Final Exams Flashcards
1
Q
What type of investors like SPACs?
A
Risk tolerant looking for a payday
2
Q
Irrevocable trust assets. Included or excluded from estate?
A
Excluded from the estate
3
Q
Do Zero Coupon bonds have tax implications?
A
Yes, bondholders pay tax each year on accretion.
4
Q
Describe Accretion, context Zero Coupon bonds
A
Accretion is kind of like having to pay taxes on unrealized gains, but in this case it’s for interest income. Taxable at the normal ordinary income rates.
5
Q
Can a BD agent sell a security in a state they’re not registered in?
A
Yep, if an existing client moved to that state and they’re still pending registration. Up to 60 days.
6
Q
Do stop orders give you a specific price upon execution.
A
No. Think “Sell Stop” means “Start Selling”, meaning you start selling immediately after trigger, whatever that price is. Same goes with buying.
7
Q
Are stop orders used to protect gains?
A
Yes, they can act as a PEG (long) or a CAP (short) to lock in investments.
8
Q
Give an example of a structured note
A
ETN
9
Q
What is the holding period required for restricted stock under Rule 144 of the Securities Exchange Act before it can be sold by affiliates?
A
Under Rule 144 of the Securities Act, affiliates of the issuing company must hold restricted stock for at least six months before it can be sold, assuming the company is subject to the reporting requirements of the Securities Exchange Act of 1934.
10
Q
Which Act contains Rule 144 about the sale of restricted stock?
Securities Act of 1933
Securities Exchange Act of 1934
NSMIA
IA Act of 1940
A
34
11
Q
Which forms need filing to go from state registered to federal registered?
A
ADV W (to withdraw from State level), ADV 1 and 2 (A [Brochure] and B [Brochure Supplement]).
Consent to service of process also needs filing but that’s part of PART 1.
12
Q
How long do client files need to be kept after a client leaves an IA firm?
A
5 years at the end of the year.
13
Q
What’s ADV-A for?
A
ADV-A kind of opens the business and provides the general details. After initial registration, no need to fill this out again.
14
Q
Portability?
A
Used in the context of estate/lifetime gift tax exclusion amount. Surviving spouse can use the deceased spouse’s unused portion.
15
Q
What are some very important parts of an IA contract?
A
Non-Assignment clause.
Term of the contract.
Clause that says notice will be given if any level of change in ownership.
16
Q
Gift tax exclusions?
A
Tuitions if paid directly to the school. Med Expenses. Spousal gifts to an unlimited degree.
17
Q
How can BD Agents split commissions?
A
They must be employed by the same BD and in the same state. With one exception. They can be employed by different broker dealers, as long as it’s the same common control (parent company I think).
18
Q
Which one passes through gains and losses?
REITS
RELPS
A
RELP. Take note - LP
19
Q
Which of these would be the worst for a college fund?
Educational IRA
Common stock fund
Zero Coupon Bond
Variable Life Policy
A
var
20
Q
Mut Fund shares are ____
A
Redeemable.
21
Q
Have fun with this one
When would these be the time frames for prospectus issuance?
90 days
40 days
25 days
0 days.
A
Exchanges have shorter time frames. If you’ve had an IPO before, you’re better known now and don’t have as stringent of prospectus requirements.
90 days - IPO on an OTC Market
40 days - Follow on offering on OTC Market
25 days - IPO on Exchange
0 days - Follow on offering on exchange.
22
Q
Irrevocable trust. Taxable to?
A
The Trust. It cannot be taxed to the grantor because the grantor can’t even revoke it anymore.
23
Q
Revocable trust. Taxable to?
A
Grantor, since the grantor can revoke it.
24
Q
What’s the trust tax form number?
Hint: it’s almost the normal one
A
1041.
25
All general partners can bind. What's that mean
Each general partner has the authority to act on behalf of the partnership. They can enter into contracts, make business decisions.
To do this though they'd need the Certificate of Limited Partnership (Birth cert), Partnership Agreement (Rights, responsibilities and authority of each owner), and some operating docs
25
What are three examples for statutory disqualification in the securities industry?
In the last 10 years: Any securities related misdemeanor, any felony, or revocation of an insurance license.
26
What docs are needed to act on behalf of a C Corp?
Corporate Resolution, Articles of Incorporation (Birth Cert), and Corporate Bylaws (Internal management/procedures of corporation).
Corporate resolution: formal doc that records decisions made by the BOD or shareholders.
27
What's Beta based on?
Covariance
28
Which of these are these traded?
Variable annuities
Mut Funds
UITs
FACCs
Vars are not traded they're bought.
MutFunds, FACCs and UITs are all acquired the same way - by going to the issuer and buying in the primary market.
29
UIT vs FACC go
First both are traded with Mutual Fund shares - primary market. Both are under Inv Comp Act of 1940.
FACCs are like Zero coupon bonds, they pay the fixed return at maturity, and are debt securities.
UITs are very similar to MutFunds, except two things: UITs are passively managed, and UITs have an end date.
30
UIT vs Mut Fund
Mut Fund: Active management, only in primary market, can have all kinds of things in them, Filed under INV COMP ACT 1940.
UIT: Basically a Mutual fund except passively managed, and has an end date.
31
When must material changes be filed?
I'm fairly certain it's the same for both SEC and Admin, but
Material changes need prompt correction via Correcting Amendment, filed in the IARD within 30 days of the thing.
32
What's the formula for Book Value?
Acquisition cost - Dep/Amort
33
Which are riskier?
Preferred stock or Common Stock
Common stock
34
Can you open a Solo 401k if you have no employees?
Yes
35
Sovereign bond
From Foreign company?
Or Foreign government?
Foreign Government
36
What is hedging in options?
You're trying to limit losses
37
To which persons does the deminimis rule apply?
IARs and IA firms
They are separate but equal exemptions, example..
IA is located principally in Texas. IAR 1 has three clients in New York. IAR 2 has three clients in New York. Neither IAR 1 nor 2 have to register in NY. BUT the IA has a total of 6 clients in NY and must register there.
38
An individual who effects transactions with exempt securities wouldn't need to register if they are part of what type of firm?
Issuer
ChatGPT says ERAs as well.
39
What's an ETN?
It's VERY close to Zero coupon bond.
It's exchange traded (so it's liquid), it doesn't pay interest generally until maturity, and it's an unsecured note (bond). Subject to CREDIT RISK AND MARKET RISK OF BENCHMARK.
Now that interest up there is referring to gains/losses from tracking an underlying asset/index. No taxable offenses unless you buy/sell/wait for maturity on it.
40
I'm a business entity that files a K-1 (1065) tax return to determine percentage ownership and dole out profits/losses to individual members, what am I?
LLC, Keyword: Members
41
I'm a business entity that files a K-1 (1065) tax return to determine percentage ownership and dole out profits/losses to individual partners, what am I?
Some form of Partnership.
