p>The holding period return is the return on investment or portfolio over the period the investment is held. This is different from an annualized return, which measures the return adjusted for a one-year period.</p> Signup and view all the answers

<p>The key difference between arithmetic and geometric return is that geometric return factors in compounding, while arithmetic return does not consider compounding.</p> Signup and view all the answers

<p>The time value of money is an important concept in finance that states a sum of money received today is worth more than the same sum of money received at a future date.</p> Signup and view all the answers

<p>Because today’s dollars will buy less in the future, net present value (NPV) uses discounted cash flow to arrive at a decision of whether to take on an investment. NPV calculates the present value of all future cash flows and compares them to the original investment.</p> Signup and view all the answers

<p>In the net present value calculation, a rate of return must be chosen. The rate of return used that makes the net present value equal to zero is referred to as the internal rate of return.</p> Signup and view all the answers

<p>There are 2 common methods used for valuing businesses based on their earnings or dividends. They are the dividend discount model (DDM) and the discounted cash flow model (DCF). These 2 formulas try to consider the potential for market prices to change due to changes in earnings and/or dividends.</p> Signup and view all the answers

<p>The Rule of 72 can be used to calculate 2 different items. It can be used to determine how many years it will take for an investment to double when the rate of return is given or to determine the rate required to double the value of an investment when the time frame is known.</p> <p>To determine the number of years it will take to double the value, divide 72 by the rate of return.</p> Signup and view all the answers

<p>Passive portfolio rebalancing is a type of automatic rebalancing that removes dollars from the overperforming assets and reallocates them to the underperforming assets. This is traditionally done on an annual or quarterly basis. Active portfolio rebalancing requires the portfolio manager to remove dollars from the underperforming assets and pick those assets they believe will outperform. Another form of active rebalancing is called sector rotation.</p> Signup and view all the answers

<p>Strategic asset allocation is making “a plan” Tactical allocation is the necessary steps needed to implement the plan</p> Signup and view all the answers

<p>A broad-based index is designed to represent a whole stock market with a broad segment of the stock market represented, such as all stocks trading on a specific exchange. A narrow-based index represents a specific industry, such as computer technology.</p> Signup and view all the answers

<p>Growth stocks are from issuers whose earnings are expected to grow at an above-average rate, perhaps due to a unique product, market expansion, or consumer demand. Growth companies tend to do well in the expansion phase of the business cycle when the economy is strong</p> Signup and view all the answers

<p>Value stocks typically have depressed stock prices due to business problems or issues in the industry. The bottom line is that the stock’s price is depressed for a reason. Value managers seek out these types of stocks and research them for turnaround opportunities.</p> Signup and view all the answers

<p>Investment managers seeking investments that will generate income will look for securities that pay interest or dividends on a regular basis. These securities include bonds of all maturities, preferred stock, and common stock that historically pay dividends, such as utility stocks or blue-chip stocks.</p> Signup and view all the answers

<p>Investment managers looking for capital appreciation are seeking investments that will increase in value. These managers will invest in a combination of growth and value stocks that they believe have the highest potential to increase in value.</p> Signup and view all the answers

<p>The top-down approach to investing starts with considering the overall economy. This involves researching items like GDP, interest rates, monetary policy, business cycles, and sectors that are expected to do well in the current economy. After the economy is reviewed, specific industries are considered for investment. Once the industry is chosen, individual companies in the industry are researched, and a decision is made about investing.</p> Signup and view all the answers

<p>The bottom-up approach to investing works in the opposite direction of the top-down approach and starts with researching individual companies first. Industry and the overall economy are secondary concerns. The primary focus is on the fundamentals of individual corporations. This approach is, therefore, popular with value investors as well as buy-and-hold investors.</p> Signup and view all the answers

<p>Sector rotation is an investment strategy that looks to invest in certain industries that do well at different points in the business cycle. The business cycle consists of periodic ups and downs in the economy that occur in a pattern. S</p> Signup and view all the answers

<p>Environmental, social, and governance (ESG) investing has become a strategy that attempts to obtain above average returns while seeking investments that provide a positive impact environmentally or socially. Investors traditionally seek mutual funds or EFTs that provide them investments in areas that the investor finds acceptable.</p> Signup and view all the answers

<p>Dollar-cost averaging reduces the risk associated with investing a large amount in a single investment. Investors purchase more shares when prices are low and fewer shares when prices are higher. It is a long-term investment strategy. The ability to remain invested and investing in down markets is key to the strategy’s success. Though this is a popular strategy with mutual funds, it can be used for almost all types of investing.</p> <p>Dollar-cost averaging does not guarantee profits or protect against losses.</p> Signup and view all the answers

<p>Scaling in is an investment strategy that is typically used when a security’s price falls below a specified level. This technique involves purchasing a specific number of shares at specific times while the price is dropping in an effort to obtain a desired number of shares.</p> Signup and view all the answers

<p>The Modern Portfolio Theory (MPT) is a capital market investment theory introduced by Harry Markowitz in the 1950s. This theory attempts to find the best portfolio for an investor by maximizing the return of a portfolio with a specific level of risk.</p> Signup and view all the answers

