Additional flashcards
A transactional exemption would be offered when a sale is made by
Fiduciary, which includes court ordered guardian
-Not a custodian of a minors account UTMA account.-
When saving money for a child’s college education, one consideration is the impact that those savings will have on the child’s eligibility for financial aid. Funds saved in which of the following vehicles has the most detrimental effect on financial aid?
Assets held in custodial accounts (UTMA or UGMA) are counted at 20% of their value, which compares unfavorably with the 5.64% valuation of Section 529 or Coverdell ESA assets. Please note: It is highly unlikely that you will need to know the percentages – but you will need to know that custodial accounts do not receive as beneficial treatment when applying for financial aid.
An investor purchases $10,000 of A-rated debentures in early January. At the end of the year, $500 in interest has been received and the value of the investment is $9,500. If the investor is in the 25% tax bracket, the after-tax yield is
3.75%.
If the question had asked about total return, then the $500 unrealized loss would have been included, although there would have been no tax benefit to it because it is only a “paper” loss.
Debt to equity equation
debt-to-equity ratio is computed by dividing the issuer’s long-term debt by their total capitalization
ERISA regulation does not apply to
Government or public sector plans are not subject to the Employees Retirement Income Security Act of 1974.
ERISA rules only apply to private sector plans
A mutual fund’s computed NAV on April 24 was $100 per share. On April 25, the portfolio realized gains of $2 per share and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market?
$101 per share
Realized gains would be reflected in the NAV price at close of business day. Therefore, would be no change to the price. Unrealized would hit the next day.
Unrealized appreciation = impacts NAV
A mutual fund’s net asset value (NAV) per share is the fund’s total assets minus total liabilities (net asset) divided by the number of shares outstanding. The major asset is the fund’s portfolio. Portfolio securities are carried at their value as of the close of the markets (4:00 pm ET). As a result, unrealized appreciation (and depreciation) are part of the NAV. Therefore, when that gain (or loss) is realized, paper profit (or loss) is now real and there is no change to total assets. In the subject question, the realization of the $2-per-share gain has no effect, but the new $1 in unrealized appreciation increases the NAV by that amount.
A sudden decrease in market interest rates will have the effect of increasing the trading price of an existing bond because
the present value of the bond’s future cash flows increases
Think about it - when interest rates go down, the coupon rate is fixed, therefore it has higher cashflow, to offset this, they RAISE the price of the bond. NOW THIS MAKES SENSE!!
Bond valuations using discounted cash flow take into consideration the present value of the bond’s future cash flows. That is, the greater the value of the interest payments to be received in the future, the higher the price of the bond. When market interest rates decline, because the coupon rate of the existing bond is fixed, the present value of those interest payments increases, creating a higher value for the bond. This is just the technical way for explaining why bond prices go up when interest rates go down.
UTMAs taxed
Terry Bolton opens a UTMA for each of his sons, Josh, age 12, and Drake, age 14. Under current tax regulations (2023 and beyond), after deductions and exemptions, how will the income in the UTMAs be taxed?
Because the income on the UTMAs is not considered to be earned income, the kiddie tax rules apply. Currently, children younger than 19 having such income in excess of $2,500 are subject to tax at the parent’s marginal tax rate. That means if the parent is in the 32% income tax bracket, the children’s excess income will be taxed at 32%.
A measurement of investment return that takes the time value of money into consideration is
IRR
variable annuity units and payout
The number of annuity units is fixed when an annuitant starts the payout process, and the monthly payment will vary with the market value of the securities in the separate account portfolio. The value of accumulation units varies with the value of the portfolio, and the growth portion of the monthly payments is subject to income tax.
A bond analyst notices that the yield spread between corporate bonds and government bonds is widening. This is typically predictive of
an economic slowdown
A widening yield spread shows that the difference in yield between corporate bonds and U.S. Treasury bonds is increasing. This is usually caused by a flight to quality, the pattern of investors moving their investments to the safety of Treasury securities.
This is commonly felt to be a prediction of a future recession or economic slowdown. During a slowdown, interest rates generally decline.
The Uniform Securities Act requires that a balance sheet accompany an adviser’s brochure when the adviser
maintains custody of client assets or accepts substantial prepayments of fees.
It is the Class C shares that have no front-end load, but they do have
a 1% CDSC for a period of one year.
Keynesians advocate government intervention through
increased government spending, which in turn increases aggregate demand.
Monetarist
the economy’s performance—its growth or contraction—can be regulated by changes in the money supply.
Supply-side economics is a theory that maintains that
increasing the supply of goods and services is the engine of economic growth. Additionally, it advocates tax cuts as a way to encourage job creation, business expansion, and entrepreneurial activity.
Canadian broker-dealers and their agents must be registered
in any state in which they wish to do business with exisiting clients who are temporarily in the state. The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the broker-dealer must be properly licensed in its home province and its only dealing in the states is with an existing client.
DERP Corporation’s 5% convertible debentures maturing in 2030 are currently selling for 120. The conversion price is $40. One would expect the DERP common stock to be selling
somewhat below $48 per share.
convertible securities generally sell at a slight premium over their parity price, the stock should have a current market value a bit less than $48 per share.
AMT
Tax preference items include:
Deductions for accelerated depreciation/depletion
Net income from oil and gas properties
Excess intangible drilling costs
Interest on special private activity bonds reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such interest were included in gross income
Qualifying exclusion for small business stock
Capital gains from exercise of stock options
Investment tax credits
Alternative minimum tax (AMT) is the least tax that an individual or corporation must pay after all eligible exclusions, credits, and deductions have been taken. AMT is a mandatory supplement tax alternative to the standard income tax.
It uses many common itemized deductions and, therefore, impacts high-income earners mostly because it eliminates many of those deductions. A taxpayer that makes more than the AMT exemption amount and uses the deductions must calculate his taxes twice – one calculation for the regular income tax, and another for the AMT.
2 Individuals that have an adjusted gross income higher than the exemption ($71,700 for single/head of households and $111,700 for married filing jointly, as of 2019) must calculate the AMT, and pay the higher of both taxes calculated.
Which of the following statements best describes an investment supervisory service as described by the Investment Advisers Act of 1940?
An investment supervisory service is an individualized service delivered to a specific client on a continual basis.
investment counsel
Only when an investment adviser provides investment supervisory service, and the adviser’s principal business activity is the giving of advice, may the term investment counsel be used.
A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA,
Pro rata basis, meaning, if the individual contributed $2,000 in after-tax amounts and $8,000 in pre-tax amounts, a distribution of $5,000 would be prorated to include $1,000 after-tax and $4,000 in pre-tax assets.
Think they would both be distributed at the same time.. same ratio
Form ADV Part 2A is the brochure that investment advisers must deliver to clients; it
- fees
- investment policies
- types of investments made
Is a person an investment advisor who deals exclusively with federal government issued or guaranteed issues
They are excludes from the definition of “investment adviser