GP, LP, LLP
42
I'm a business entity that files a K-1 tax return to determine percentage ownership and dole out profits/losses to individual shareholders, what am I?
S-Corp. Keyword: Shareholders.
43
Can an S-Corp issue shares?
Yes. And they can have a max of 100 shareholders. Remember: married couples who both own shares are considered 1 individual in this case: to squeeze in more owners.
44
What types of people can be shareholders in an S-corp
Citizens, residents.
NR's are not allowed.
45
You buy a bond. At the time you bought it, the YTM was 4%, coupon was 5%. You sell the bond. At the time of sale the bond's YTM was 6%.
How was the bond selling when you both bought and sold it?
Don't overthink it.
YTM was lower than Coupon at the time you bought it - that means the bond price was premium.
YTM was higher than the Coupon at the time you sold it, that means you sold at a discount.
If you want to think a level further: The YTM on the bond is lower than coupon. That means bonds since have had lower coupon rates, which has driven up the price of the original bond and LOWERED it's YTM (because it factors in current price).
If a bond value increases, a current yield (Coupon / now larger Market Value) decreases, and YTM decreases more.
46
Big Question:
Accredited Investor?
Qualified Purchaser?
Qualified Client?
Qualified Client. This is for eligibility of performance-based-fees from IA's. $1.1 million AUM OR $2.2 Net worth without personal residence.
Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.
Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.
47
Big Question:
Accredited Investor?
Qualified Purchaser?
Qualified Client?
Qualified Client. This is for eligibility of performance-based-fees from IA's. $1.1 million AUM OR $2.2 Net worth without personal residence.
Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.
Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees).
Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.
48
Big Question:
Accredited Investor?
Qualified Purchaser?
Qualified Client?
Qualified Client. This is for eligibility of performance-based-fees from IA's. $1.1 million AUM OR $2.2 Net worth without personal residence.
Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.
Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.
49
Big Question:
Accredited Investor?
Qualified Purchaser?
Qualified Client?
Qualified Client. This is for eligibility of performance-based-fees from IA's. $1.1 million AUM OR $2.2 Net worth without personal residence.
Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.
Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.
50
Types of Federal Covered Securities, and which are required to notice file with the Administrator?
Exchange listed securities, Shares with higher seniority than their exchange listed securities (example preferred stock), Shares sold to Qualified Purchasers ($5mn or more in securities).
-These are NOT required to notice file
Investment company shares, Reg D under 1933 (accredited one, not state one), may be required to notice file.
50
Must Exempt Reporting Advisors Notice File?
And what are they?
They must notice file and pay a fee with Admin.
Advisors to Private Funds with LESS THAN $150 million, and advisors to venture capital funds are ERAs.
If that private fund crosses $150mn, they must file with SEC.
51
Interest rate risk hits longer term or shorter term bonds harder?
Longer term, because higher duration. Duration measures sensitivity of price to interest rate changes.
52
What's the Price to Book Ratio?
It's basically the MVE against the Accounting Value of the company.
MV Share / Book value of share
Both are outstanding shares.
How much more than par are the shares currently selling for?
53
Bankers Acceptances. FDIC Covered?
No. And whenever you see this think imports, exports.
54
Demand Deposits. FDIC Covered?
Yes.
Demand deposits include both Savings and Checking accounts.
55
Brokered CD's FDIC Covered?
Yes
56
Brokered CD vs Non-Negotiable CD vs Negotiable CD vs Traditional CD?
All are covered by FDIC up to the $250k limit per account type per issuer.
Two main types of CDs:
Negotiable CDs are issued by banks. Higher denominations $100k or more. Can be traded in the secondary market.
Non-Negotiable CDs are issued by banks or credit unions. No secondary market trading and EWPs.
Brokered CDs are NEGOTIABLE, and are issued by banks but sold through brokerage firm.
Traditional CDs are NON-NEGOTIABLE, and are issued by banks or credit unions.
57
Duration vs Convexity
Duration looks at changes in price from changes in interest rates.
Convexity looks at changes in Duration from changes in interest rates.
58
Capacities. Principal vs Agency vs Broker vs Dealer
Principal and Dealer are the same. You're buying and selling for/from the firm's inventory and are charging markups and markdowns.
Broker and Agency are the same. You're effecting securities transactions for others and charging commissions on those transactions.
For Agency, think Agent - they get commissions.
59
Where are SPAC shares issued initially?
IPO in the primary market, and then they end up on the exchanges registered with the SEC. They don't do OTC markets.
60
Can you have capital gains under the passive income umbrella?
Kinda. Capital gains earned from LP are treated as capital gains on personal tax returns.
61
ABC test. What's the nuance for A?
A- Advice must be periodic, regular advice.
62
What's Layering?
Relates to Money Laundering. Means that you're blending real money with illicit money.
63
Inherited IRA with an adult kid, how can they deal with distributions?
10 year rule. The account must be emptied by the 10th anniversary of the end of the year of the death. So, person died in June of 2024. That means the account has to be emptied by December 31, 2034.
64
What must BD's have in order to require the posting of a surety bond?
Custody / Discretion
65
Are LEAPS derivatives?
Yes. They're long term options, and options are derivatives.
66
Several money managers have had differing rates of deposits and returns. How should we compare their returns fairly?
Time weighted return for money managers
Dollar weighted returns for individuals/investors.
67
Can an IAR manage the portfolio of an estate?
Yea
68
Preferred stock pricing follows which?
Tbonds
Tbills
CDs
Common stock
Preferred stock pricing (non-convertible) closely follows Tbonds.
69
If you see a question that says "registered representative", what must you realize?
FEDERAL LAW
70
If you see a question that says "person" what must you remember?
It could be a natural person or a firm.
71
Cumulative Preferred stock has skimped on the last few years of dividends. What's this mean?
You gotta include the amount they should've paid on top of what was paid, to the amount this year
72
ERAs from state registration includes private fund advisers. What type of customers can invest in these private funds?
Accredited and up (Qual and Qual)
73
What do trade blotters need?
Transaction unit value, transaction total value, trade date, account of trade.
Trade blotters are internal
74
Who enacts fiscal policy?
President and congress
75
Random Walker is another term for:
Efficient Market
76
Who are the big three Government securities agencies and which one actually has the backing?
Ginnie Mae (GNMA). This one has the Full faith and credit of the US Gov.
Other two are:
Fannie Mae and Freddie Mac
77
Efficient portfolio, Optimal portfolio =
Highest returns at lowest risk
78
A Bond is called at a premium, how does this affect the YTC?
YTC goes up. You're gonna get paid more money at call or something. Just memorize this for this exam.
79
Viatical Settlements can be offered to which type of investors?
SUITABLE Investors.
According to NASAA, anyone who meets the definition of Accredited Investor under Sec Act 33, qualifies as a Suitable Investor..