<p>The Capital Asset Pricing Model (CAPM) is used in the Modern Portfolio Theory to determine the most efficient investments. Investors expect to receive greater returns when taking on additional risk. CAPM attempts to quantify the relationship between the risk and the expected return to determine the appropriate price for a security. This shows if the security is overvalued or undervalued in relation to its risk.</p> Signup and view all the answers

<p>Efficient market hypothesis (EMH) is a theory that states all relevant stock market data and information is readily available to the investing public and, therefore, accurately reflected in stock prices. Under this theory, if correct, no individual can beat the returns of the market on a regular basis.</p> Signup and view all the answers

<p>Weak form of EMH believes that fundamental analysis can beat the market.</p> Signup and view all the answers

<p>Semi-strong form of EMH believes those with inside information can beat the market.</p> Signup and view all the answers

<p>Strong form of EMH believes that nothing can beat the market.</p> Signup and view all the answers

<p>Behavioral finance theorists believe that investors are not predictable and that their trading practices are often inefficient and based on emotions or fears rather than hard data and analysis</p> Signup and view all the answers

<p>laddering approach and barbell approach</p> Signup and view all the answers

<p>Another approach is the barbell approach or strategy. With a barbell strategy, investors or portfolio managers purchase bonds on both ends of the yield curve. That means some short-term bonds and some long-term bonds. This strategy allows investors to participate in the higher rates of their long-term bonds and the ability to reinvest quickly when their short-term bonds mature or take advantage of the cash if needed.</p> Signup and view all the answers

<p>ith a laddering approach, the investor will purchase bonds of differing maturities that are laddered to expire each year of a designated time frame.</p> Signup and view all the answers

<p>The alternative minimum tax (AMT) is a concern for high income investors. An individual, when determining their tax liability, starts with their gross income and then subtracts various tax deductions.</p> Signup and view all the answers

<p>Standard deviation measures the price volatility of the security itself in relation to its average share price. It measures security price risk.</p> <p>Prices are plotted around the average of a security’s price. The greater the dispersion or variability of prices, the higher the standard deviation.</p> Signup and view all the answers

<p>he Sharpe ratio measures the risk-adjusted return of a portfolio. It is used to gauge the performance of a fund’s manager and how much risk the manager took to attain the return. The Sharpe ratio subtracts the risk-free rate (typically a 1 or 3-month T-bill) from the return achieved. This provides what is referred to as the excess return over the risk-free rate of return. This excess return is then divided by the standard deviation of the portfolio to create the Sharpe ratio.</p> <p>The higher the Sharpe ratio, the better the investment on a risk-adjusted basis. The Sharpe ratio shows that a manager with a higher Sharpe ratio than another may not have achieved the higher return in the fund but did achieve a better result when the amount of risk that was taken is included.</p> Signup and view all the answers

<p>A beta of 1.0 indicates that the security has about the same volatility as the overall market A beta greater than 1.0 indicates a security is more volatile than the overall market A beta of less than 1.0 indicates a security that is less volatile than the market A negative beta indicates the security is moving in the opposite direction of the market</p> Signup and view all the answers

<p>Alpha is a measure of the return on an investment that cannot be attributed to the market in general. It varies based upon industry, product, region, or other factors that are not specific to the market as a whole. It represents the difference between a security or portfolio's beta, or expected return, and its actual return. A positive alpha number indicates that the security outperformed its expected return, as measured by beta, and a negative number indicates underperformance. Alpha is often used to gauge the results of a mutual fund manager.</p> Signup and view all the answers

<p>The correlation coefficient measures how closely the prices of two securities will move in the same direction. The correlation coefficient ranges from +1.0 down to -1.0. If 2 securities have a correlation coefficient of +1.0, their prices should move in the same direction at the same time and have a positive correlation. If the 2 securities have 0 correlation, there is no known pattern between them and they are uncorrelated. If the 2 securities move in the opposite direction (-1.0) at the same time, they have a negative correlation. The correlation coefficient number is called the R-value.</p> Signup and view all the answers

<p>R-squared uses the R-value of a portfolio to mathematically predict the amount of returns that can be generated in the portfolio as compared to the return of an independent asset, such as a benchmark index.</p> Signup and view all the answers

<p>Monte Carlo Simulation is another method used to predict possible portfolio returns. Monte Carlo Simulations use computer generated simulations based on random scenarios in an attempt to find the probabilities of certain returns. These simulations use differing values based on different economic situations and produce thousands of different probable outcomes. This will provide a range of thousands of potential returns for a specific portfolio, giving advisers and investors the highest and lowest potential returns along with the probability of occurrence.</p> Signup and view all the answers

<p>fraud</p> Signup and view all the answers

<p>fraud</p> Signup and view all the answers

<p>fraud</p> Signup and view all the answers

<p>fraud</p> Signup and view all the answers

<p>An advertisement is defined as any communication to more than one person offering new or additional services</p> Signup and view all the answers

<p>Encouraging a client to purchase a security just prior to the payment of a dividend, implying that the investor will receive an immediate return on their capital, is a prohibited practice. The security price is immediately reduced by the amount of the dividend upon payout, and the investor may suffer a loss in the taxes owed on the receipt of the dividend.</p> Signup and view all the answers

