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Series 65 - March 2024 > Investment Vehicle Characteristics > Flashcards

Investment Vehicle Characteristics Flashcards

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Series 65 flashcards
1
Q

Equity Securities

A
  • ownership
  • most common form is common stock
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2
Q

Common Stock Rights

A
  • voting rights (BOD, m&a, recapitalization, CANNOT vote for Officers)
  • right to receive dividends if and only if company has declared dividend
  • preemptive right (right not be be diluted, have right to maintain % ownership)
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3
Q

Date on which you must be on company books as shareholder to receive dividend

A

Date of Record

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4
Q

First day stock trades without right to dividend

A

Ex dividend date

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5
Q

What date does a company not determine?

A

Ex-dividend date, determined by industry settlement cycle

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6
Q

Investment objective of buying Common Stock

A
  • growth (capital appreciation)
  • income
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7
Q

Preferred Stock Characteristics

A
  • fixed dividend just like a bond
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8
Q

Investment objective of buying Preferred Stock

A
  • fixed income
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9
Q

American Depository Receipts (ADR)

A
  • US domestic security issued and regulated in US
  • facilities domestic trading of foreign securities
  • subject to currency risk
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10
Q

Restricted Stock

A
  • comes from private placement (restricted for 6 months or until registered)
  • employees stock plans
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11
Q

Debt Securities Issuers

A
  • Corporate
  • Government
  • Municipalities
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12
Q

Debt Securities Owners

A

Creditors

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13
Q

Par Value

A
  • Face value
  • amount received when bond matures
  • principal
  • all mean $1k
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14
Q

Fixed Income Risks

A
  • DRIP
  • default (aka credit risk)
  • repurchase
  • inflation (inverse relationship)
  • purchasing power
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15
Q

Current Yield

A

Annual Income / Market Price

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16
Q

Yield Ladder

A
  • discount = YMCA
  • premium = ACMY
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17
Q

More Volatile

A
  • Zero Coupon (MOST OF ALL)
  • Long Term vs Short Term? (Long term)
  • Same Maturity? Lowest Coupon is MOST VOLATILE
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18
Q

Zero Coupon Bond

A
  • doesn’t pay fixed income
  • buy at very deep discounts
  • since absolute lowest coupon, means its the most volatile
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19
Q

Preferred Stock

A
  • pays fixed interest, subject to interest rates
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20
Q

Pooled Investment Companies

A
  • UIT
  • Open-Ended Management (Mutual Fund)
  • Closed-Ended Management
  • Exchange Traded Funds

pooled investors money together
all have clearly defined investment objective found in prospectus
can have fractional shares

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21
Q

When issuing new shares to the public

A
  • prospectuses (IPO)
  • securities act of 1933 (regulates UITs)
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22
Q

UITs/Opened Ended Mutual Funds

A

Continuously issue new shares, aka continuous primary offering
- sell shares back to issuer (redeemable)

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23
Q

Primary Market Regulating Act

A

Securities Act of 1933

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24
Q

Secondary Market Regulating Act

A

Securities Exchange Act of 1934

25
Q

Net Asset Value

A
  • add up all fund values
  • minus out liabilities
    = total net asset value
  • divided by number of outstanding shares

counted twice a day

26
Q

Open-Ended/ETF

A
  • still represent pool of investments
  • issued to the public once, then secondary market (traded every day)
  • price fluctuates during day, buy at market price
  • still has NAV, can trade at discount or premium
27
Q

Open-Ended Sales Charge

A
  • total cost is NAV + sales charge (max 8.5%)
28
Q

ETFs differ from open-ended

A
  • Because they track an index
  • doesn’t need active management of portfolio
  • low management fees
  • passive management
29
Q

REITs

A
  • not mutual funds or investment companies
  • typically receives rental income or mortgage income
  • trade on open market
  • very big for income investors
30
Q

US Government Securities

A
  • safest (capital preservation)
  • bills (1,3,6,12 mo)
  • notes (1-10 yrs)
  • bonds (10-30 yrs)
  • bill knows bonds
  • TIPS (adjusted for inflation/CPI)
  • still subject to interest rate risks
  • RIP
31
Q

TIPS

A
  • adjusted semi annually
  • adjusted based on CPI
  • coupon rate is fixed
  • principal is adjusted
32
Q

Yankee Bonds

A
  • issued by foreign company paid in US Dollars
33
Q

Brady Bonds

A
  • gather foreign debt from 3rd world countries.
  • Issued debt in US
34
Q

Municipal Securities

A
  • General obligation - backed by taxes
  • revenue bonds - backed by revenue
  • interest on bonds is tax exempt (no federal taxes on INCOME, no state tax if resident of state issued
  • pay tax on capital gains
  • most suitable for highest tax brackets
35
Q

Tax Equivalent Yield

A

muni yield / (1-tax bracket) = corporate bond required yield

36
Q

Cash and Cash Equivalents

A
  • money market securities - not FDIC insured, (market place for ST, high quality, debt instruments) general safe, income, but not insured, used as a parking garage.
  • demand deposit (checking account - no int)
  • CD - no income, pays it out at end
37
Q

Derivatives

A
  • options - security
  • forwards - not security
  • futures - not security
38
Q

Options

A
  • contract, right to buy or sale
  • calls, puts
39
Q

Call Options

A
  • buyer is bullish, gives buyer right to buy.
  • seller is bearish, obligated to sell if buyer exercises right.
40
Q

Put Options

A
  • buyer is bearish, buyer has right to sell
  • seller is bullish, seller has obligation to buy
41
Q

Hedges (Option Strategy)

A
  • used to hedge a stock position (already owns)
  • used to protect or (never both) generate income.
  • always BUY protection
  • always SELL for income
  • if risk is down, buy put for protection, sell call for income
42
Q

Futures Contract

A
  • Option on commodities
  • standard contracts
  • Chicago and New York exchanges
  • buy = consumer (lock in price to buy)
  • sell = producer (lock in price to sell)
43
Q

Forward Contracts

A
  • not standardized, not on exchange
  • institution to institution
  • unregulated/unregistered
  • swaps is another name for forwards
  • NOT FOR RETAIL CUSTOMERS
44
Q

Alternative Investments

A
  • limited partnerships
  • Hedge Funds
  • Structured Investment
45
Q

Limited Partnerships

A
  • one general partner (manages, active)
  • limited partner (no management)
  • limited partners have no liability
  • passive investment
  • best reason to enter is it is a viable business
  • highly ILLIQUID
46
Q

Hedge Funds

A
  • pooled investment
  • loosely regulated, unregistered fund, investment company
  • can use options to speculate on different market movements
  • can borrow on margin
47
Q

Structured Investment

A
  • Equity Linked Note (ELN)
  • debt instrument linked to an equity (index)
  • get regular income
  • principal linked to return of equity index
48
Q

Insurance Based Products

A
  • Annuities
  • Life Insurance
49
Q

Fixed Annuity

A
  • purely insurance product
  • guaranteed and fixed contract
  • no investment risk
  • subject to purchasing power risks
  • not meant for young investors
50
Q

Variable Annuity

A
  • security product
  • no guaranteed return
  • investment vehicle for retirement not at retirement (investments grow tax-deferred, penalty for early withdrawal)
  • investment in mutual fund inside insurance wrapper (separate account)
  • money invested is already taxed not taxed again (taxed LIFO on withdrawals as ordinary income)
  • hedge against inflation
51
Q

Index Annuities (Equity Based)

A
  • variable annuity tied to equity index
  • has participation rate, what they receive of return of index
  • has cap on amount that can be earned
  • cannot be negative, guaranteed against loss
52
Q

Life Insurance

A
  • needs analysis (suitability)
  • traditional whole life
  • variable life
  • variable universal life
  • universal life
53
Q

Need Analysis

A
  • death benefit needed for insurance are
  • what death benefit is needed for situation
54
Q

Whole Life Insurance

A
  • everything is guaranteed (DB, cash value, etc)
55
Q

Variable Life Insurance

A
  • minimum guaranteed death benefit
  • no guarantee on investment return or cash value
  • 2 accounts, separate and general
  • suitable for younger
56
Q

Variable Universal Insurance

A
  • NO guarantee
  • only uses separate account
57
Q

Whole and Variable Premiums

A
  • fixed premium
58
Q

Universal Insurance Premiums

A
  • flex premium

Series 65 - March 2024 (8 decks)

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