Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Exam > CFP Investments > Flashcards

CFP Investments Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

FORMS OF UNDERWRITING: Best Efforts

A

Underwriter agrees to sell as much of the offering as possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

FORMS OF UNDERWRITING: Firm Commitment

A

Underwriter agrees to buy the entire issuance of stock from the Company

Underwriter profits from spread from selling to the public

Risk: remains with underwriter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is in the Prospectus?

A

Risks

Management Team

Business Operations

Fees/Expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is in the Red Herring?

A

Preliminary prospectus issued BEFORE SEC approval

Used to determine interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

10K

A

Annual report

AUDITED

sent directly to shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

10Q

A

Quarterly report

NOT AUDITED

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Stop Order to Sell

A

Means once the price is reached, stock sold at that price

OR

possibly less bc it has become a market order at that point

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Stop Limit or Stop Loss Limit Order

A

Investor sets two prices:

Stop Loss: Once the price is reached, the order turns to a limit order

Limit Price: An investor will not sell below the second price

(Appropriate for signficant gains)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is Short-Selling?

A

Borrowing shares

Selling first at a higher price, in hopes of purchasing the stock back at a lower price

GOAL: Sell high, buy low

Must have a margin account to protect against price appreciation

Dividends must be covered by the short seller

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Regulation T was established by the Federal Reserve, what is it?

A

Sets the initial margin at 50%

Assume 50% on the exam unless stated otherwise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Definition of Maintenance Margin

A

THe minimum amount of equity required before a margin call

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Margin Call Formula

A

Loan /

1 - Maintenance Margin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Value Line rates _____

___ is the best score

A

Value Line rates stocks

1 is the best score

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Morningstar rates _____

___ is the best score

A

Mutual Funds

5 is the best score

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Ex-Dividend Date

A

Date the stock trades without the dividend

If you sell on the ex-dividend date you will not receive the dividend

1 business day before the date of record

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Date of Record

A

Date you must be registered to receive the dividend

Must purchase 2 business days prior to receive the dividend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Cash dividends are taxable when?

A

On the date of receipt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Stock dividends are taxable when?

A

Not until the stock is sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Securities Act of 1933

A

IPO

Primary Market

Requires prospectus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Securities Act of 1934

A

Secondary market

Created the SEC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Investment Company Act of 1940

A

Authorized the SEC to regulate investment companies. 3 types:

Open

Closed

Unit Investment Trusts

REQUIRED investment advisors to register with the SEC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Securities Investors Protection Act of 1970

A

Established SIPC

Protection regardless of citizenship

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Insider Trading and Securities Fraud Enforcement Act of 1988

A

Insider Information: Info not available to the public

Insiders cannot trade on that info

24
Q

Type of Money Market Securities

A

T-Bills (up to 1 year, $100 denomination)

Commercial Paper (between Corps, $100,000 denomination, sold at discount, 270 days or less)

Bankers Acceptance (imports/exports, 9 mos or less)

Eurodollars (foreign bank, US denomination)

25
Q

Investment Policy Statement general purpose

A

Client objectives

Limitations on Investment Mgr

Measure Investment Mgr’s performance

NOT include investment selection

26
Q

Investment Policy Statement: RR TTLLU

A

Return requirement
Risk tolerance
Time horizon
Taxes
Liquidity
Legal
Unique circumstance

27
Q

How is the S&P 500 weighted?

A

Value weighted (incorporates market cap)

28
Q

What is the Wilshire 5000?

A

Broadest index

Performance of over 3,000 stocks

Value-weighted

29
Q

How is the DJIA weighted?

A

Simple-price weighted average

30
Q

What is the EAFE?

A

Europe
Australia
Asia
Far East

Value-weighted index

31
Q

Traditional Finance 4 theories

A

-Investor are RATIONAL

-Markets are EFFICIENT

-MEAN-VARIANCE portfolio theory

-Returns are determined by RISK

32
Q

Behavioral Finance 4 theories:

A

-Investor are NORMAL (mistakes)

-Markets are mpt EFFICIENT

-behavioral portfolio theory

-Risk alone DOES NOT determine returns. Beta, ratios, momentum, social responsibility, status, etc. are all factors

33
Q

Herd mentality leads to

A

buying high and selling low

34
Q

Representativeness is thinking that

A

a good company is a good investment without regard to an analysis of the investment

35
Q

Loss aversion suggest that

A

Investors prefer avoiding losses more than experiencing gains

36
Q

BEHAVIORAL FINANCE: Affect Heuristic

A

Deals with judging something, whether it is good or bad

37
Q

BEHAVIORAL FINANCE: Anchoring

A

Anchoring one’s thought to a reference point event though there may be no logical relevance or is not pertinent to the issue in question

38
Q

BEHAVIORAL FINANCE: Availability Heuristic

A

When a decision maker relies upon knowledge that is readily available in his/her memory. Overweight recent events. Disregard LT trends.

39
Q

BEHAVIORAL FINANCE: Bounded Rationality

A

Rationality is limited by the available information, time, etc.

40
Q

BEHAVIORAL FINANCE: Confirmation Bias

A

People tend to filter information and focus on information supporting their opinions

41
Q

BEHAVIORAL FINANCE: Cognitive Dissonance

A

Tendency to misinterpret information that is contrary to an existing opinion or only pay attention to info that supports an existing opinion.

42
Q

BEHAVIORAL FINANCE: Disposition Effect / Regret Avoidance

A

Leads investors to take action or refuse to act in hopes of minimizing any regret over their actions or inactions.

Sell winners too soon

Hold on to losers too long

43
Q

BEHAVIORAL FINANCE: Familiarity Bias

A

Investors tend to overestimate/underestimate risk of investments with which they are unfamiliar/familiar

44
Q

BEHAVIORAL FINANCE: Gambler’s Fallacy

A

Investors often have incorrect understanding of probabilities which can lead to faulty predictions.

45
Q

BEHAVIORAL FINANCE: Herding

A

Follow the masses

46
Q

BEHAVIORAL FINANCE: Hindsight bias

A

Another potential bias for an investor. Assuming they can predict the future.

47
Q

BEHAVIORAL FINANCE: Illusion of Control Bias

A

Tendency for people to overestimate their ability to control events.

48
Q

BEHAVIORAL FINANCE: Overconfidence Bias

A

Investor that listens mostly to himself or herself. Causes many investors to overstate their risk tolerance.

49
Q

BEHAVIORAL FINANCE: Overreaction

A

Overreact due to news information

50
Q

BEHAVIORAL FINANCE: Prospect Theory

A

Provides that people value gains and losses differently and will base their decisions on perceived gains rather than perceived losses.

Asymmetric attitudes towards gains/losses

51
Q

BEHAVIORAL FINANCE: Recency

A

Giving too much weight to recent observations or stimuli

52
Q

BEHAVIORAL FINANCE: Similarity Heuristic

A

Used when a decision or judgment is made when an apparently similar situation occurs even though the situation may have very different outcomes

53
Q

BEHAVIORAL FINANCE: Naive Diversification

A

The process of investing in every option available to the investor

(common with 401k plans)

54
Q

BEHAVIORAL FINANCE: Familiarity

A

Causes investment in companies that are familiar, such as an employer

55
Q

BEHAVIORAL FINANCE: Belief Perseverance

A

Similar to anchoring. People are unlikely to change their views given new information.

CFP Exam (23 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions