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Wills Series 65 > 65 Definitions Deux > Flashcards

65 Definitions Deux Flashcards

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Series 65 flashcards
1
Q

Common Stock

A

MIGHT Pay Dividends
DOES HAVE Voting Rights
DOES HAVE Preemptive Rights

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2
Q

Define Statutory Voting

A

ONE vote for EACH VACANCY per ONE share

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3
Q

Define Cumulative Voting

A

Total Number of Votes = Number of Shares X Number of Vacancies

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4
Q

Preemptive Rights

A
  • Can Be Sold for Value
  • the Exercise Price is BELOW CMV (Current Market Value)
  • They are attached to STOCKS
  • SHORT TERM
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5
Q

Warrants

A
  • LONG TERM
  • Attached to BONDS
  • CAN be detached and sold separately
  • Exercised ABOVE CMV (Current Market Value)
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6
Q

ADRs

A

American Depository Receipts (ADRs)
- Issued and held by U.S. Commercial Banks
- Represents ownership of a foreign company’s shares listed on Foreign Exchanges
- Allows investors to avoid problems associated with foreign securities such as:
Currency conversion
Certification Registration
Trade Administration

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7
Q

Restricted Stock

A
  • Can NOT be transferred until certain conditions are met
  • Acquired through PRIVATE offering(s)
  • MANDATORY holding periods
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8
Q

ESOPs

A

Employee Stock Option Plan(s)

  • Employee non-cash compensation
  • Employees can purchase stock in the future ata pre-determined price
  • Used as an incentive for employer’s future growth
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9
Q

Three Key Facts regarding FUNDAMENTAL ANALYSIS

A
  • Economics-based
  • Monetarism-Driven
  • Federal Reserve Board (FRB)-driven
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10
Q

4 Major Issues of Fundamental Analysis

A
  1. ) Monetary policies from Federal Reserve Board
  2. ) FISCAL vs MONETARY policy
  3. ) Economic Indicators
  4. ) Specific Company Balance Sheet and Income Statement Analysis
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11
Q

P/E Ratio

A
  • Measures HOW EXPENSIVE the stock is RELATIVE TO ITS EARNINGS

Earnings Per Share

*the higher the ratio, the more expensive it is

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12
Q

Price to Book Ratio

A

COMPARES the CMP (Current Market Price) of a stock TO ITS CALCULATED BOOK VALUE
* A low # may indicate that the stock is out of favor with investors and/or a good market value.

P/B Ratio = CMP/Book Value Per Share

***Book Value = All Company Assets - All Liabilities

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13
Q

TECHNICAL ANALYSIS is also known as

A

“QUANTITATIVE ANALYSIS”

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14
Q

Define “Short Interest”

A

Number of Outstanding shares that Investors have/are SELLING SHORT

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15
Q

Technical Analysis Terms

A
  • Head and Shoulders
  • Support and Resistance
  • Top-Down
  • Bottom-Up
  • Consolidation Pattern
  • 200 Day Moving Average
  • Volume of Shares Traded
  • VIX
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16
Q

Technical Analysis is useful in determining what?

A

PRICE and TIME

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17
Q

Who Utilize Technical Analysis the most?

A

MARKET MAKERS and TRADERS

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18
Q

Fundamentalists tell _______ whereas Technicicans tell ____________

A
  1. ) WHATto buy

2. ) WHEN to buy and sell

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19
Q

Define the DIVIDEND DISCOUNT MODEL

A

Determines value of stock today by determining PRESENT VALUE OF ALL FUTURE DIVIDENDS
- It uses anticipated dividends and discounts them to determine present value

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20
Q

Define the DIVIDEND GROWTH MODEL

A

Uses growth rare on Present Dividend and Projects Future Income
- If growth is expected, it usually indicates higher-quality value

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21
Q

Unit Investment Trusts issue what?