<p>Unless the customer has given discretionary authority, each transaction must be approved by the client. Unauthorized trading could occur when an agent or IAR is attempting to churn the customer’s account to generate commissions or fees. However, unauthorized trading violations can also occur when attempting to do what is in the best interest of the client.</p> Signup and view all the answers

<p>All trades in a client’s account must be authorized by the customer unless the agent has been granted discretionary authority. Prior written discretionary authority is necessary for agents to execute any discretionary trades.</p> Signup and view all the answers

<p>action, asset, amount</p> Signup and view all the answers

<p>No broker-dealer or agent will exercise any discretionary power in a customer’s account unless that customer has given prior written authorization.</p> Signup and view all the answers

<p>The prudent person rule is the original guideline that fiduciaries had to observe when managing client assets, and it was specifically applied to investment advisers.</p> Signup and view all the answers

<p>Encouraging or completing a greater number of transactions than is considered reasonable given the client’s needs may be considered churning, and it is prohibited.</p> Signup and view all the answers

<p>Mixing client and firm securities is known as commingling and is a prohibited practice. Firms also have an obligation to safeguard client assets.</p> Signup and view all the answers

<p>All trades that are executed based on a customer request are considered unsolicited. Any trades executed based on an agent or IAR recommendation are solicited.</p> Signup and view all the answers

<p>At, or prior to, the time that a client’s investment account is opened, the firm must disclose, orally and in writing, that the securities recommended, purchased, or sold in a transaction with the investment firm are: NOT insured by the Federal Deposit Insurance Corporation (FDIC) NOT deposits or other obligations of the financial institution and are not guaranteed by the financial institution Subject to investment risks, including possible loss of principal invested, and MAY lose value</p> Signup and view all the answers

<p>Agents may not divide or split commissions or other compensation for securities transactions with anyone who is not an agent (or principal) of the same broker-dealer or an affiliated broker-dealer, and both representatives must be registered in the state.</p> Signup and view all the answers

<p>When a broker-dealer gives a quote to buy or sell a security, it is expected to honor its quote at its stated price, and for the stated amount of securities. If the broker-dealer is placing conditions on its quote, these must be clearly expressed with the quote. They cannot back away from a stated offer.</p> Signup and view all the answers

<p>When a broker-dealer offers to buy or sell a security “at the market,” they are implying that there is a competitive marketplace for the security in which the price is set by supply and demand.</p> Signup and view all the answers

<p>A wash trade involves the simultaneous purchase and sale of the same security by the same person with the intention of giving the appearance of active trading without an actual change in beneficial ownership. This is not the same as arbitrage, which is the simultaneous buying and selling of a security at 2 different prices in 2 different markets, resulting in profits without risk. Arbitrage is an acceptable trading activity.</p> Signup and view all the answers

<p>When manipulative trading involves a series of purchases or a series of sales, rather than paired buys and sells, the activity is known as painting the tape. This is an illegal activity. The intent is to give the false appearance of a trend in a stock’s price and to lure other investors into the same trading activity.</p> Signup and view all the answers

<p>Spoofing involves placing several orders on one side of the market (buy or sell side) and cancelling them before execution. This prohibited practice causes spreads to narrow and a false appearance of activity. Spoofing activities can be conducted by only one perpetrator placing and cancelling orders, or they could be working in concert with others.</p> Signup and view all the answers

<p>When two or more parties are involved in a pattern of buying and selling a security merely to give the appearance of active trading, this is known as engaging in matched sales. There is only one manipulator in a wash trade, while matched sales involve two or more conspirators.</p> Signup and view all the answers

<p>An agent representing a broker-dealer in a security transaction may not sell investments the broker-dealer does not offer, without disclosing this transaction to the firm. If the private security transaction involves any form of compensation, the agent must receive written permission from their firm to participate. This practice is known as selling away and can lead to disciplinary action not only by FINRA, but by the broker-dealer as well.</p> Signup and view all the answers

<p>Regulations require agents (RRs) to notify their firms of any outside business activities or private security transactions involving compensation prior to them commencing.</p> Signup and view all the answers

<p>One of the most important functions of broker-dealers is selling new issues of securities to the public to help issuers raise capital. Activities that interfere with this process may be violations of securities laws.</p> Signup and view all the answers

<p>Federal law says that the investment advisory brochure must be delivered at or prior to entering into an advisory contract. State law says that the brochure must be delivered either 48 hours prior to entering into an advisory contract, or at the time of contract signing if the customer is given 5 business days to rescind the contract without penalty.</p> Signup and view all the answers

<p>When a client pays the investment adviser a flat fee for all advisory services and all transactions, it is called a wrap account. The wrap fee is generally calculated based on the size of the investment portfolio (assets under management, or AUM) and may factor in the number of transactions anticipated if the investor is actively trading in the client’s account. How fees are charged and calculated must be disclosed in the wrap account brochure, which must be delivered to clients under the brochure rule.</p> Signup and view all the answers

<p>Investment advisers are generally prohibited from being compensated based on capital gains or capital appreciation in a customer’s account, which is often referred to as performance-based compensation.</p> Signup and view all the answers

<p>A soft-dollar arrangement is an alternative way for investment advisers to pay for products and services received from a broker-dealer using client commission revenue.</p> Signup and view all the answers

