Brian Lee Quicknotes Flashcards
8k is
How long does info need to be sent for?
“reportable events”, i.e. material information, must send w/in 4 days
10Q
10Q – Quarterly financial report
IRR
Is expected return
Time value of money
IRR makes Net Present Value (NPV) = 0
Central Tendency
(mean, median, mode, range)
Standard Deviation
1 stand. dev. 67% of time, 2 stand. dev. 95%
Correlation
low to negative correlation = diversification
Systematic risk
Market (beta)
interest rate
PRIME
Purchasing power
Reinvestment
Interest rate
Market
E (insert)
Unsystematic risk
Business (alpha), regulatory, political
Money Market Instruments
Not insured
Highly liquid – short-term “parking garage” for money
short-term Treasuries (T-bills), certificates of deposit (CDs), commercial paper, repurchase agreements (repos), and money market mutual funds
Insured Deposits
demand deposits & CD’s
Safest securities for capital preservation and Income
Bills, Notes, Bonds
Corporate Bonds
For investors who want to maximum income, risk determined by credit rating
Long term bonds
Convertible bonds
Zero coupon bonds
Long-term bond prices more volatile than short-term bonds
convertible bonds – lower coupon rates and less interest rate sensitive
Zero Coupon bonds MOST volatile
Duration is
a measure of volatility, NOT MATURITY
Discounted cash flow
How much income does a bond generate (principal, coupon rate, maturity date).
Municipal Bonds
Interest is Fed. tax exempt and State tax exempt if you are a resident of the state. High tax bracket investors are most suitable
- General Obligation Bonds – backed by taxes, i.e. income, sales, property
- Revenue Bonds – backed by user fees, i.e. tolls, leases (
- Industrial Development Bonds) IDR’s maybe subject to AMT
Tax-Equivalent Yield – comparing tax-exempt bonds to taxable bonds
muni yield/ (100% - tax bracket)= equivalent corporate yield 2. Corp. yield x (100% - tax bracket) = equivalent muni yield
ADR’S
facilitate domestic trading of foreign securities to diversify stock portfolio,
risk: fluctuating currency
Restricted Stock
private placement (Reg. D) stock, restricted for 6 months, only
accredited investors ($1mill Net Worth–less home or $200k ann. Inc.)
Open-end Investment Companies (mutual funds) - priced at end of day based on NetAsset Value (NAV) of the portfolio – A vs B vc C
a. Class A – Front-end load
b. Class B – Back-end load, contingent deferred sales charge (reduces over time)
c. Class C – Level load, flat annual fee (12b-1)
Futures
a. Exchange traded
b. Consumers buy futures to lock in cost
c. Producers sell futures to lock in price
Insurance-Based Annuity’s
- Fixed Annuities
a. Guaranteed return (No investment risk, has inflation risk, not a security) - Variable Annuity – Non-qualified, Tax deferred (10% penalty for dist. Prior to 59 1⁄2)
a. Taxed in excess of basis (LIFO) as ordinary income
b. Surrender charges - Index-Based Annuity
a. Participation Rate determines return - Index up 10% + Part. Rate 80% → Investor Return = 8% 2. Valuation done by using point-to-point method
Balance Sheet
assets, liabilities, net worth. Does not include income
Statement of cash flow
income, expenses, taxes
Most important non-financial information
Investment Objective
Objectives – Capital Preservation w/ income
money market
Nearly retired/retired
Time horizon is life expectancy
Balanced (equity and debt)
Diversification
Match investments w/ negative correlation, i.e. U.S. equities and Intl. equities
Sector Rotation
Invest in industry sectors based on economic cycles, i.e. cyclical, non-cyclical
Gift Tax
how much & who pays it?
Gifts of >$15,000 – tax paid by donor
Non-qualified plans
Higher cost basis = lower taxes @ retirement
ERISA (Private Sector only) Investment choices
Investment choices - @ least 3
404(c) Safe harbor
Investment choice, selection and communication
Investment policy statement (not required)
includes plan objectives, asset allocation style,
performance monitoring methods (does not include the Summary Plan Document which is required), also does not include specific securities included
Trading Securities
- Market makers – B/D’s in the OTC
- Specialists – B/D on exchanges
- Broker (agency) transactions – commissions
- Dealer (principal) transactions – markups
- Underwriting – spreads
- Types of Orders
a. Market Orders – filled immediately at the current Bid (sell) or Ask (buy)
b. Limit Orders – Specifies a price to buy or sell
c. Stop Orders – Specifies a condition (If/then) – to protect from loss (stop loss)
SL BS - above market price
BL SS - below market price
Time weighted Return
measures portfolio manager’s return based solely on volatility of investments (Does not include cash flows by investors).