A

SBI aka SHARES OF BENEFICIAL INTEREST

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22
Q

Open-End Mutual Funds

A
  • Issue REDEEMABLE shares
  • Largest group in terms of Management Companies
  • BOUGHT and SOLD DIRECTLY FROM MUTUAL FUND COMPANY
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23
Q

Closed-End Mutual Funds

A
  • Issue NON-redeemable Shares
  • Trade via EXCHANGES
  • More Liquid
  • Trade Like Stocks
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24
Q

Face Amount Certificates

A
  • One of the THREE Types of Management Companies
  • Issue DEBT CERTIFICATES
  • Sold at a DISCOUNT
  • RARELY Used anymore
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25
Q

Open-End Management Company Details

A
  • MOST COMMON type of POOLED INVESTMENT Security
  • Instant Diversification
  • Continual Offering and Redemption of shares
  • Shares sold at POP (Public Offering Price)
  • Not allowed to sell based on dividends (can’t tell clients to buy before the Ex-Dividend date)
  • Sold as common shares
  • Each share allows for One voting right
  • DIVIDENDS may be distributed UP TO QUARTERLY
  • Investors may receive dividends in cash or otherwise choose to reinvest
  • Capital Gains distributions up to ONE year
  • DISTRIBUTIONS are TAXABLE in the year it was paid
  • Automatically reinvested distributions increase the investor’s cost-basis
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26
Q

POP = ___________

A

NAV per share + Sales Charge

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27
Q

Equity Funds

A
  • These invest in COMMON or PREFERRED stocks
  • Generally considered Growth-Oriented
  • May pursue variety of objectives
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28
Q

BLUE CHIP Companies

A
  • Large, Mature firms with high consumer recognition and brand loyalty
  • Established products and distribution channels
  • Proven earnings and consistent payment history
  • Stock value usually stable and more steady in declining markets
  • Suits investors who want market exposure with less volatility
  • Less CREDIT/volatility RISK
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29
Q

Example of a Money Market Fund

A 
50% Domestic Commercial Paper
20% Foreign Commercial Paper
15% Corporate Bonds and Notes
10% Yankee Certificates of Deposit
2% U.S. Government and Agency Obligations
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30
Q

Example of an INCOME FUND

A 
48% Corporate Bonds and Notes
23% Mortgage-Backed Securities
15% U.S. Government Bonds
6% Asset-Backed Securities
3% Preferred Stocks
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31
Q

Example of GROWTH & INCOME FUND

A 
25% Financial Stocks
15% Consumer Staples Stocks
15% Cash and Other
10% Healthcare Stocks
10% Communications Stocks
8% Technology Stocks
7% Utility Stocks
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32
Q

Example of a GROWTH FUND

A 
40% Technology Stocks
15% Healthcare Stocks
10% Financial Stocks
10% Consumer Cyclical Stocks
10% Conglomerates Stocks
10% Consumer Staples Stocks
5% Communications Stocks
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33
Q

Example of an AGGRESSIVE GROWTH FUND

A 
55% Technology Stocks
10% Consumer Cyclical Stocks
10% Consumer Staples Stocks
10% Healthcare Stocks
5% Communication Stocks
5% Financials Stocks
3% Energy Stocks
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34
Q

Example of a SPECIALIZED FUND

A 
25% Communications Equipment
20% Software
18% Electronics
14% Computers
11% Other
10% Communications Services
2% Cash
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35
Q

BLEND Funds

A
  • NO FIXED-INCOME
  • Mix of Growth and Value stocks
  • Designed to appreciate in value by means of CAPITL GAINS
  • GROWTH-VALUE EQUITIES
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36
Q

BALANCED Funds

A
  • Combination of FIXED-INCOME instruments and EQUITIES
  • Achieves Growth in both VALUE and INCOME as well as Preservation of Capital
  • FIXED-INCOME DEBT AND EQUITIES
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37
Q

Mutual Fund Managment

A
  • Board of Directors
  • Must be elected by shareholders
  • MINIMUM of 40% of board must be UNAFFILIATED with the Fund- If fund has 12b-1 fees, 51% must be outside members
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38
Q