Acc:
Net worth of $1 million
Or Income > $200k ($300k MFJ) last two years and expected to continue
Below also qualify as suitable:
Or Executive officer, director, partner of the firm
Or single or MFJ that has NW of $150,000 AND Gross income >$100k (house excluded here)
Or Minimum net worth of $250,000 (house excluded here)
80
What are the qualifiers for Accredited investors?
$1 million Net worth
Or $200k ($300k MFJ) income past two years, expected to continue
81
High spread between Bid and Ask. Efficient or Inefficient?
Inefficient. Potentially illiquid.
82
Low spread between bid and ask. Eff or Ineff?
Efficient. Probably liquid.
83
What do you do as an IAR if an ERISA plan participant didn't tell you what to invest in?
You allocate the client's retirement plan assets in a way that complies with a QDIA (Qualified Default Investment Alternative). ERISA says if the allocation matches the QDIA standards, then the IAR cannot be held legally responsible if shit hits the fan.
84
When is form CRS submitted and filled out?
Customer Relationship Summary Form. Must be documented whenever a new account is opened. This is also true if an existing customer opens a new account.
85
Can BD agents and IAR's borrow from family members? How about share an account with a client?
In both cases, BD Agents can, IAR's cannot.
86
If you want to participate in recurring investments, which is better ETF or Mut Funds?
Mut Funds. If you continuously invest in the same one, they'll often waive the sales charge.
ETFs incur brokerage commissions each time you purchase them, which means DCA doesn't work as well here as with MutFunds.
87
What four things are needed to do a cross trades?
Written disclosure to the client (this may not be the best idea), Revocable written consent from the customer, Written confirmation with details and date, Annual updates sent to client.
88
How often are P-stock divs paid?
Quarterly
89
How do you hedge market risk?
Index Cap stocks...?
90
A client is risk averse and needs income, what should they invest in?
CD's. Highly liquid, low risk, provides income.
91
Which of these are sold by markup?
ETFs
Mutual Funds
Fixed Income Securities
Fixed income is sold with markups. ETFs are sold at NAV + commission, Mutual Fund shares are sold at the NAV + Sales charge (POP).
92
You see a life insurance question that mentions conservative. What do you think immediately?
STC - Whole
I think Term also fits.
93
Under the USA, are banks considered BDs?
No, BUT they CAN BE if they do BD stuff, in which case they'd have to register as such. Generally they'd create a subsidiary to register as a BD, rather than registering the entire bank.
94
JTIC provides owners with undivided interest in the account. What's that?
Undivided interest means the assets are not separated by amount, but they are responsible for a portion/percentage of the account.
95
These accounts avoid Probate. (Not trusts)
Common property (only for married couples), JTWROS, Pay on Death, Transfer on Death.
96
Does JTIC go to probate?
YES. JTIC goes to the estate on death, which then goes through probate.
97
Which can have more owners? LPs or S-corps
LPs. At most S-corps can have 100 owners (200 if all are married).
98
Under USA, are you an agent if you trade commodities?
NO. You have to trade securities to need to be registered as an agent.
99
What's high P/E mean in the context of future earnings?
You're expecting higher future earnings.
100
What's special about commodities?
They give UNCORRELATED returns.
101
Which method uses price charts?
Technical analysis looks at market prices of a company's stock historically.
Fundamental analysis = financial analysis where company's financial statements are looked at.
102
Pension consultant is advising. IAR?
Yes, don't think about it.
103
At what point in the business cycle do you get a decrease in purchasing power (inflation)?
Peak is when you start to feel inflation.
104
You have insider info on a company. Client calls and places a massive order on the stock, what do you do?
You complete the order and do not disclose anything to the client. You can talk to your compliance officer.
Think about it, if you complete the order, there's no chance that the client will feel anything is wrong. If you refuse, client may realize that something's going on.
105
Up to 35 non-accredited investors can purchase securities in this exempt transaction. What is it?
Securities Act of 1933, Regulation D, Section 506(b).
Think 506(b) But No advertising or solicitation.
There's also Section 506(c) where general solicitation and advertising are both allowed as long as all investors are accredited.
106
Name the four markets.
1st, 2nd, 3rd, 4th.
1st - Primary, this is the market between the issuing company and their customers directly. This includes Mutual Funds, FACCs, UITs.
2nd - Secondary, this includes the National Exchanges and OTC markets. Pink market's in here too if your security is shitty enough.
3rd - This is for securities that are trading OTC despite being listed on an Exchange.
4th - This is the market between institutions.
107
Time period usages for Quick Ratio and Acid Test Ratio?
Quick ratio is within the year, while Acid Test Ratio is within 1-3 months.
108
Before what date must you buy a stock to get the dividend?
BEFORE the ex-dividend/record date.
109
If you don't care about the dividend and want to get a stock cheaper after the dividend, when should you buy?
On or after ex-dividend/record date.
110
Who issues a POA?
The grantor of it issues it, it's not court issued.
111
Who issues a Durable POA?
Grantor, not court
112
Who issues a Certificate of Incumbency?
Court. It's basically a company focused POA for corporate matters. While POA is stronger for personal affairs.
113
What form needs filing by an IA if it falls below the Net Worth requirement set by the Admin?
You let the Admin know within one day, and within the following day you file a "Statement of Financial Condition"
114
Open Purchase vs Open Sale vs Closing Purchase vs Closing Sale
Open Purchase, you're opening a long (buy) position.
Open Sale, you're opening a short (sell) position.
Closing Purchase, you're closing a long position (liquidating)
Closing Sale, you're liquidating a short position.
115
When do you have to provide a prospectus with a MutFund?
When it's solicited.
116
Which is more of a risk in fixed income, in general?
Inflation or Credit risk
Inflation in general.
I would assume this would shift towards credit risk, the further into junk bonds you go.
117
Can you have more than one POA designated?
Yeah, you'd have Consecutive agents. Example: This person has POA, and if they die, This other person gets it, and so on.
118
Exempt securities advertising, can the Administrator require those advertisements?
No, they're exempt from state registration.
119
Which investment company type has shares that can be sold on margin and sold short?
Closed End Investment Companies
120
How do you calculate breakevens on a straddle?
You add both premiums, then apply to call up and put down.
121
Can an Administrator subpoena BDs in other states?
Yes, broad inspectorial powers
122
Can an Administrator subpoena?
Yes
123
Which records must be held for the life of the firm? (+3 years after)
Articles of Incorporation/Partnership Agreement, Minute books from BOD Meetings, Stock certificate books
124
What type of business entity are most custodians?
Broker Dealers.
125
Broker dealer agent commission splits
Same BD, Same State. OR Same state and two BDs under common control.
126
Dual registered company. Has an IA client in another state. Must the BD register there?
No. Assuming this is all the info, the BD side does NOT have a customer in that state, but the IA does and has registered.
127
What's the difference between the Current Account and the Capital Account?
127
Difference between a TOD deed and a TOD account?