<p>Customer funds and securities MAY be commingled with those of other customers in an omnibus account.</p> Signup and view all the answers

<p>Occasionally, an investment adviser might have one client who wants to sell securities that may be an appropriate investment for another one of the adviser’s clients. This could lead to a more advantageous price for each client than either could obtain in the open market. If the investment adviser facilitates the sale of the securities from one of their clients to another, it is an agency cross transaction.</p> Signup and view all the answers

<p>$350</p> Signup and view all the answers

<p>12mon/quarter</p> Signup and view all the answers

<p>Every sale must include an offer, but not every offer will result in a sale.</p> Signup and view all the answers

<p>While most securities are nonassessable, an assessable security is one for which the issuer may demand an additional payment of capital from the investor</p> Signup and view all the answers

<p>NOT. except for assessable security</p> Signup and view all the answers

<p>Bona Fide Pledge or Loan – A pledge of securities as collateral for a loan from a bank or broker-dealer is not considered an offer or sale of those securities Stock Dividend or Stock Split – This is not an offer or sale if the shareholder gives nothing of value, aside from possibly, in theory, choosing to receive stock rather than cash as a dividend Exchanges of securities in connection with mergers, reclassifications, or consolidations Exchanges of securities in connection with judicially approved reorganizations (bankruptcies)</p> Signup and view all the answers

<p>An offer to sell is made in the state; or An offer to buy is made in the state and accepted in the state</p> Signup and view all the answers

<p>An offer to buy is made in the state; or An offer to sell is made in the state and accepted in the state</p> Signup and view all the answers

<p>Under the Uniform Securities Act, an offer to buy or sell is made in a state when the offer either originates from the state or is directed and accepted in that state.</p> Signup and view all the answers

<p>2/3</p> Signup and view all the answers

<p>Administer oaths and affirmations Subpoena witnesses and compel their attendance Take evidence Require the production of documents</p> Signup and view all the answers

<p>true</p> Signup and view all the answers

<p>injunction</p> Signup and view all the answers

<p>5k and/or 3 years. 5 years stat</p> Signup and view all the answers

<p>Civil proceedings may not be brought under the USA more than 3 years after the sale of the security or the giving of the advice, or 2 years after the discovery of the violation, whichever comes first.</p> Signup and view all the answers

<p>If the seller of a security discovers that the transaction was illegal, they may offer to repurchase the security through an offer of rescission. The seller must provide the buyer with a statement of how the liability happened. The seller must also give the information to correct the error if there was a misstatement or omission of a material fact.</p> Signup and view all the answers

<p>The civil penalty for insider trading is the greater of 300% of the profit gained or the loss avoided, often referred to as treble damages, from the illegal trading or $1 million.</p> Signup and view all the answers

<p>Contemporaneous traders</p> Signup and view all the answers

<p>The unified credit is a unification of gift and estate tax credits. The total amount available over a lifetime and/or upon death is more than $13.5 million for 2024. If any gifts are given above the annual gift tax exclusion amount in any year, the excess amount reduces the unified credit. If, upon death, the total value of gifts and the estate combined exceed the unified credit amount, an estate tax of up to 40% is assessed on the amount above the unified credit amount. Estate tax rates are tiered from 18% to 40%. 40% is assessed on amounts more than $1 million above the exclusion amount. The exclusion amount is reduced for gift amounts greater than the $18,000 annual limit.</p> Signup and view all the answers

<p>Gifts exceeding the annual gift tax exclusion amount must be reported to the IRS on a gift tax return.</p> <p>The amount reported reduces the lifetime gift and estate tax exemption.</p> <p>The annual gift tax exclusion is per person, to any number of recipients.</p> <p>Married couples filing jointly can double their exemption.</p> Signup and view all the answers

<p>If an investor inherits securities from a deceased party’s estate, the cost basis is the value of the security on the decedent's date of death (the market value on the day the original investor passed away). This value is the stepped-up cost basis. The holding period for inherited securities is always considered long-term for the beneficiary regardless of the original investor’s holding period or the beneficiary’s holding period. Any capital gain on inherited securities, therefore, is considered long-term and taxable at 15% for most investors.</p> Signup and view all the answers

<p>A wash sale occurs when an investor sells a security for a loss and purchases “substantially the same security” back within 30 days of the sale or purchase. This is done to take a loss on their income taxes. A wash sale on an account indicates that the investor is prohibited from taking the loss but can increase their cost basis by the amount of the loss.</p> Signup and view all the answers

<p>Cannot take the loss in the current tax year Will increase the cost basis on the new purchase by the loss per share</p> Signup and view all the answers

<p>Because of the passage of the Gramm-Leach-Bliley Act, Regulation S-P requires financial regulators, including the SEC, to implement policies and procedures that restrict a financial institution’s ability to disclose nonpublic personal information about consumers.</p> Signup and view all the answers

<p>year after</p> Signup and view all the answers

<p>The Bank Secrecy Act (BSA) authorizes the Treasury to require financial institutions, including broker-dealers, to keep records and file reports about the source, volume, and movement of funds into and out of the country and through domestic financial institutions.</p> Signup and view all the answers

