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What does Beta express?
What does Alpha measure?
At what levels are U.S. gov’t bond interest taxed?
What about GNMA, FNMA, and FHLMC?
U.S. government bond interest is taxable at the federal level exclusively.
GNMA, FNMA, and FHLMC are taxable at the federal, state, and local levels, also, just like corporate bonds.
What is the Sharpe Ratio?
What is the significance of a higher Sharpe Ratio with respect to risk taken?
The Sharpe ratio measures risk-adjusted returns with respect to standard deviation. Thus, the Sharpe ratio = risk adjusted return / standard deviation.
A higher ratio signifies better compensation for the risk taken.
What is the ERISA 404(c) safe harbor?
An accredited investor includes an individual or married couple with a financial net worth—excluding the value or equity of their primary residence—of . . .
$1 million, or an annual income of $200,000 for an individual, $300,000 for a married couple.
What is the formula for the Capital Asset Pricing Model?
It’s just the risk adjusted expected return:
E(Ri) - Rf = B(E(Rm) - Rf)
What is the difference between variable and whole life insurance?
With variable, the death benefit and cash value fluctuate according to fluctuations of the separate account. The policyholder can choose a subaccount that may result in improved yield.
A whole life policy provides a guaranteed cash value. It is not considered a security and paid out of the insurance company’s general account.
What is the definition of block trade?
Sale of at least 10,000 shares or $200,000 market value.
What is a viatical settlement?
A viatical or life settlement is created when someone with a life insurance policy wants to receive most of the benefits associated with the policy now, while he is alive. If the policy has a $1 million death benefit, the viatical settlement would involve an investor purchasing the policy for more than its cash surrender value but at a discount to the $1 million death benefit. The third-party buyer then becomes the policy’s owner and pays any premiums that are due.
What are the two types of investment companies under the Investment Act of 1940 other than a management company?
Face amount certificate company - investors purchasing a certificate pay into the company and receive the face amount of the certificate at a later date. Subject to management fees.
Unit investment trust - a portfolio of pooled assets that is not actively managed. “Units” are issued, like a mutual fund, that can be redeemed at the investor’s request.
Definition of Investment Adviser (under 15 USC 80b):
Exemptions:
Which of a health savings account or a flexible savings account permits investment in securities?
HSA
Definition of Investment Contract
An investment contract is:
• investment of money due to
• an expectation of profits arising from
• a common enterprise
• which depends solely on the efforts of a promoter or third party
How does participating preferred stock differ from preferred stock?
If the dividend of the common stock is raised, the participating preferred dividend must also be raised. So the dividend has a fixed minimum, but no maximum.
What is commercial paper?
A short-term corporate IOU with a typical maximum maturity of 270 days. Rather than paying interest to investors, the issuer sells the paper at a discount to its face amount.
Does Gross Domestic Product include what is produced by foreign nationals working in the U.S.?
Yes.
Gross domestic product includes what is produced domestically, by both U.S. workers and foreign nationals working within the United States.
What is a Crummey Trust?
Definition of Security
What type of shares in an open end fund charges a front end fee?
What type of shares are for a short term investor?
A-shares.
C-shares.
Are Incentive Stock Options taxed as capital gains or income?
Are Non-qualified Stock Options taxed as capital gains or income?
ISO: Capital gains. Also, ISOs have a maximum 10 year time limit and the net profit is an AMT preference item.
NSO: Income
What is a closed end fund?
Annuities
Brochure Rule
What does the Securities Investor Protection Corporation (“SIPC”) protect?
How much of a customer’s account does the SIPC protect?
The SIPC protects broker-dealer customer accounts should the broker enter bankruptcy.
The SIPC protects up to $500,000 in total, of which only $250,000 of un-invested cash is covered. The value is determined as of the day a trustee is appointed.