TOD deed is for real estate property to be transferred w/o going to probate.
TOD account is for financial accounts, example Brokerage.
127
The sum of Capital account and Current account must equal?
Zero
127
What's the Current Account?
It shows the trade balance (exports - imports), Net income (earnings on foreign investments - payments to foreign investors), and Current transfers (foreign aid, remittances, where no goods or services are exchanged).
128
What's the capital Account?
FDI (foreign Direct Investment) in physical assets like real estates and factories, Portfolio investments in financial assets like stocks and bonds.
129
You exercise a stock option. Sale?
Yes. Exercising a call means you will be buying (receiving sale) of stock.
129
What's the Subscription Agreement?
This is the document for a Partnership that establishes your suitability for investment. It kind of acts like a receipt/confirmation to prove your investment.
130
STC says that the Ex-Dividend date is usually on the same day as the?
Record Date. Record date is set by the company, while Ex-Div is set by FINRA based on the Record date.
131
STC says the the Record Date is usually on the same day as the?
Ex-Dividend Date. Ex-dividend date is set by FINRA, usually based on the Record Date which is set by the company.
132
Who sets the Record Date for a dividend?
Company
133
Who sets the Ex-Dividend Date for a dividend?
FINRA, regardless of the fact that the stock itself wasn't registered with FINRA.
134
Give an example or another name for a secured bond.
Equipment Trust Certificate.
135
Why is Value investing riskier than growth investing?
It's contrarian.
136
Are REITs securities?
Yep. Remember, securities:
Are an investment of money
In a common enterprise
With the expectations of profits
Derived solely from the efforts of others
REITs fit that definition. Just feels weird since they don't pass through losses to investors, only income.
137
What is required by the firm to open an options account for a customer?
Dad used to be the options manager at one of his firms. He would've needed to sign off on that sort of thing.
Options principal's written confirmation, or branch manager's written confirmation.
138
Must solicitors who receive payments from a Federal Covered Adviser have to register with the SEC?
No, they may need to register with the state though.
139
What type of mutual funds are generally seen as very illiquid?
Fund of Hedge Funds.
Important to note that if a mutual fund invests into illiquid things, the liquidity of the Mutual Fund itself will tank.
140
In what way is the Market Risk Premium included in the calculation of a DCF analysis?
Market Risk Premium can help you reach Return on Equity (Re), which can be used as a discount rate. Don't forget about Valuations with Mr. Yiramilli.
141
Under what law are State Administrators allowed to set minimum financial requirements (not to exceed SEC Requirements)?
NSMIA 1996.
142
What percentage of income must be distributed by a REIT each year?
What percentage of REIT income must come from Real property?
At least 90% of REIT income is distributed each year. At least 75% of income from a REIT must come from Real Property.
143
What's a Suspended Market Order?
Stop Order, AKA Stop Loss Order
144
Who cares about a company stock's short interest positions?
Technical Analysts. Tech Analysts look everywhere except inside the company, shorts are outside the company. While Fundamental analysts look solely within the company to derive valuations.
145
What determines SS Eligibility?
40 Quarters of work, not age.
146
What's a Bypass Trust?
Type of Irrevocable trust used to pass assets from parents to children after BOTH parents die.
147
Agent resigns from one firm, signs with another. Who needs to update the state Administrator?
ALL THREE. U5 is filed by BD agent and Firm he's leaving. U4 is filed by BD Agent and firm he's joining.
148
What's your maximum loss in a RELP?
It's the amount you've invested and any amount you've committed to pay in.
149
Stock prices are what type of business cycle indicator?
Leading
150
What's the discretion amount for 13F?
F stands for Fucking 100 million.
When a firm, IA, BD, whoever, has discretion of $100million or more, they gotta let the SEC know via Form 13F
151
Is Interest Rate Risk short term or long term primarily?
Shorter. I think this is why. A change in interest rates has an IMMEDIATE (and potentially large) impact on the price of your bonds.
While inflation has an immediate but almost certainly very very small impact on your security in that same time frame.
152
Is Inflation Risk short term or long term primarily?
Inflation sucks, but at least it takes some time to do damage, longer term.
153
What's the max amount of a 529 that can be used to repay student loans?
$10,000 lifetime max.
154
What types of things can be paid for with a 529?
Tuition, higher education costs, student loans (10k max lifetime), and apprenticeship program expenses.
155
Registration by Coordination is used to kinda multi-task. Registering a security with the SEC and Admin within a short time frame (doesn't have to be at the same time, but can be). What laws are these securities registered under at state and federal levels?
State - Uniform Securities Act
Federal - Securities Act of 1933
Remember, 1933 act is for securities. 1934 act is for the trading/exchanging of securities.
156
Are ETFs Derivates?
NO, neither are Mutual Funds.
157
Which is better for retirement? Variable Annuity or Variable Life?
Variable Annuity
Primary purpose of pumping money into a variable annuity is to have a stream of income during retirement (once you've annuitized). Primary purpose of Variable life is to get a death benefit after retirement, but you can use the cash value during retirement - not ideal though because of penalties and red tape.
158
What's another term for Strike Price?
Exercise Price.
159
If a corporation declares a cash dividend, when is the ex-dividend date and what happens on that date?
The ex-dividend date is the same day as the record date and is the date on which the stock's price is reduced by the amount of the dividend.
160
You want to sell the stock but still be entitled to the dividend?
Example: Div Declared on May 1. Record date is June 9. Payment of dividend is July 10.
Sell on the Ex-dividend/record date.
The customer should sell the stock on Friday, June 9, for regular-way settlement. Since the record date is Friday, June 9, the ex-dividend date is also Friday, June 9 (ie., the same day as the record date). This means that a person who sells the stock on the ex-dividend date will still receive the dividend because she will still be the owner of the stock as of the record/ex-dividend date. A regular-way transaction settles one business day after the trade date. Alternatively, if the stock is sold on Friday, June 9, for cash settlement, the trade will settle on the same day and, as a result, the buver will be the owner of record and the seller will not receive the dividend
161
Exceptions to Penny Stocks?
Securities for $5.00 or more
Exchange listed securities
Options on OCC Markets
Investment Company (1940) securities
162
Client wants IAR to make transactions in a trust account. Which is needed?
POA
Cert of Incumbency
Durable POA
3rd Party Trading Authorization
When you see Trust, think Cert of Incumbency
163
Trading authorization, what is it?
When you see Trading Authorization, this just means Discretion over accounts. AND it acts like a mini-POA specifically PER ACCOUNT.
So full trading authorization means full discretion over a single account, not over all the client's accounts.
164
Full vs Partial Trading Authorization?
Remember, Trading Authorization is mini POA. Both can trade in the account given.
Full - Can withdraw funds, transfer to other accounts, some can even rebalance the entire portfolio
Partial - Cannot withdraw, or transfer
165
De-Minis for IARs working for FCAs. How's it work?