<p>3-10k</p> Signup and view all the answers

<p>more than 10k</p> Signup and view all the answers

<p>placement, layering, integration</p> Signup and view all the answers

<p>he purpose of the suspicious activity report (SAR) is to report known or suspected violations of law or suspicious activity observed by financial institutions subject to the Bank Secrecy Act (BSA). The SAR has been instrumental in enabling law enforcement to initiate or supplement major money laundering or terrorist financing investigations and other criminal cases.</p> Signup and view all the answers

<p>30 days/15 days</p> Signup and view all the answers

<p>federal/state</p> Signup and view all the answers

<p>IAR, BD, lawyers/teachers, depository, publishers, fed covered advisors</p> Signup and view all the answers

<p>IAR, BD, lawyers/teachers, depository, publishers,</p> Signup and view all the answers

<p>de minimis 5 or fewer clients in 12mon, institutional exemption (no office in state),</p> Signup and view all the answers

<p>intrastate, insurance, less than 100 mil AUM, private fund advisors</p> Signup and view all the answers

<p>Exempt Securities</p> <p>State Level</p> <p>Federal Level</p> <p>U.S. government and agency issues</p> <p>U.S. government and agency issues</p> <p>Municipal issues</p> <p>Municipal issues</p> <p>Canadian government and subdivision issues</p> <p>Canadian government and subdivision issues</p> <p>Foreign government Issues</p> <p>Foreign government Issues</p> <p>Depository institution issues</p> <p>Depository institution issues</p> <p>Insurance company issues (nonvariable)</p> <p>Insurance company issues (nonvariable)</p> <p>Public utility, railroad, and common carrier issues</p> <p>Railroad and common carrier issues (NOT public utilities)</p> <p>Non-profit issues</p> <p>Non-profit issues</p> <p>Commercial paper (9-month max) and bankers' acceptances (180-day max) in top 3 investment grades, and $50,000 unit minimum</p> <p>Commercial paper (9-month max), bankers' acceptances (180-day max), small business investment companies (SBICs)</p> <p>Federal covered securities</p> Signup and view all the answers

<p>U.S. government and agency issues</p> <p>Municipal issues</p> <p>Municipal issues</p> <p>Canadian government and subdivision issues</p> <p>Canadian government and subdivision issues</p> <p>Foreign government Issues</p> <p>Foreign government Issues</p> <p>Depository institution issues</p> <p>Depository institution issues</p> <p>Insurance company issues (nonvariable)</p> <p>Insurance company issues (nonvariable)</p> <p>Public utility, railroad, and common carrier issues</p> <p>Railroad and common carrier issues (NOT public utilities)</p> <p>Non-profit issues</p> <p>Non-profit issues</p> <p>Commercial paper (9-month max) and bankers' acceptances (180-day max) in top 3 investment grades, and $50,000 unit minimum</p> <p>Commercial paper (9-month max), bankers' acceptances (180-day max), small business investment companies (SBICs)</p> Signup and view all the answers

<p>Natural persons with individual or joint net worth of $1 million (including spousal equivalents) An individual with an annual income of $200,000 for the past 2 years or a couple (including spousal equivalents) with joint income of $300,000 that expects that income level to remain An individual holding a Series 7, Series 65, or a Series 82 license An employee of private funds if deemed knowledgeable (officers, directors, general partners, trustees, advisory board members, and employees that participate in the investment activities) Investment advisers (federal, state, and exempt reporting) Rural business investment companies (RBICs) Any bank, investment company, and insurance company, regardless of assets Any entity with assets in excess of $5 million, including limited liability companies, family offices and their clients, non-profit institutions (501(c)(3) trusts), partnerships, ERISA-qualified retirement plans, and corporations with assets over $5 million An officer or director of the issuer</p> Signup and view all the answers

<p>Disclosure Obligation – All required disclosures must be made before or at the time of the recommendation, about the recommendation and the relationship with the retail customer. This obligation also includes material facts relating to any conflicts of interest involved with the recommendation. Care Obligation – All those making recommendations must use reasonable diligence, care, and skill. Firms must understand the potential risks, rewards, and costs involved with the recommendation. Any recommendations must take into consideration the customer’s investment profile and be in the customer’s best interest. Conflict of Interest Obligation – Firms must establish, maintain, and enforce written policies designed to address conflicts of interest associated with any recommendations. Compliance Obligation – Firms must establish, maintain, and enforce written policies to achieve compliance with Regulation BI.</p> Signup and view all the answers

<p>Joint tenants with rights of survivorship (JTWROS) is the most common type of joint account opened in the market today. Each person owns an equal interest in the entire account, regardless of who makes the investment decisions.</p> Signup and view all the answers

<p>This type of registration is only allowed for married couples, and in some states, spousal equivalents. The allowable property is determined by the laws of the state where the account is held. It is most commonly used as a registration for real property, such as real estate, and allows the joint tenants to be viewed as one entity.</p> Signup and view all the answers

<p>A community property account is like TBE in that only spouses can use this registration type. However, community property accounts are not protected from the creditors of each individual. This account, a community property with rights of survivorship (CPWROS) account, is opened based on the community property laws of the state in which the couple resides. Both parties have equal ownership and rights to the income and appreciation in the account. To open this type of account, a community property agreement is needed.</p> Signup and view all the answers

