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65 Final Prep > Equities > Flashcards

Equities Flashcards

1
Q

Class A Shares

A

Charge a front load

You pay a % of your purchase amount every time you buy shares

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2
Q

Class C Shares

A

Charge a level load

Ongoing fee, usually a %, as long as you hold the fund

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3
Q

Open-End Investment Companies

A
  • Mutual Funds
  • Are issued by the fund sponsor & are redeemable at any time with the sponsor
  • Do not trader
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4
Q

Growth investors usually seek stocks with…

A
  • higher than normal PE ratios

- low dividend yield, usually caused by a low dividend payout ratio

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5
Q

Micro Cap

A

Market cap up to $300 million

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6
Q

Tactical asset allocation is a method of..

A

market timing

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7
Q

Tracking error

A

In a passively managed investment that is designed to “mirror” a designated index, the risk that the portfolio returns fall short of the index results

(can be positive or negative)

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8
Q

If a married couple (either individual or jointly) owns a combined total of 10% or more of a corporation’s voting shares…

A
  • they are considered affiliates

- they are subject to the requirements of SEC Rule 144

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9
Q

If a stock has a beta of less than 1.0, the stock’s price will…

A

not increase as much as the market when the market is up

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10
Q

Portfolio Immunization

A
  • The strategy of managing a portfolio to make it worth a specific amount at a stated date in the future
  • Typically used to fund a known future liability
  • Bond PI protects the portfolio against interest rate risk
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11
Q

the sponsor of a mutual fund…

A
  • established the fund
  • registers the fund w/ the SEC before it can be sold
  • is the fund underwriter
  • does NOT manage the fund
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12
Q

LIBOR

A

London Interbank Offered Rate

  • most Eurodollar loans are based
  • European equivalent of the Fed Funds Rate
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13
Q

For a fund to impose 12b-1 fees, the distribution plan must…

A
  • be in writing
  • be approved by a majority of the outstanding shares
  • be approved by a majority of the board of directors (including a majority of directors classified as outside directors)
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14
Q

What does the “active rate of return” measure?

A

a manager’s performance against the appropriate benchmark portfolio

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15
Q

Preservation of capital means..

A

No fluctuations

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16
Q

DRIP

Dividend Re-Investment Plan

A
  • offered by corporate issuers that give shareholders the ability to reinvest cash dividends paid by the company in additional shares of that company
  • no commission charges
  • fractional shares can be purchased
  • disadvantage: the investor cannot determine the timing
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17
Q

Market Capitalization

A

Number of common shares outstanding x Price per share

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18
Q

Which stocks are most sensitive to interest rates?

A
  • Utility Stocks > they are highly leveraged

- Preferred Stocks > they have a set dividend & fluctuate in price like bonds when IR’s change

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19
Q

Most securities are sold with an anti-dilutive clause that…

A

provide for an adjustment in the number of shares based on stock splits or stock dividends

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20
Q

Automatic reinvestment is always at…

A

NAV

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21
Q

If a customer elects to receive distributions in cash while other investors purchase shares thru reinvestment…

A

their proportional interest in the fund will decline

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22
Q

Qualified Purchaser

A
  • an individual or trust with at least $5 million of assets available for an investment
  • or an investment manager or company with at least $25 million available for investment
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23
Q

A private foundation must pay out each year an amount equal to…

A

5% of its net investment assets in “qualifying distributions”

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24
Q

What are attributes of Equity Index Annuities?

A
  • participation rate

- floor

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25
Q

A successful dollar cost averaging strategy requires…

A
  • volatile market conditions

- a fixed dollar amount invested monthly

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26
Q

Balanced Funds

A

Both income & growth with minimal risk to capital

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27
Q

Contingent Deferred Sales Charge (CDSC)

A

The fee charged by some mutual fund companies if shares are redeemed within a specified time after being purchased

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28
Q

IRR is most often used with…

A

Growth stocks

29
Q

Annualized Return

A

The return an investor would have received had he held an investment for one year

30
Q

Payment of a stock dividend…

A

Increases the number of shares held by the investor & the cost basis must be adjusted accordingly

31
Q

Emerging Markets Fund

A

Type of growth fund that invests in companies in rapidly growing countries

32
Q

Marketability Risk

A

How difficult it is to liquidate a given position in the portfolio

33
Q

Corporate investors may exclude __% of dividends (common & preferred) received from taxation

A

50%

34
Q

What items change when a company pays a cash dividend?

A

Total Assets & Total Liabilities

35
Q

Sector Rotation

A

the practice of moving out of those industries that are headed for a decline & into those whose fortunes are likely to rise as the economy follows the business cycle

36
Q

3 characteristics of a Closed-End Investment Company?