It doesn't apply for IARs of FCAs. IARs under FCAs only have to register for the state they go to office in.
166
De-Minimis for Federal Covered Advisers. How's it work?
De Minimis says that if you have more than 5 (so 6 or more) clients in a state you must register there as an IA. Federal law (NSMIA in this case) says not quite, you don't have to register with the states. However, if you wouldn't have been exempt under DeMinimis, Admins of those states can require notice filing AND fees.
167
Three things on a Customer's IPS?
Expectations related to the markets
Analysis of risks and rewards
Asset allocation models
168
Block Order vs Bunched Order
Block order just means 10,000 shares or more in one order.
Bunched order means that you Bunched up a bunch of smaller orders from various clients to get better pricing.
169
Who gets the Sales charge from the sale of a mutual fund share?
The company that brokered the transaction receives the sales charge (BD typically) and gets that in lieu of a commission.
170
JTIC vs JTWROS. which is more common for married couples?
JTWROS. Think about it, most married couples want to pass their accounts onto their partners without having it go to estate (and therefore probate).
171
Learn who would need to register as an IAR in certain circumstances, I'm still weak there.
This isn't a question, go fuckin learn it
172
IA gives brochure at the time of the contract signing. Client cancels contract 3 business days after. What happens if the IA has already done some services for the client since the signing?
The IA can keep a proportion of the fees for the services already performed, but no cancellation fees can be applied.
173
Statistical method that attempts to determine the return profile of a security/portfolio by generating random values based on the risk and return characteristics of the securities/portfolios themselves is?
Monte Carlo Simulation
174
What's the Monte Carlo Simulation?
Statistical method that attempts to determine the return profile of a security/portfolio by generating random values based on the risk and return characteristics of the securities/portfolios themselves is?
175
Solicitors for Federal Covered Advisers. Must they be registered to receive compensation from the IA?
No. You can use a BD as a solicitor (example) and they wouldn't need to register as an IA
176
Massive order from Japan for jumbo jets that are produced in America. What's the effect on Current/Capital account?
Money coming into US is CREDIT TO CURRENT ACCOUNT. Or (unlisted answer I assume) would be a debit to current account of Japan.
Credit is money in, debit is money out.
177
Do BD agents have to post a bond?
BD's agents may have to post a bond.
178
Letter of intent to buy mutual fund shares can be backdated how far?
90 days
179
What's an artifice?
Artificial sense of urgency. YOU GOTTA BUY IT NOW TO GET THE DIVSSSS
Don't do that.
180
What's a breakpoint sale?
When you're trying to maximize your commission by accepting an order that's jusssstttt under the breakpoint amount in order to max your commission.
Example: Breakpoint if you buy $50,000. Agent tries to get you to buy $49,999 worth. If he hits $50k, he gets a smaller commission bc of that breakpoint.
181
Where does the leveraging in ETFs generally come from?
From Futures according to Series 7 Guru
182
How often do variable life policy death benefits need to be calculated?
Remember, in these types of policies, the death benefit grows according to the amount of earnings in your investment sub accounts, this helps to hedge the death benefit against inflation.
183
What's an associated person in a firm?
Someone who needs to register via a Series 65
184
So to make an evaluation of future value computation, which isn't needed?
Present value
Future Value
Rate of Return
Time period
When you see future value computation, they're asking "We're trying to get the FUTURE value", so it's not needed to get itself. If you swap future for present, the same applies, and the present value wouldn't be needed.
185
Matched trades?
Where companies agree to buy or sell at the same time. This is a no no
186
What's spoofing?
When BD's enter large orders with no intention of executing them in order to falsify market activity. this is a no no
187
Formula for Dividend Payout Ratio
Dividend / EPS
188
Look out for questions that ask something like this:
The RIF Corporation can issue all of the following except:
RIF Rights
RIF Call options
RIF Warrants
RIF Common Stock
Call options.
They're throwing you off, there is no RIF Corporation, it's an example company. Companies don't issue options on their own stock, these are found in the secondary market.
189
True or False CAPM Assumes that there are no transaction costs or taxes.
True.
189
To be a Jumbo CD, how much money?
100k (aka Negotiable CD)
189
How do you get the information registered with the SEC on publicly traded companies?
Use the EDGAR
189
To be a negotiable CD, how much money in it?
100k (aka Jumbo CD)
189
Do CD's need to be registered?
NO
189
Interest Rates are declining. What stage of the business cycle is that?
Contraction
Yeah, you don't get it yet either do you.
189
Unit values and cash values are computed how often? (Variable life separation account value)
Unit values - daily
Cash values - monthly
Not on STC, just remember the info in case
190
IA is registered in States A,B,C. IA begins the registration process for State D. Certain IARs will be automatically conferred (not granted) registration in State D alongside the firm. Who?
Officers, Partners, Directors of the firm who will be functioning in State D.
190
Stock price has been falling for a little while. When the stock price hits $30, many investors place buy orders and the price subsequently ups to $31 as a result. What's that?
Reversal
Support Level
Change in Polarity
Resistance Level
Support Level
190
Disclosure of Payment for Order Flow is found where?
Trade Confirmation apparently
190
You're selecting an appropriate MutFund for a client. Which do you not care about?
Expense ratio
NAV
Tenure
Investment objective
You don't care about the NAV.
190
What form is filed if a firm's gonna sell a wholly owned subsidiary?
8K - just remember this one's for big shit.
190
Close ended fund base their prices on Supply and Demand and charge markups and markdowns to the NAV, True or false
True
191
Only Open ended funds, rather than close ended funds, bases its price on the next computed NAV. True or false
True
192
What's a Totten Trust?
Bullshit way of saying POD account.
193
NAV is $100 on day 1. Day 2 they realize $2 in gains and $1 in unrealized gains. Day 3 NAV?
$101
$100 + $2 realized - $1 unrealized
194
Suitable investor Vs Accredited investor
Suitable is state version of federally accredited. Suitable investors can buy viatical insurance policies. Suitable investors include anyone who qualifies as accredited investor under the 33'Act definition and any of these:
partners, directors, officers of issuer
or $250k min NW (no house)
or $150k min NW AND $100k gross (no house)
195
What's an order memorandum / order ticket?
They're the recorded transactions for customers.
Account #, date of entry, date of execution.
Modified? Cancelled? Done?
Terms Conditions
Solicited vs Unsolicited
Discretionary vs Non
BD or Bank that executed
196
What's needed for an agent to be associated with two broker dealers?
Admin has to OKAY it
197
Finder gets commission on people he finds to bring to issuers for private placements. must he register?
Yes, as he is soliciting and receiving compensation.
198
Finder gets paid for finding a set number of potential investors for a private placement. Must he register?
NO.
199
U4 must be updated promptly (30 days) if any material facts on it change. List some.