<p>An account registered as tenants in common may create an unequal interest in the account based on a specific allocation, or percentage, of ownership. Any owner on the account can transact business in the account. However, any earnings in the account will be paid to each owner based on their individual percentage of ownership.</p> <p>Unlike JTWROS, if one owner dies, the investment amount that represents their share of ownership is paid to their estate, not to the surviving owners.</p> Signup and view all the answers

<p>A partnership in which all partners are general partners is a general partnership, meaning all partners have unlimited liability in the partnership.</p> Signup and view all the answers

<p>limited liab</p> Signup and view all the answers

<p>Master limited partnerships (MLPs) are typically exchange-traded investments focused on exploration, development, mining, or transportation of natural resources. Most MLPs are concentrated in the energy sector and hold cash-generating assets, including oil and gas properties or pipelines.</p> Signup and view all the answers

<p>A family limited partnership (FLIP) is formed like a limited partnership, but in this case, the general partners are the parents and their children are the limited partners.</p> Signup and view all the answers

<p>Many partnerships, general and limited, are referred to as direct participation programs (DPPs). Each partner participates in the gains or losses of the program. DPPs are most often pooled investments in real estate limited partnerships (RELPs), or oil and gas limited partnerships, allowing smaller investors to participate in programs that would normally be unavailable to them and that offer some unique tax incentives.</p> Signup and view all the answers

<p>A C corporation is a separate legal entity with no “flow through” for tax purposes. C corporations, therefore, are subject to corporate taxes, which causes double taxation. The entity is taxed on the income, and the shareholder is taxed on their portion of the dividends. Shareholders have limited liability equal to that of their investment. C corporations have perpetual life. Therefore, when the owners die, the corporation will continue to operate.</p> Signup and view all the answers

<p>Corporations that invest in the stocks of other domestic corporations can exclude 50% of the dividend income derived from those holdings from their corporate income tax liability. For corporations that own 20% or more of the dividend paying company, the exclusion rises to 65%.</p> Signup and view all the answers

<p>An S corporation is a corporation that elects to pass down income and losses to shareholders. To make the S corporation election, there can be no more than 100 shareholders.</p> Signup and view all the answers

<p>A limited liability company (LLC) offers its investors (members) limited liability that cannot exceed the amount invested in the company./ unlimited members</p> Signup and view all the answers

<p>Unincorporated associations are groups of 2 or more people that join for a common purpose. The intention is to create a legally binding relationship. Unincorporated associations may be formed to obtain a profit or to achieve a charitable goal. Those that are created on a profit basis, are automatically forming some type of partnership or joint venture, even if a partnership has not been legally established.</p> Signup and view all the answers

<p>A donor-advised fund (DAF) is a type of charitable account in which donors may make tax-deductible contributions that will be funneled to qualified charities at a later date.</p> Signup and view all the answers

<p>Trust accounts are established for many reasons. Some of those reasons include protecting assets from creditors, or gifting assets to beneficiaries without giving the beneficiaries immediate control over the account.</p> Signup and view all the answers

<p>A revocable trust affords the grantor the ability to change the trust terms when the grantor sees fit or to revoke the trust completely. Traditionally, a revocable trust is established because of the desire to avoid the delays of the probate process on the death of the grantor. All income generated within a revocable trust is taxable as ordinary income at the grantor's current tax rate. In a revocable trust, when the grantor dies, the assets can pass directly to the beneficiaries named in the trust.</p> Signup and view all the answers

<p>Once a trust is established as an irrevocable trust, the trust and its terms cannot be changed. The assets placed in an irrevocable trust are afforded protection from creditors. The main benefit of opening an irrevocable trust is that the trust is not included in the grantor’s estate, therefore, the trust is not subject to estate taxation.</p> Signup and view all the answers

<p>will</p> Signup and view all the answers

<p>UGMA/UTMA accounts are not joint accounts All property belongs to the child, and the child’s Social Security number is used to open the account The minor is responsible for taxes Earnings are subject to “kiddie tax” Gifts are irrevocable The UGMA/UTMA account is transferred to the child at age of majority</p> Signup and view all the answers

<p>Regulation T regulates the extension of credit from the broker-dealer to customers for margin accounts. Regulation T also defines prompt payment as within 2 business days following settlement in a cash or margin account</p> Signup and view all the answers

<p>Regulation U regulates the extension of credit from banks to broker-dealers</p> Signup and view all the answers

<p>A short sale happens when an investor sells shares of stock that they do not currently own.</p> Signup and view all the answers

<p>Investment objectives Employment status Estimated annual income Estimated net worth Estimated liquid net worth Marital status and number of dependents Age Investment experience and knowledge</p> Signup and view all the answers

<p>90 days</p> Signup and view all the answers

<p>Wrap accounts are established by investment advisory firms, not broker-dealers, and are a type of advisory account. In a wrap account, the client does not pay commissions or sales charges, but is assessed a fee (usually annually) that covers all investment advisory fees, administrative fees, and any trades processed through a broker-dealer</p> Signup and view all the answers

<p>A market order is the most common type of order. It is an order that does not specify a price. It is filled at the current bid or ask price. These types of orders are executed immediately, or at the next available price, and are cancelled if not filled by the end of the trading day.</p> Signup and view all the answers