Internal Rate of Return
expected return (YTM for bonds)
Inflation-adjusted (real) return
actual return less the rate of inflation
Benchmark portfolios
For which our performance can be compared, i.e. Russell 2000=
small cap
Broker dealer must register if
Broker dealer does not register if
- OFFICE IN STATE
- CLIENTS IN STATE(RESIDENTS)
- ## SOLICIT IN STATE(MAIL)NO OFFICE
▪ NO CLIENTS (NOT RESIDENTS)
▪ CLIENTS ARE INSTIT/ISSUERS ONLY
Agents must register if
Works for B/D, AND
▪ Sells or solicits securities(including sales
asst., interns)
Works for Non-Exempt Issuer (i.e. Corp.)
▪ Sells or solicits securities
Agents don’t have to register if
Works for B/D, AND
▪ Clerical duties only
(Sales Asst., Interns)
Works for Exempt issuer(i.e. Muni)
IA don’t have to register if they’re one of the following:
▪ Foreign Adv.
▪ Venture Cap. Adv.
▪ Private Fund Adv.
▪ Advice to Insurance Co. only ▪ Intrastate
IAR registers
W/ STATE ADMIN. any state the IAR has No office an office
Automatically registered as IAR’s- officers, directors, partners
illegal to sell an
unregistered, non-exempt security, EXEPT:
▪ Unsolicited
▪ Financial Inst.
▪ Issuer/UW
▪ Private Placements ▪ Fiduciaries
o Sherriff, trustee in B/K
o IsolatedNon-issuertrans.
EXEMPT registered securities
U. S. Govt’s.
Muni’s
Bank/Insurance Co.
Non-Profit/Religious
Common Carriers (Trucking Co., Railroads, etc.)
Canadian Gov’t (Fed and all subdivisions) Foreign Govt’s. (Fed only)
Commercial Paper
Maturity < 270 days Face value > $50,000
ADMINISTRATOR (PROVISIONS)
Jurisdiction – over any offer/sale that originates, directed or accepted in their state
* Subpoena – may compel testimony in all states, may designate someone to serve
* Deny, revoke, suspend registration – in the public’s interest and: insolvency, lack of knowledge and training (never lack of experience solely), felony conviction, enjoinment from any regulatory authority
* Cease and desist – people
* Stop orders – securities
* No order unless: notice and hearing (except summary (temporary))
* Criminal Penalty – 3yrs. jail/ $5,000 fine
* Civil Penalty – Statute of Limitation – 3 yrs. from occurrence/ 2yrs. from discovery
Right Of Rescission (30 days) – All monies + interest + court costs – div./interest
FORM ADV
Part 1A – Business name, past 5 years affiliations, certified balance sheet.
Officer, director, partner (Automatic Reg. as IAR)
No Net Capital Req. Effective – w/ SEC 45 days Withdraw – Form ADV-W
Client Custody of Funds/Securities
a. Receive 3rd party checks – must forward w/in 72 hrs.
b. Receive securities – must forward w/in 72 hrs.
c. Trading Authorization - B/D’s = no w/out client sign (except price/time)- IA’s = oral for up to 10 days
d. Custody – Notify customers of location of securities, must segregate, qtly. statements to customers, surprise independent audit (Form ADV-E)
QDRO
Qualified Domestic Relations Order allows distribution of a qualified retirement plan without penalty prior to 59 1⁄2.
-Who can be a recipient -
-former spouse
-Dependents might qualify to receive the ordered benefits
to make payment to an individual with legal responsibility for that payee. This can include a guardian as well as a
trustee who serves as the agent of the individual
-How it’s taxed
Once the distribution is made, the former spouse becomes responsible for any taxes due.
-What they can roll it into
to an IRA in your own name. If you choose to do the IRA rollover, the rollover is tax-free and those IRA funds are
now yours.
TAXES
alimony payments are no longer tax-deductible for the payer, and they aren’t considered taxable income
For the person receiving them and child support payments aren’t deductible by the payer or taxable to the
recipient.
Access person
supervised person who has access to nonpublic information regarding clients’ purchase or sale
of securities, is involved in making securities recommendations to clients or who has access to such
recommendations that are nonpublic.
Stop Orders
For each test question, determine:
Specify a condition when to buy or sell (If/then)
1. Does customer own (sell) or want to own(buy/long)
2. Attitude: Market up/market down
SL BS
BL SS
Sally has a large gain in XYZ, and is concerned about a possible correction. As the IAR, which would you recommend?
SLOB / BLISS
Sell Stop
A customer has been researching XYZ and would like to take advantage if the stock should break through resistance. Which would you recommend?
Buy Stop
Your customer is confidant their stock will continue to rise and would like to sell when it gets to a specific price. As the IAR you would most likely recommend
Sell Limit
Your customer places an order to sell 100 shares 43.50 Stop. Using the trade sequence below, at what price is the order executed?
43.78 43.65 43.52 43.55 43.50 43.47 43.45 43.40
43.47
Hedge strategies for call & puts
———Long/buy. Short/sell.
Call. Protect ——– income
Put. Protect ——– income
Hedge a short stock – Buy a call or sell a put
Hedge a long stock – sell a call or buy a put