Becoming registered in another jurisdiction (i.e., another state)
Change in legal name
Change in residential or business address
Violated the federal or state securities laws or SRO rules
Been the subject of a regulatory proceeding or investigation
Been involved in any legal proceedings (civil or criminal)
Been the subject of a customer complaint
Been terminated by a previous employer
Declared bankruptcy, had a lien placed on your property or any unsatisfied judgments
Engaged in outside business activities (e.g., acted as a general partner, job outside employment with
broker-dealer, etc.)
200
BD Recordkeeping. 3yrs, 6yrs, Lifetime. What goes where?
3yrs: Ads, Order Tickets, Confirmations
6yrs: Blotters, Ledgers, Customer Statements
Lifetime: Articles of Incorp (Corp), Partnership Agreement (Partnership), Stock certificate books, Minutes from Shareholders meetings
201
A customer buys 200 shares of Giant stock at $63 a share. The client writes 2 call options with a $75 strike price and receives a premium of $4. What is the customer's breakeven point?
$71
$67
$55
$59
$59
Think positives and negatives. You write a (covered in this case) call if you're bearish. When you're bearish, breakeven goes down from strike price. Weird..
A type of option position where an investor buys or holds stock and writes a call option is called a covered call. This strategy is typically used to generate income. The breakeven point is $59. It is determined by subtracting the premium from the cost basis of the stock ($63 - $4). The fact that 200 shares were purchased and that two calls were written is irrelevant, since the breakeven point is calculated on a per-share basis. (74462)
202
If a member firm has written procedures which allow for the borrowing and lending of funds between agents and customers, in which of the following situations is an agent NOT allowed to borrow from a customer?
QID: 2331093Mark For Review
If the customer and the agent are both registered with same firm
If the loan is based on a verbal agreement that the agent has with a non-registered person and the agent repays the loan in full
If the customer is a member of the agent's immediate family
If the lending arrangement is based on a business relationship that exists outside of the broker-customer relationship
B
A person who is associated with a member firm in any registered capacity may NOT borrow money from or lend money to a customer of the firm unless the firm has an existing written policy which allows the practice and one of the following criteria is met:
The customer is a registered person with the same firm
The customer is an immediate family member
The loan is based on a business relationship that exists outside of the broker-customer relationship
The customer is a financial institution that regularly engages in the business of providing credit, financing, or loans
The answer is based on the fact that even if the agent repays the loan plus interest, it is considered a violation if the customer is not on the narrow list of permitted persons. (32497)
203
What do Gamma and Theta Measure?
Volatility of options premium
203
CIP customer id program?
?
204
A security is being registered with the state Administrator by the issuer using registration by qualification. When investors purchase the security from the issuer, when must the prospectus be delivered?
QID: 2331045Mark For Review
Within five days of delivery
Within five days of settlement
Before the sale
No prospectus is required
c
Under the Uniform Securities Act, a prospectus must be delivered to an investor at the time a security is being offered under registration by qualification. Since the offer of a security occurs before the sale, a prospectus must be delivered before the sale.
(19923)
204
A broker-dealer owns 100 shares of ABCO stock which it purchased at 28. If the stock is sold to a customer, the broker-dealer will base the markup on:
QID: 2331009Mark For Review
The inventory cost of 28
The highest bid on the Nasdaq system
The lowest offer on the Nasdaq system
A price that is fair and reasonable
c
When selling stock to a customer, a markup should be based on the lowest offer on the Nasdaq system, not the price the dealer paid to purchase the stock (dealer's inventory cost). (62730)
204
Currency values in a floating-rate system are established by:
Supply and demand for the currency
Government regulations
The World Bank
The International Monetary Market
Supply and demand for the currency
204
If the U.S. economy was experiencing tough times with slow or negative growth, creating an extreme lack of demand for consumer goods, the result might be:
QID: 2331090Mark For Review
A
Inflation
Deflation
C
Stagflation
D
Disintermediation
Deflation.
Inflation is when Demand for shit is high because economy boomin. Demand products > Supply of products
Deflation is opposite. When no one wants jack shit, Demand for products < Supply of products
204
Five years ago, a registered representative sold a variable annuity to a 65-year-old client. The annuity carries a seven-year surrender fee. The client made a lump-sum investment of $100,000 into a growth-oriented separate account which has grown to $150,000. The RR expects a major market correction in the near future and recommends that the client conduct a 1035 Exchange into a fixed annuity. The RR explains to the client that the surrender fee will be less than the anticipated decrease in account value. This recommendation is:
Unsuitable, since there is no benefit in surrendering the annuity due to the other investment options that are available in the separate account.
Suitable, since the surrender fees have been disclosed to the client.
Suitable, since the RR is acting in the client's best interests.
Unsuitable, since the market correction will have little consequence over the short-term.
a
A 1035 Exchange permits the direct transfer of funds in a life insurance policy, endowment policy, or annuity into another policy, without creating a taxable event. However, incurring a surrender fee and then signing a new, long-term contract is not an appropriate recommendation.
Since the separate account of a variable annuity will offer numerous investment objectives, the client could move her investment to another offering within the separate account without incurring surrender charges. (89085)
205
Learn 13D please for my sanity.
File 13D within 10 days of someone becoming a more than 5% owner. Filed under 34' Act, yes '34. Since it's filed under 34, you file with SEC.
205
If an investment increases in value, which of the following statements would be TRUE?
If it was held for less than one year, the annualized rate of return would be greater than the holding period return
If it was held for less than one year, the holding period rate of return would be greater than the annualized return
Regardless of the actual holding period, the holding period and annualized return are always identical
If held for more than one year, the holding period return would be less than the annualized return
A
Example:
5% returns over a quarter (HOLDING PERIOD)
20% returns over a year (ANNUALIZED RETURN).
If less than a year held, Annualized will be multiplied up from the holding period.
If greater than a year held, Annualized will be divided down from the holding period.
206
A market maker gives a firm quote of 15 - 15.50 for a stock. If the party on the other side decides to buy 800 shares, how many shares is the market maker obligated to sell at 15.50?
100 shares
The market maker does not have to sell any shares.
800 shares
Whatever the market maker decides upon
Market Maker - Think 100 shares. They MUST transact to keep liquidity.
207
Jack has a substantial amount of cash value built up in his variable life insurance policy. He would like to use some of it for a home renovation project. Which TWO of the following choices would be used to explain to Jack his options for accessing his cash value?
If he withdraws some of his cash value, it will be treated as taxable earnings first, then a tax-free return of premiums (LIFO).
If he withdraws some of his cash value, it will be treated as a tax-free return of premiums first, then taxable earnings (FIFO).
If he takes a loan against the cash value, it will be taxed as earnings first, then treated as a tax-free return of premiums (LIFO).
If he takes a loan against the cash value, it will be tax-free.
