Brainscape's Knowledge GenomeTM

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


See full index

Series 7 > Chapter 15 Ethics, Taxes, and Recommendations > Flashcards

Chapter 15 Ethics, Taxes, and Recommendations Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 7 Top-off Exam flashcards
1
Q

Painting the Tape

A

Selling Stock to another party with the agreement to purchase back the stock at the same price later in the day. Used to Create more market activity.

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

Marking the Close

A

Effecting Trades or falsely reporting Trades to influence closing prices.

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

Payments Designed to Influence Market Prices

A

FINRA prohibits firms from influencing market prices by paying for favorable reviews, articles, or other mentions in newspapers or other financial publications.

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

Block Order

A

10,000 Shares or more

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

Risk Tolerance and Investment Goals

A 
What risks can you take?
How liquid must your investments be?
Tax Considerations?
Long term or short term?
Investment Experience?
Current Investments?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Current Income

A

Corporate Bonds, Municipal Bonds, Government and Agency Securities, income Mutual funds, some Stocks (Blue-Chip & REITs).

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

Growth

A

Growth and Small Capitalization stocks, stock options, nonbank-grade bonds, growth-oriented limited partnerships, growth stock mutual funds, commodities funds, and variable annuities.

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

Speculative

A

low rated debt instruments, precious metals, commodities and futures, speculative LPs, etc

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

Preservation of Capital

A

US Government Securities and Ginnie Maes

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

Growth

A

Common Stock and CS Mutual Funds

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

Aggressive Growth/Speculation

A

Technology Funds or Sector Funds, in addition small capitalization is more speculation.

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

Balanced and Moderate Growth

A

Blue-Chip Stocks or their Mutual Funds

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

Income Oriented

A

Preferred Stock and Utilities

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

Liquidity

A

Mutual Funds, Money Market Instruments. Not Real Estate, DPPs, or annuities.

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

Keep Pace with inflation

A

Stock Portfolio

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

Interest Rate Risk

A

A drop in underlying value do to increasing interest rates. Generally associated with bonds and debt instruments. Bonds with long maturities, low interest rates, or zero-bonds are more vulnerable.

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

Reinvestment Risk

A

When interest rates decline, the proceeds from redemption are not invested with an equal return.

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

Credit Risk

A

Financial Risk, or default risk, is the danger of losing one’s investment principal due to the issuer’s failure. Long term bonds have more risk.

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

Beta

A

Measures Systematic Risk - risk associated with market in general.
Higher betas = more volatile, more profitable in expansion, more losses in adverse.
Low Beta = defensive

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

Duration

A

Measures time in years it takes for a bond to pay for itself:
Lower Coupon=Longer duration
Longer Maturity = Longer Duration
Interest Bearing, duration is less than maturity
Duration for Zero-Bonds is equal to maturity
The Higher the Bond’s Duration the more its value will change given a 1% in Interest Rates.

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

Modern Portfolio Theory

A

Quantify and Control Portfolio Risk. Emphasizes determining relationship between risk and reward in TOTAL Portfolio not just individual Securities. Derived from CAPM

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

Capital Asset Pricing Model

A

Pricing of stock must take into account 2 types of risk, systematic and nonsystematic.

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

Constant Ratio Plan

A

Balanced debt to equity ratio

24
Q

Constant Dollar Plan

A

Buy and Sell securities so that a set dollar amount remains invested at all times. Clients sell as prices rise and buys as prices fall.

25
Q

Asset Allocation

A

Strategic and Tactical (Mix of Assets). Stocks, bonds, and cash.
Strategic - long term investments.
Tactical - short term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions.

26
Q

Passive Management

A

Believes no particular management style will consistently outperform market averages. Constructs portfolio that mirrors a market index. Minimal turnover.

27
Q

Growth Managers

A

Buy stocks at the high end of their 52 week range. High PE ratios, low EPS ratios.

28
Q

Value Investors

A

Buy Stocks at their low 52 week end. Low PE Ratios, High EPS ratios. Buy undervalued securities before the company reports positive earnings.

29
Q

Regressive Taxes

A

Sales, Excise, Payroll, Property, Gasoline. levied equally regardless of income.

30
Q

Progressive Taxes

A

Estate, Gift, and Income Taxes.

31
Q

Accrued Interest

A

Interest Income. Taxable to the seller. The buyer must deduct the amount of accrued interest paid to the seller from from the total interest received, to ensure the buyer only pays what he received.

32
Q

Tax Exempt Interest Income

A

Interest on Municipal Bonds is exempt from federal taxes. Us Territories such as Puerto Rico, Guam and Virgin Islands are always tax exempt.