Mutual Fund Expenses

A
  • Management Fee (largest expense)
    ** Fee is paid to investment advisor(s0
  • Expressed as % of fund’s Net Asset Value (NAV)
    OTHER EXPENSES:
    custodian’s fee
    Transfer Agent fee
    Board of Directors fee
    Administration and distribution fees
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39
Q

12 b-1 fees

A
  • Covers expenses associated with promotion and distribution of fund shres
  • asset-based
  • based on annual % of the net assets under management
  • CHARGED QUARTERLY
  • Annual LIIT of 0.75% of assets
  • NO-LOAD max of 0.25% of net assets under management
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40
Q

Expense Ratio

A

Total Expenses / Average Net Assets

***Sales charges (loads) NOT included in the Expense Ratio)

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41
Q

Mutual Fund Underwriter

A
  • “Underwriter” is a SPONSOR or DISTRIBUTOR or WHOLESALER
  • Has EXCLUSIVE agreement with the Fund
  • They market the fund shares to dealers who then sell to the public
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42
Q

Sales flow of Fund Shares

A

Fund (sells at NAV)
|
Underwriter (sells at discount to offering price)
|
Dealer (sells at NAV + Sales Charge)
|
Public (Buys at Public Offering Price aka POP)

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43
Q

Sales Charge

A
  • Expressed as a % of POP
  • Per FINRA, MAX sales charge is 8.5%
  • *In Order to charge the MAX sales charge, MF must offer:
    1. ) Dividend Reinvestment
    2. ) Breakpoints
    3. ) Rights of accumulation (family members can combine assets in order to lower the price)
  • ** MF may have 12 b-1 fees IN ADDITION to sales charge
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44
Q

The Investment Company Act of 1940 requires that MF pay redemption proceeds to investors within _____ calendar days?

A

7

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45
Q

Forward Pricing

A

Shareholder receives next calculated NAV

    • Buy and sell orders received during the trading day are held for execution at the next pricing (EOD).
  • **Mutual Funds prices fluctuate DAILY but NOT INTRADAY
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46
Q

Mutual Fund Quote Ex.

A 
$81.99 - $77.89 = $4.10
$81.99 = Ask Price (POP)
$77.89 = Bid Price (NAV)
$4.10 = Sales Charge
* Investors always redeem at NAV
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47
Q

Equation for NAV per share

A

Total Assets / Total Number of Outstanding Shares

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48
Q

Class A Mutual Fund Shares

A

Front-End Load
Expensive, Large Investment
LONG TERM

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49
Q

Class B Mutual Fund Shares

A

Back-End Load
Smaller investment
LONG TERM
***If held for YEARS, sales load goes down to ZERO which then convert to class A shares

50
Q

Class C Mutual Fund Shares

A

Level Load
Neutral Investment amount
HIGHER Annual Expenses Than Class A shares

51
Q

What is needed to achieve Sales Breakpoints of Mutual Fund shares?

A

LETTER OF INTENT

    • CAN be backdated 90 DAYs
  • ** Not binding on the investor
52
Q

Exchange-Traded Funds (ETFs)

A
  • They are investment companies whose objective is to achieve the same rate of return as a particular market index
  • Bought/Sold on an exchange
  • Prices fluctuate continuously throughout the day
  • Offer INTRADAY liquidity (like stocks and closed-end mutual funds)
53
Q

Exchange-Traded Notes

A
  • SENIOR Unsecured Debt
  • Issued by Banks and Institutions
  • Sold ONLY to Accredited/Experienced Investors ($1MM Net Worth or $200k for 2 years)
54
Q

Inverse ETFs are used for what?