<p>A market not-held order is the same as a market order, but it is not held to immediate execution standards. This allows the trader to decide the best price and time. They are still day orders and must be executed before the close of trading that day.</p> Signup and view all the answers

<p>Limit orders are either buy limit orders or sell limit orders. When placing a limit order, the investor is choosing a price that is their “limit”. They want either that price or a better price.</p> Signup and view all the answers

<p>A stop order is a type of order that is placed to stop losses that may occur. It is placed to protect the gains in a long or short position.</p> Signup and view all the answers

<p>market orders</p> Signup and view all the answers

<p>Stop limit orders combine limit orders and stop orders. They function in a similar manner to stop orders. The main difference is that when the stock hits the stop price, it now becomes a limit order instead of a market order.</p> Signup and view all the answers

<p>Discretionary income is the amount of an individual’s income that is left for spending, investing, or saving after taxes, personal necessities (such as food, shelter, and clothing), and debts have been paid. This includes money spent on luxury items, vacations, and non-essential goods and services.</p> Signup and view all the answers

<p>The income statement will also provide the representative with the client’s disposable income. Disposable income is the amount of money that a household has available for spending and saving after income taxes have been accounted for.</p> Signup and view all the answers

<p>This is a method of portfolio allocation and management aimed at minimizing the loss of principal. Defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average. A defensive strategy typically means a low risk/low return investment portfolio.</p> Signup and view all the answers

<p>This is a method of portfolio management and asset allocation that attempts to achieve maximum return primarily through capital appreciation. Since the investor’s aim is growth, a higher percentage of their assets are in equities rather than in debt securities. A very aggressive portfolio holds no debt.</p> <p>This portfolio bears a fairly high amount of risk. So, an investor needs to have:</p> <p>A high risk tolerance; and A long time horizon in which to ride out the volatility of the portfolio and avoid having to sell their investment at a time when stock prices have declined An investment strategy must meet the objectives and means of an investor.</p> Signup and view all the answers

<p>With capital preservation, the investor’s primary goal is to prevent the loss of an investment’s total value, often through money market funds.</p> Signup and view all the answers

<p>The investor uses a moderate to conservative portfolio of securities to meet an objective of current income. Current income is derived primarily from bond interest payments and stock dividends.</p> <p>The portfolio consists of a large percentage of fixed-income securities (including bonds and preferred stock), in addition to other assets, such as blue-chip stock.</p> <p>Mutual funds with an objective of current income include government bond funds and large-cap funds paying dividends. GNMA bonds and funds are typically suitable for the conservative investor seeking current income.</p> Signup and view all the answers

<p>Investments targeted for capital appreciation tend to have considerably more risk than assets chosen for capital preservation and income generation. Dividend income is not an objective, but may be part of a portfolio’s gains through automatic reinvestment.</p> Signup and view all the answers

<p>Growth and income portfolios are traditionally conservative equity funds designed for investors that wish to invest for growth and also receive income. To accomplish this, portfolio managers invest in large-cap stocks that have a history of consistent dividend payments, such as blue-chip stocks or utility stocks. These funds can also invest a portion of the portfolio in preferred stock to increase the potential for dividend payout and increased income.</p> Signup and view all the answers

<p>Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. Reasonable diligence must provide the firm or associated person with an understanding of the potential risks and rewards of the recommended security or strategy.</p> Signup and view all the answers

<p>Customer-specific suitability requires that a broker, based on a particular customer’s investment profile, has a reasonable basis to believe that the recommendation is suitable for that customer. The broker must attempt to obtain and analyze a broad array of customer-specific factors to support this determination.</p> Signup and view all the answers

<p>Quantitative suitability requires a broker with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.</p> Signup and view all the answers

<p>The Uniform Securities Act (USA) is a set of securities laws used to establish uniform securities registration standards and laws at the state level. It serves as model law that provides state administrators with a template or guide to create regulations that deal with the registration requirements for firms, individuals, and securities within their states. In other words, each state can interpret the Act as it impacts that state. Most states have adopted or conformed to the Act.</p> Signup and view all the answers

<p>The National Securities Markets Improvement Act of 1996 (NSMIA) was enacted to eliminate regulations requiring registration at both the state and federal levels. Essentially, NSMIA mandated that if registration is required at the federal level, the states cannot require registration as well.</p> Signup and view all the answers

<p>administrator</p> Signup and view all the answers

<p>Minors Mentally incompetent Deceased</p> Signup and view all the answers

<p>A non-issuer is any person not defined as an issuer under the USA. A non-issuer transaction refers to any purchase or sale of a security that does not directly benefit the issuer.</p> <p>A non-issuer transaction is a secondary market transaction and occurs between persons who trade (buy or sell) outstanding securities after the completion of a primary offering. The most common instance of a non-issuer transaction is regular secondary market trading between investors.</p> Signup and view all the answers

<p>Agents Issuers (except when transacting business in securities other than its own) Banks, savings institutions, or trust companies</p> Signup and view all the answers

<p>Canadian broker-dealers and agents effecting transactions in a specific state who are not exempt may register with the state by filing an application and consent to service of process with the Administrator, and they must be registered in good standing in the jurisdiction of the head office. A broker-dealer must be a member of a self-regulatory organization in Canada. The registration becomes effective on the 30th day after an application is filed and must be renewed annually by December 31st to continue doing business in a state. Applications for renewal must be submitted by December 1 annually.</p> Signup and view all the answers