33
Q

Dividend Income

A

Taxed max at 23.8% as long as the customer holds it for 61 days. Which begins 60 days before ex-dividend date.

34
Q

Dividend Income from Mutual Funds

A

Municipal Bond Mutual Funds and Municipal Unit Investment Trusts (UITs) distribute federally tax-free dividends.
Corporate Bonds - taxable as ordinary income (year received).
Dividends - Max 23.8% and Long Term Capital Gains
Short Term - Ordinary Income

35
Q

Foreign Securities

A

Interest and Dividend Income from a foreign investment such as stock issued by a foreign entity, is taxed by the country which investor is a citizen. Otherwise, Tax Credit

36
Q

Net Capital Gains and Losses

A

Must add first all short-term capital gains and then losses for the year. Then separately add all long term gains and losses. Net capital losses are deductible against earned income to a maximum of $3,000/year. Any capital losses remained may be carried forward indifintely.

37
Q

Wash Sales

A

Investor may not use capital losses to offset gains or income if the investor sells a security at a loss and purchases the same or a substantially identical security within 30 days before or after the trade date.

38
Q

Wash Sale Practices

A

Buying Call Options
Buying Rights
Buying Warrants
Buying Convertible Bonds of the same Issuer
Writing deep in the money puts on stock sold.

39
Q

Disallowed

A

Investor can adjust new most recent cost basis of the reacquired stock by the amount of the disallowed loss.

40
Q

Municipal Tax Swap

A

Occur when rates have risen. Investor sells lower rate coupon bond and replaces with a higher coupon rate. To avoid wash sale, investor must buy an issue with
From a different Issuer
Different Maturity Date
Different Coupon Rate

41
Q

Bonds Purchased at a Premium

A

Municipal bonds bond at a premium must be amortized regardless of whether the transaction was effected in the primary or secondary market. Amortization no tax effect.
Corporate Bonds do not have to be amortized

42
Q

Amortized

A

Decreases Cost Basis

Decreases reportable interest income

43
Q

Bonds Purchased at a Discount

A

For Municipal Bonds bought in secondary market, annual accretion is taxed as ordinary income.
Discount in all bonds bought in the secondary market is taxes as interest income.

44
Q

Accretion

A

Increases reported interest income

Increases cost basis

45
Q

Donations to Charity

A

Appreciated Property are made, donor receives tax deduction equal to value of market value of the gift when donated. Recipient’s cost basis is the date of donation. No taxes if held for more than one year

46
Q

Donations to others

A

Donations or gifts, there’s no tax deduction. Cost basis of the recipient, is the cost basis of the donor. Ex: Mother gives child $10.000.

47
Q

Inherited Securities

A

When a person dies, cost basis to the recipient is the current market value at the time of death of the deceased.

48
Q

Donor Tax Valuation

A

Valuation of estate is the date of death

Valuation of gift is the date it is given

49
Q

Gift Tax Exemption

A

Individuals may give up to a maximum of $14,000 to any number of individuals without incurring a gift tax. Paid by donor.

50
Q

Estate Tax Exclusion

A

$5.25 million in 2013.

$5.12 million in 2012

51
Q

Margin Expenses

A

Margin Interest is Tax-Deductible. Except for Municipal Bonds.

52
Q

Net Investment Income

A

Dividends + Interest Income + Capital Gains

53
Q

Bank Exclusion for Bank-Qualified Municipal Bonds

A

Small GOs of less than $10 million can deduct up to 80% of interests incurred in financing the purchase. Must be investment Grade (BBB or Baa)

54
Q

Shorting Against the Box

A

Lock in a capital gain. Instead of selling shares a customer holds, he borrows his own shares and sells them short. Because borrowed shares were sold, there is no tax event. The customer is taxed when he buys back his shares.

55
Q

Shorting against the Box requirements

A

The law allows only if short position is closed within 30 days of year end and customer stays lon for additional 60 days.

56
Q

Alternative Minimum Tax (AMT)

A

Accelerated Depreciation on Property
Certain costs associated with DPPs, including research and development, and intangible drilling costs.
Local tax and interest that don’t generate income
Private Purpose IDBs
Incentive Stock Options exceeding fair market value.

57
Q

Dividend Exclusion Rule

A

Dividends paid from one corporation to another are 70% exempt from taxation. Dividends received from another corporation (money invested to another corporation) is not taxed 70%. Only 30% is taxed. Applies only to equity

Series 7 (4 decks)

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