A

To HEDGE a portfolio against market declines

55
Q

Unit Investment Trusts (UITs)

A
  • Can be composed of Fixed Income, Equities, etc
  • Held for a FIXED PERIOD OF TIME
  • Investor receives REDEEMABLE UNITS at end of term (maturity)
  • Redeemable Units are sold back to the UIT company for cash
56
Q

REITs

A
  • 75% of assets in fund must be invested in real estate
  • 90%+ has to be distributed to investors ANNUALLY
  • Do NOT pass through losses
  • NOT an investment company
  • NOT a Direct Participation Program (DPP)
57
Q

Call Holder

A

Long Calls
Pays Premium
Right to Buy

58
Q

Call Writer

A

Short Calls
Receives Premium
Obligated to sell

59
Q

Put Holder

A

Long Puts
Pays Premium
Right to sell

60
Q

Put Writer

A

Short Puts
Receives Premium
Obligation to Buy

61
Q

Max Gain, Max Loss, Break Even for LONG CALL

A

Max Gain: Infinite
Max Loss: Premium
Breakeven: Strike Price + Premium

62
Q

Max Gain, Max Loss, Break Even for SHORT CALL

A

Max Gain: Premium
Max Loss: Infinite
Breakeven: Strike Price + Premium

63
Q

Max Gain, Max Loss, Break Even for LONG PUT

A

Max Gain: Strike Price - Premium
Max Loss: Premium
Breakeven: Strike Price - Premium

64
Q

Max Gain, Max Loss, Break Even for SHORT PUT

A

Max Gain: Premium
Max Loss: Strike Price - Premium
Breakeven: Strike Price - Premium

65
Q

Alternative Investments (examples of)

A 
Options
Managed Futures
Hedge Funds
REITs
Structured Products
66
Q

Hedge Funds

A
  • They are LIMITED PARTNERSHIPS
  • Aggressive (options, short selling, etc.)
  • Managed portfolio with FEW or NO RESTRICTIONS that address its portfolio strategy or holdings
  • Only suitable for wealthy, sophisticated investors
  • *MUST REGISTER W/ SEC IF $150MM+
67
Q

Limited Partnerships

A
  • A Type of DPP

- ALL PROFITS AND LOSSES FLOW DIRECTLY TO INVESTORS on a K-1

68
Q

Define Net Present Value (NPV)

A

Present value of an investment’s future cash flows in today’s dollars

69
Q

Define BETA

A

It Measures how closely the VOLATILITY of a stock follows the overall market.
ex. Beta of 1 = Same volatility of the market
Beta of 0.75% = 25% less volatile than market
Beta of 1.25% = 25% more “ “ “

70
Q

Define ALPHA

A

The DIFFERENCE between BETA and ACTUAL RETURN

71
Q

Capital Asset Pricing Model (CAPM)

A

Determines the VALUE of a security

- Looks at return the security is expected to produce given its particular risk level

72
Q

Simple Trust

A
  • ALL Income must be distributed in the year it is earned

- Principal Funds may NOT be distributed

73
Q

Complex Trust

A

May accumulate income or distribute to the named beneficiary

74
Q

72(t) distribution

A

Ability to withdraw from IRA early without penalty

- Distributions made in equal periodic installments for a min of 5 years or until the recipient reaches 59 1/2

75
Q

RMDs

A
  • Start at age 70 1/2
  • Can be lump sum or periodic payments
  • 50% penalty for not taking RMDs
76
Q

ERISA eligibility requirements

A

21 years old
1,000 hours worked annually
1 yr of employment @ the company

77
Q

ERISA section 404(c)

A

All plans must offer their employees AT LEAST 3 MATERIALLY DIFFERENT investment options

78
Q

Defined CONTRIBUTIONS Plan

A

Benefits YOUNG employees with long time until retirement

79
Q

Defined BENEFIT plan

A

Benefits OLDER employees or HIGH-INCOME earners with a SHORT time until retirement

80
Q

Coverdell Education Savings Account (CESA)

A
  • Set up for MINORS under 18
  • Annual contribution limit per child ($2,000)
  • Earnings are Fed income-tax-free if used for ED
  • Income limitations
  • MUST USE by age 30
  • Funds can be applied to another child in the family for college or University IF the child is UNDER 21 years old
81
Q

529 College Savings Plan

A
  • May be set up by anyone for anyone
  • NO AGE or INCOME limitations
  • Funded with AFTER-TAX dollars
  • Max Limits set by STATES: often as high as $350,000 or $14,000 per child per year
  • Earnings are Fed Income-Taxe-Free if used for higher ED costs
82
Q

UGMA

A
  • Beneficiary has to be UNDER 18
  • Up to $14,000 PER CHILD annually
  • Child Receives funds at age 18
  • 1 custodian per 1 minor
  • No margin assets
  • No short sales
  • No uncovered options
  • Donor pays taxes on anything over $14,000 annually
  • Donor is not always the custodian
83
Q

UTMA

A

Child Receives Funds at age 25

  • 1 custodian per 1 minor
  • No margin assets
  • No short sales
  • No uncovered options
  • Donor pays taxes on anything over $14,000 annually
  • Donor is not always the custodian
84
Q

Joint Tenants W/ Rights of Survivorship

A

Bypasses Probate
EXEMPT from Estate Taxes
50%/50%
MOST COMMON

85
Q

Tenants In Common

A

NOT required to be 50/50 (must = 100%)
CAN be more than two owners
SUBJECT to PROBATE
SUBJECT to ESTATE TAXES

86
Q

TOD

A

BYPASSES Probate

SUBJECT to ESTATE TAXES

87
Q

Capital Market Theory

A

Efficient Investors
Investors Borrow/Lend Money at the Risk-Free rate
TIME HORIZON EQUAL for all investors
NO INFLATION EXISTS
Investors have SAME PROBABILITY of outcome
Does NOT account for TAXES or TRANSACTION costs
NO MISPRICING within Capital Markets

88
Q

Risk Free Rate of Return is equal to…

A

ONE year U.S. Treasury Bill yield

89
Q

Capital Asset Pricing Model (CAPM)

A

Measures expected Risk-Adjusted Return
Factors in Beta and Risk Free Rate of Return
RR = RFRR = Beta (Market Return - RFRR)

90
Q

Market Portfolio Theory

A

Used to determine which assets to add to an already diversified portfolio
Provides Optimal returns on a risk-adjusted basis
EFFICIENT FRONTIER: expected return at a given risk level
Factors out Portfolio Volatility (Beta)

91
Q

Efficient Market Hypothesis: Weak

A

States “NO” to TECHNICAL ANALYSIS but allows for Fundamental Analysis to produce EXCESS RETURNS

92
Q

Efficient Market Hypothesis: Semi-Strong

A

DISREGARDS FUNDAMENTAL ANALYSIS and all known information about a security as an indication of performance

93
Q

Efficient Market Hypothesis: Strong

A

DISREGARDS ALL INFORMATION about a security and REJECTS BOTH TECHNICAL and FUNDAMENTAL analysis
**ALL INFO THAT EXISTS IS KNOWN BY THE MARKET ALREADY AND IS PRICED INTO THE SECURITY/MARKET

94
Q

Strategic Asset Allocation

A

PASSIVE (think CHESS)

Needs to rebalance over time

95
Q

Tactical Asset Allocation

A

ACTIVE (T for TRENDS)
HIGHER Transaction Costs
acTively Buying/Selling
Looks for TRENDS

96
Q

ALPHA is…

A

the return in EXCESS of the BENCHMARK INDEX
Equilibrium Model
A positive ALPHA shows that the management is adding value

97
Q

Value Stock

A

LESS Demand in the Marketplace due to economic and market conditions
LOW P/E and P/B
MORE sensitive to economic conditions

98
Q

Growth Stocks

A

History of higher earnings growth and less sensitivity to economic conditions
HIGH P/E and P/B ratios