<p>A broker-dealer registration exemption applies to Canadian firms doing business with existing retail customers who are temporarily in the U.S.</p> Signup and view all the answers

<p>The term agent is used to describe an individual who represents or acts on behalf of someone else. Under the USA, any individual who represents a broker-dealer or an issuer when buying or selling securities is referred to as an agent.</p> Signup and view all the answers

<p>U.S. government bonds and government agency securities Municipal securities Canadian government and municipal securities Securities issued by recognized foreign governments Securities issued by domestic banks, savings institutions, and trust companies Investment-grade promissory notes (commercial paper) if they mature in 9 months (270 days) or less, and bankers' acceptances maturing in 180 days or less, and have minimum denominations of at least $50,000 Investment contracts issued in connection with an employee stock purchase, savings, pension, profit-sharing, or similar benefit plan Certain federal covered securities</p> Signup and view all the answers

<p>Unsolicited brokerage transactions Transactions between underwriters and issuers Transactions with institutions Transactions with institutional buyers or qualified purchasers Private placement offerings</p> Signup and view all the answers

<p>an agent has a customer who moves to another state, the individual is not considered an agent in that state and may engage in securities activity with that client for a period of 60 days or less.</p> Signup and view all the answers

<p>The agent must be eligible to register in the state in which the existing customer is temporarily located. The agent must be registered with a registered securities association (i.e., FINRA) and at least one state. The broker-dealer of the agent must be registered in that same state.</p> Signup and view all the answers

<p>agent registration</p> Signup and view all the answers

<p>IAs Provide Advice About Securities – This can be further clarified as a person providing advice about specific securities, general classes of securities, or about investing in securities in general (as opposed to non-securities investments, such as insurance or real estate). Providing advice on which investment manager a client should choose also qualifies under this definition. However, providing advice does not need to be the person’s primary activity for them to be considered an investment adviser. All that is required is that it constitutes a business activity that occurs with regularity. A person who holds themselves out as an investment adviser by providing such advice and charges a specific fee or receives separate compensation on investment advice other than in rare, isolated, and non-periodic instances, is considered an investment adviser.</p> <p>Compensation – The compensation test is satisfied by the receipt of any economic benefit from some source for the advisory services provided. This might be a specific fee for advice, but it also might be a commission received for implementing the advice. The fee may be charged separately for the advice or could be included in a single fee for multiple services, one of which is providing advice about securities. The compensation test also includes the receipt of any economic benefit. A service received, such as a landlord giving a rent discount in return for investment advice, could be considered compensation.</p> Signup and view all the answers

<p>Investment adviser representatives – Individuals representing or employed by the firm are registered as investment adviser representatives, while the employing firm itself is registered as an investment adviser. Lawyers, accountants, teachers, engineers (LATE) – This is sometimes known as the “professional exclusion,” but it only applies to these four occupations. This exclusion applies only if the advisory services are incidental to the normal practice of the individual’s profession. This generally means that the professional is not providing investment advice as a service, for compensation, outside the scope of their normal professional activities. Broker-dealers and their agents – As with the previous exclusion, the advice must be incidental to the broker-dealer’s normal activities. A broker-dealer that charges a separate fee for investment advice or offers wrap-fee accounts is NOT excluded from the definition of an IA. Banks, savings institutions, and trust companies Publishers of bona fide, generally circulated newspapers, news columns, newsletters, magazines, or other business or financial publications, whether communicated in print or electronic media. The exclusion does not apply if the publication gives advice about the specific situation of each client. Federal covered investment advisers – Those advisers that are registered with the SEC and those where federal law specifically states that registration is not required.</p> Signup and view all the answers

<p>egistered investment companies Other investment advisers Federal covered advisers Broker-dealers Banks or trust companies Savings and loan associations Insurance companies Employee benefit plans with assets of at least $1,000,000 Governmental entities, including governmental agencies</p> Signup and view all the answers

<p>Broker-dealers have an institutional exclusion.</p> <p>Investment advisers have an institutional exemption.</p> Signup and view all the answers

<p>A second exemption applies to an investment adviser that has no place of business in the state, and during the preceding 12 months, has had fewer than 6 (also stated as no more than 5) noninstitutional clients in the state. This is the de minimis exemption. This exemption applies only to investment advisers, not to broker-dealers.</p> Signup and view all the answers

<p>IA registration</p> Signup and view all the answers

<p>Name and address of the investment adviser firm Address for the principal office Structure of the investment adviser business Investment adviser’s method of business Business practices Custody of funds Disciplinary events Location of books and records States in which the investment adviser is already registered or in which they intend to be registered</p> Signup and view all the answers

<p>is specific to information required by state securities administrators. A federal covered IA firm is not required to complete Part 1B</p> Signup and view all the answers

<p>Investment advisers who have custody of client assets must maintain a minimum net worth of $35,000 and file an audited balance sheet with the State Administrator Investment advisers that ONLY have discretionary authority over client assets must maintain a minimum net worth of $10,000 and file an unaudited balance sheet with the State Administrator</p> Signup and view all the answers