A
  • Sells at market price based on S&D
  • Is a type of management company
  • Differs from a mutual fund
37
Q

Mid Cap

A

market capitalization between $2B & $10B

38
Q

Large Cap

A

Market cap of over $10B

39
Q

Money Market Fund

A
  • an asset class
  • invests in short-term maturities (1 year or less)
  • T-Bills, Bank CDs, Commercial Paper, Repurchase Agreements
40
Q

Covered call writing is…

A

the most popular retail income strategy in a flat market, & it is appropriate for conservative investors that are looking for extra income

41
Q

Tactical Asset Management

A

the permitted variance within each allocation %

42
Q

Value investors pay attention to…

A
  • low PE ratios
  • low Price to Book ratios
  • Product Line
  • Market Share
  • Mgmt
43
Q

Small Cap

A

$300M to $2B

44
Q

Strategic Portfolio Management

A

the determination of the % allocation to be given to each investment vehicle within an asset class

45
Q

Index options can be used to…

A

hedge a portfolio

(if index puts are bought, a drop in the market lowering the portfolio’s value will be offset by a gain in the value of the index puts; this hedges against market (systematic) risk)

46
Q

Required Rate of Return

A

the minimum return that an investment must offer in order for someone to decide to buy it

47
Q

Negative Beta

A

a stock moved in the opposite direction of the market

48
Q

High Alpha

A

a stock that moves faster than the average of the stocks in its grouping

49
Q

If the required rate of return is more than the internal rate of return of that security, then..

A

the security should not be purchased for investment

50
Q

Positive Beta

A

A stock that moves in the same direction as the market

51
Q

Alpha

A

a measure of a stock’s price movement relative to the stocks in its industry & independent of general market movements

52
Q

Low Alpha

A

a stock that moves slower than the average of the stocks in its grouping

53
Q

What are the typical asset classes?

A

1 Cash/Money Market Instruments

2 Fixed Income Securities

3 Equities

4 Commodities

5 Real Estate

54
Q

Impact Investing

A

the intentional allocation of capital to generate positive social or environmental impact

55
Q

What is the term used to describe common stock issued below its par value?

A

Assessable stock

56
Q

Variable Life Insurance

A
  • don’t earn a specific IR
  • invests a portion in an array of investments
  • cash value growth
  • guarantees minimum rate
57
Q

New Issues

A

must be fully paid, cannot be purchased on margin (includes mutual funds)

58
Q

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend. What type of MF & associated investment objectives would you recommend?

A

Growth fund

59
Q

The most common form of investment vehicle for venture capital is…

A

the limited partnership

60
Q

Class B Shares

A

Charges a backload (CDSC)

  • Pay a % of the dollar value of the shares sold
  • Backload declines over time while you hold the fund & eventually goes down to 0.
61
Q

Corporations owners equity?

A
  • Outstanding common stock at face value

- Retained earnings

62
Q

Closed-End Funds

A

Investment companies that have an IPO & are “closed” to new investment;

are listed on an exchange like any other stock

(NOT a mutual fund)

63
Q

An international fund’s performance should be compared against…

A

an index of foreign stocks such as, the Morgan Stanley Capital International Europe, Australasia Far East (EAFE) Index

64
Q

Unit Investment Trust

A

Investment company securities that are initially sold with a prospectus at the POP

  • Sponsor makes a market in trust units & will buy back trust units from investors that wish to get out of them
  • The sponsor then re-sells these “used” trust units for their remaining value to investors
65
Q

A client invested $10,000 into a mutual fund, the client elected to reinvest all dividends. As a consequence of this…

A

the investor’s basis is increased by the amount of reinvested dividends

66
Q

Corporations fixed assets?

A
  • Plant/Factories

- Equiptment

67
Q

Both a REIT & DPP are…

A

run by centralized management

68
Q

Which of the following individuals would be considered a noninterested person in a mutual fund?

A) A person who holds a position with the fund’s underwriter
B) A shareholder who owns 10% of the fund’s shares
C) A member of the board of directors who is also employed as the investment adviser
D) A member of the board of directors who does not hold another position within the investment company

A

D) A member of the board of directors who does not hold another position within the investment company

The Investment Company Act of 1940 defines an interested person as someone employed by or who has a material business relationship with the fund, its adviser, or underwriter. Someone who owns 5% or more of the outstanding shares (an affiliated person) is also considered “interested.” Merely sitting on the board does not make someone an interested person. Thus, a director with no other relationship with the fund qualifies as a noninterested person.

65 Final Prep (8 decks)

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