II IV
Any withdrawal of cash value from a life insurance policy is considered a return of premiums first, which would be tax-free. Withdrawals above the amount of premiums paid will be considered interest and, therefore, taxable as income. Policyholders usually prefer to borrow against their cash value, since this would be tax-free. The loan does not need to be repaid, but any amount still outstanding upon the death of the insured will be subtracted from the death benefit. (63059)
208
A whole life insurance policy may be referred to as:
Permanent life
Term life
Ordinary life
Straight life
I III III
209
In anticipation of volatility in the price of ABC common stock, an investor purchased one ABC March 40 call at $1.35 and one ABC March 40 put at $1.15. Just before the options' expiration, the price of ABC stock is $42.05 and the investor closes out both positions at their intrinsic value. Which of the following statements is TRUE?
The investor has a loss of $235.
The respective breakeven points were 41.35 and 38.85.
The investor has a loss of $45.
The investor has a profit of $235.
Loss of $45
Stock price is $42.05.
Closes out at their intrinsic value (not let them expire).
The call has an intrinsic value (in the money) of $2.05 (from $40), and the put has $0 of intrinsic value. $2.05/share * 100 shares in an option = $205 gain.
He spent $250 on both options (($1.35+$1.15)*100 shares). That's a loss
205 gain - 250 loss = 45 loss.
210
What do corporations do to borrow from banks?
Revolving credit facility. Kind of like credit card for a company, you owe interest on what you borrow.
211
Options don't have which two types of risk?
Reinvestment and Inflation
High returns / High losses, and usually shorter term - inflation loves low returns and longer term, so no risk there for inflation.
Reinvestment risk - this is tied DIRECTLY to interest rates, which don't really do shit to options.
212
IA Order ticket includes which of these?
The person who recommended the transaction
The person who placed the order
The date on which the order was entered
The time that the order was executed
I II III
213
An investment advisory firm and an accounting firm have offices in the same building, but are otherwise unaffiliated. One of the investment adviser representatives pays a cash referral fee to a CPA in the other office for any clients she sends over to the adviser. All the following statements are TRUE, EXCEPT:
QID: 2331014Mark For Review
A
The adviser must give each client that is acquired through the CPA another copy of the separate solicitor disclosure document at the time the client agrees to enter into an advisory relationship.
B
The CPA must give a separate disclosure document to any clients that she refers to the adviser.
C
The CPA must give the investment adviser's brochure to the clients that she refers to the adviser.
D
The adviser must make a bona fide effort to ensure that the CPA is giving the clients whom she refers copies of the adviser's brochure and the separate solicitor disclosure statement.
A is false
the rest are true
214
What's the Reasonableness standard?
Investment is suitable for at least some investors.
FINRA has a three-part suitability standard. The first part is the reasonable basis standard, which indicates that a recommendation must be suitable for at least some investors. The customer-specific standard requires that a recommendation must be suitable for a specific customer based on the customer's investment profile. The final part of the FINRA rule is the quantitative standard, which specifies that a series of recommendations cannot be too excessive and that they don't leave a customer with too much invested in one type of investment. FINRA has a three-part suitability standard. The first part is the reasonable basis standard, which indicates that a recommendation must be suitable for at least some investors. The customer-specific standard requires that a recommendation must be suitable for a specific customer based on the customer's investment profile. The final part of the FINRA rule is the quantitative standard, which specifies that a series of recommendations cannot be too excessive and that they don't leave a customer with too much invested in one type of investment.
(13821)
215
New claims for unemployment have been rising, what stage are we?
Contraction. Since unemployment claims are made for troughs and that's in the future, we're currently in contraction
216
Benefits of swaps (Multiple)
Customizable
Established for short term
Hedge against risk
Lower cost
I II III
Swaps are customizable, remember Scion company in the Big Short MADE his own swaps at various banks.
They're for short term, IG
They hedge against risk
217
Under NASAA's Mode Rule on Investment Adviser Representative Continuing Education Requirements, how many credits may be rolled over annually?
ZERO
You can't complete more hours than necessary then roll them over
IARs must complete six credits of Regulatory and Ethics credits, and three of those six credits must specifically address ethics. IARs who are not dually registered as registered representatives with FINRA must also complete six credits covering Products and Practices each year.
218
How many hours for CE for IARs?
12
6 for products and practices
6 for regulatory and ethics (3 must cover ethics specifically)
219
Who hedges futures/forwards more?
Producers or speculators?
Producers. They're making whatever is in the futures/forwards, so they want to hedge the risk on their livelihood.
220
A customer buys 200 shares of Giant stock at $63 a share. The client writes 2 call options with a $75 strike price and receives a premium of $4. What is the customer's breakeven point?
We're looking at the SELLER's breakeven.
Seller paid $63/share, but then got paid $4 for that, so it's kinda like he paid $59 for it. If the stock goes below $59, he would lose money if he sold. If the stock stays above $59, he would have a gain if he sold, nevermind the option currently.
The buyer's BE is easy - $79
221
Which trades independently from its NAV?
Variable Annuity
UIT
Closed-end Fund
Mutual Fund
Closed end. it's just a markup or markdown. Those markups and markdowns can vary wildly, without influence from the NAV. The others trade at their NAVs.
222
3(c)(I)?
Think Hedge Fund. And remember, hedge funds are a type of Private fund, which can be an exempt reporting adviser if it's less than $150million.
223
SEC Release 1092?
It expanded the definition of IA to include pension consultants, sports reps and Fin planners.
IMPORTANT: they do not have to meet the ABC test to be needed to register. They just have to provide investment advice.
224
Admins Cease and Desist powers?
ONLY IN THEIR OWN STATE.
225
ABS vs CMO?
ABS is a CMO but without the M, no mortgages. They function the same though.
226
Why does Preferred stock commonly follow the pricing of TBonds?
Preferred stock pays an unending dividend each quarter. TBonds are the longest term bonds that pay semi-annual interest. They're the closest instruments.
227
What is Restricted Stock?
Hint Private Placement
Restricted stock is stock that's not been registered with the SEC and is typically sold under Regulation D (i.e., a private placement). Restricted stock cannot be sold unless the shares have been held for at least six months (if the issuer is an SEC-reporting company) or one year (if the issuer is a non-reporting company). In order to resell restricted stock on a stock exchange, investors must sell the shares in accordance with Rule 144, which limits the number of restricted shares that can be sold in a 90-day period.
228
Learn this:
Investors often use financial futures to hedge portfolios against which of the following types of risk?
Political risk
Event risk
Market risk
Business risk
C
CORRECT ANSWER CHOSEN
Financial futures can be bought and sold for stock indexes, foreign currencies, and bonds. Similar to how put options can hedge a stock position, stock index futures can hedge the market risk for a portfolio that tracks an index. Investors will sell futures contracts and profit when the market falls. The subsequent profit on futures will offset the portfolio's losses. Business risk is typically minimized through investing in an uncorrelated portfolio of stocks (i.e., through diversification). Political risk and event risk cannot be directly hedged, since there are no financial futures that address those risks.