99
Q

Book Value Per Share Equation

A

Company Assets - Liability / # of Shares Oustanding

100
Q

Price to Book Ratio

A

Stock Price / Book Value Per Share

101
Q

Net Present Value

A

Factors the Present Value of an Investment’s FUTURE Cash Flows expressed in TODAY’S DOLLARS
NPV is a DOLLAR value (NOT Rate of Return)
NPV of ZERO means that the Discount Rate of Return is the investment’s Internal Rate of return

102
Q

MSCI

A

1,600 Developed-World Stocks

103
Q

Russell 2000

A

2,000 Small-Cap Domestic stocks

104
Q

Wilshire 5000

A 
BROADEST-based index
Comprised of: 
1.) Domestic STOCKS
2.) REITS
3.) ADRs
105
Q

DOW Jones Industrial Average

A

NARROWEST index

Composed of 30 Large-Cap Stock

106
Q

Range

A

The DIFFERENCE between the HIGHEST and LOWEST numbers in set of numbers

107
Q

Standard Deviation

A

Standard deviation is a statistical measurement in finance that, when applied to the annual rate of return of an investment, sheds light on the historical volatility of that investment. The greater the standard deviation of securities, the greater the variance between each price and the mean, which shows a larger price range. For example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.

Qualified Estimate of the uncertainty of future returns
The MEAN of MEANS
a Measurement of Risk

108
Q

Rule of 72

A

Allows one to determine how long it takes for an investment to double
*** 72 / Number of Years = Rate of Return
ex: $5k became $10k over 6 years….
72 / 6 = 12%

109
Q

Sector Rotation

A

Type of TACTICAL Asset Management
Based on Market Conditions
Allocations rebalanced into favorable sectors

110
Q

DCA

A

Dollar Cost Averaging

Investment Plan of systematic contributions of a FIXED dollar amount at regular intervals

111
Q

Tax Basis

A

It is the ALREADY TAXED MONEY within an investment

QualifiedPlan Tax Basis is ZERO

112
Q

Mutual Fund shares held for less than one year are taxed as…?

A

Ordinary Income

113
Q

Mutual Fund shares held for One Year and One Day are taxed as….?

A

Long-Term Capital Gains

114
Q

Investor’s Marginal Tax Rate is…?

A

It is the TAX RATE that is paid on the LAST DOLLAR earned (aka the “Last Dollar Tax”)
HIGHER than Investor’s typical TAX RATE

115
Q

Dividends are taxed as…?

A

ORDINARY INCOME

116
Q

AMT

A

Alternative Minimum Tax
Used for INDIVIDUALS or CORPORATIONS
ex: Interest earned on PRIVATE MUNI BONDS (Industrial Development Revenue Bonds) can trigger AMT

117
Q

Limited Partnership cash flows…?

A

An LP is a CONDUIT where ALL Income and Expenses FLOW THROUGH to the Partnership
The Partnership pays NO taxes

118
Q

Income from an LP is…?

A

PASSIVE INCOME GENERATOR (PIG)

**Passive Losses can only be offset by Passive Gains

119
Q

Losses from an LP is…?

A

PASSIVE LOSS GENERATOR (PAL)

**Passive Losses can only be offset by Passive Gains

120
Q

“Tax basis” is the same as…?

A

“Cost Basis”

121
Q

Define ADV-E

A

SEC Form ADV-E includes a certification of client assets, both cash and securities, that are held by a Registered Investment Adviser. The SEC Form ADV-E is used chiefly by accountants. It contains information about the adviser and the state of the practice along with a listing of client securities and holdings.

BREAKING DOWN SEC Form ADV-E
SEC Form ADV-E is required by the SEC pursuant to the Investment Adviser’s Act of 1940. It is evaluated by an independent accountant for accuracy and compliance. The ultimate purpose of the form is to ensure proper handling of client assets.

122
Q

What does a Mutual Fund Transfer Agent do?

A

A mutual fund transfer agent performs both the transfer agent and registrar functions. Mutual fund transfer agents maintain records of shareholder accounts; calculate and disburse dividends; and prepare and mail shareholder account statements, federal income tax information and other shareholder notices.

Wills Series 65 (12 decks)

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