(19152)
229
Mutual Funds. Are Fractional Shares Allowed for Purchases?
Yes
230
Broad based options vs Narrow based options?
Broad covers way more stuff in general
Narrow is more for one industry (eg Oil/Gas)
231
All of the following economic conditions signal an upward sloping yield curve, EXCEPT:
The yields on longer maturities are significantly higher than the yields on shorter term maturities.
Fixed income investors demand higher yields on long-term bonds.
The economy is on track for a rapid expansion.
The Federal Reserve is expected to cut interest rates.
Fed is gonna cut.
Think of it this way:
Normal yield curve goes up and to the right. That means the economy is on track and about to expand. Increase rates so we don't hit the ceiling so fast.
Inverted yield curve goes down and to the right, literally means shit is going downhill. If shits going downhill, the fed will cut rates.
Think about it. Fed will cut when we're going downhill so we don't hit the floor (trough) too hard. Inverted yield curve is indicative of a bad time coming.
232
What name is given to the type of units used during the payout phase of a variable annuity?
A
Annuity units
B
Accumulation units
C
Payment units
D
Paid-in units
Annuity Units
For payout - Annuity
To calculate payout - accumulation
When annuitization begins, accumulation units are exchanged for annuity units. Investors then receive payments based on the value of a fixed number of annuity units. The value of the annuity units will fluctuate based on the performance of the variable annuity's separate account, which will cause the payments to rise or fall. (67685)
233
STATE IA's that have Custody, partial discretion and accept prepayments.. What are the net capital requirements for each?
Prepayments: positive net worth
Custody: 35,000
Partial: 10,000
Investment advisers that maintain custody of client assets have a minimum net worth (i.e., assets - liabilities) requirement of $35,000. Investment advisers that don't maintain have custody, but have limited discretionary authority have a minimum net worth requirement of $10,000. Investment advisers that collect pre-paid fees of more than $500, six months or more in advance, must keep a positive net worth at all times. All investment advisers must file financial reports to indicate how they're meeting their net capital requirements. (22062)
234
Which of the following is BEST described as the process of committing to various asset classes based on estimates of their near-term expected returns and their correlation to other asset classes?
QID: 3148222Mark For Review
A
Rebalancing
Tactical asset allocation
C
Fundamental analysis
Strategic asset allocation
Apparently committing to investments doesn't mean shit - it's tactical instead of strategic.
235
Two advisers have entered into a finder's agreement. Adviser A will solicit new customers and receive 2% of Adviser B's fees. At the end of the year, the clients will only pay an advisory fee to Adviser B. Does Adviser A have a fiduciary obligation to disclose the arrangement to the clients prior to making referrals?
A
Only if Adviser A is a registered adviser.
B
Yes. Regardless of whether the client pays an additional fee, the arrangement is a conflict of interest and requires disclosure.
C
No. Although a conflict of interest exists, it doesn't require disclosure.
D
No. Since the client doesn't pay any additional fees, no conflict of interest exists.
B
CORRECT ANSWER CHOSEN
Under the Investment Advisers Act of 1940, investment advisers are permitted to pay finder's fees to solicitors. However, a written agreement which details the arrangement between advisers must exist. Additionally, the clients need to receive a copy of the adviser’s brochure which discloses the compensation, and a signed and dated acknowledgement from the client that the brochure was provided needs to be received prior to entering into the advisory agreement. (22079)
236
As it relates to the capital asset pricing model (CAPM), which of the following best describes beta?
A measurement of the volatility of investment returns
The degree to which an investment's returns follows overall market returns
Degree to which investment returns follow market returns.
High beta = higher THAN MARKET (SP500) returns
Low beta = lower returns
237
NMS securities, what's that mean?
It's a fancy way of saying Exchange listed securities and the term is used in FEDERAL LAW.
Connect the dots, Registered Representatives would solicit clients for the sale of NMS securities. (Means Agents solicit clients for exchange listed securities).
238
ADV dates:
Updating Amendment?
Correcting Amendment?
ADV-E?
ADV-W?
Updating Amendment aka Annual Renewal needs to be filed within 90 days of firm's (state or federal) FISCAL year end. Includes changes to non-material shit like AUM, # discretionary/non accounts, # accounts, # employees, #IARs.
Correcting Amendment needs to be filed within 30 days of the material change to ADV (part 1 or 2) info. Includes changes to address of firm, status change of general partner, manner of custody, fee structure changes.
ADV-E is the one that independent accounting firm files when an IA has custody of assets. ADV-E is filed within 120 days of the audit.
ADV-W becomes effective 180 days after the fiscal year of the firm ends. Not sure when it needs to be filed though.
239
Repo vs Reverse Repo?
Repo - The FRB buys first, then sells back later.
Reverse Repo - The FRB sells first, then buys back later.
Repo - think you're the customer and you BUY the car first, but it gets taken later.
Reverse repo - think Sell first.
240
Global Depository Receipt vs American Depository Receipt?
ADR is an ADR while GDR is the foreign version,
241
LIFO vs FIFO. Which one does liquidation of an annuity use? How about Life insurance?
With Annuities you wanna live a long LIFO.
With Life insurance, the insurance company suffers more if it's sooner. FIFO.
242
Newspaper offerings. What's the deal yo?
If more than 2/3 of the circulation is outside the originating state, no offer has been made in any state.
Another way to think of it, at minimum, 33% of the circulation must be in the original state for it to be considered an offer.
243
When going for a value stock, agent looks for high or low of these?
EPS
P/E
P/B
Div Yield
High earnings per share
Low price/earnings ratio
Low price to book value
High dividend yield
244
Problem with ADRs?
Because of currency exchange rate fluctuations and supply/demand dynamics, the ADR price may not completely accurately reflect the value of the underlying foreign security
245
JTWROS is a commie account, what do I mean by that?
It doesn't matter how much you put in, everyone gets equality of outcomes.
246
Trade deficit is decreasing. What's that mean for these:
Bond Yield increase or decrease?
USD strengthen or weaken?
Deficit decreases, means more exports than imports. Other countries convert their currency to USD to buy products from US (leads to exports) which means demand for USD goes up. This strengthens the USD against OTHER CURRENCIES. Meaning a 4% bond in the USD pays more after exchanging to the home currency than before. Demand for Bonds goes up, Price of bonds rises to meet this, and as a result, the yield (relative to the new price) is now lowered.
247
A publisher responds to each customer with personalized investment advice. No fee is mentioned. Must they register?
Yes
248
Stock has large amounts of cash reserves. What type of stock?
Value. Think about it, growth would use as many of those dollars as they could in RnD.
249
What do we think when we see Rule 147?
INTRASTATE. QUALIFICATION IS USED FOR THIS
250
letter of intent time frame?
13 mo
251
What's the benchmark for small cap stocks
russell 2000
