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Series 66 Flash Cards > Investment Vehicles > Flashcards

Investment Vehicles Flashcards

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Series 66 flashcards
1
Q

A “derivative” security is

A

A security that has its value derived from the price movements of an underlying security or commodity

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2
Q

Options are derivatives based on

A

A security’s price movement

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3
Q

Futures are derivatives based on

A

Commodity, currency and index price movement

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4
Q

Forward contracts are

A

Custom contracts for delivery of an underlying asset at a fixed price on a future date that are negotiated between buyer and seller.

Forward contracts are not subject to federal regulation.

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5
Q

Call contract allows the holder to?

A

Buy a security from the writer at a fixed price at any time during the life of the option

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6
Q

Put contract allows the holder to?

A

Sell a security to the writer at a fixed price at any time during the life of the option

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7
Q

The writer of a put contract is

A

Obligated to buy the securities at the fixed price

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8
Q

The writer of a call contract is

A

Obligated to deliver the securities to the holder at the fixed price

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9
Q

Strike price

A

The fixed price specified in the contract at which the holder can either “call away” the security or “put” the security is called the strike price or exercise price

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10
Q

The life of an options contract is specified by

A

Expiration date

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11
Q

First option style which can be exercised at any time is an

A

American style option

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12
Q

Option that can be exercised only at expiration, not before is an

A

“European style” option

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13
Q

A speculative option strategy

A

Attempts to profit if the market price of the underlying security rises or falls

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14
Q

Strategies that profit from falling markets are

A

Bear strategies

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15
Q

Strategies that profit from a rising market are

A

Bull strategies

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16
Q

What speculative option strategies are “Bullish”

A

Long Call

Short Put

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17
Q

What speculative option strategies are “Bearish”

A

Short Call

Long Put

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18
Q

Max gain and loss of a long call is

A

Max Gain = Unlimited

Max Loss = Premium paid

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19
Q

Max gain and loss of a short naked call is

A

Max Gain = Premium received

Max Loss = Unlimited

20
Q

Max gain and loss of a long put is

A

Maximum Gain = Strike price - Premium (Occurs when stock price falls to zero)

Maximum Loss = Premium paid

21
Q

Max gain and loss of a short naked put is

A

Maximum Gain = Premium

Maximum Loss = Strike price - Premium (Occurs when stock price falls to zero)

22
Q

Long put stops what

A

Downside loss on long stock

23
Q

Long call stops what

A

Upside loss on a short stock

24
Q

When are Income strategies suitable

A

Only in a stable market

25
Q

What establishes a collar position

A

Long out of the money put and a Short out of the money call

26
Q

What is the largest Futures exchange in the U.S.

A

Chicago Mercantile Exchange (CME)

27
Q

Max potential gain on a Long Stock/Long Put position is

A

Unlimited

28
Q

A narrow based index option is either ?? or ??

A

Industry specific or country specific

29
Q

What style are equity options exercised

A

American style

30
Q

What style are index options exercised

A

European style

31
Q

The purchaser of a futures contract has the

A

Obligation to buy the underlying commodity at a fixed price at the expiration date, unless the contract is closed by trading.

32
Q

The seller of a futures contract has the

A

Obligation to deliver the underlying commodity at a fixed price at the expiration date, unless the contract is closed by trading

33
Q

Forward contracts are issued

A

Over the counter (OTC)

34
Q

Swaps are

A

Custom contracts that transfer interest rate risk from one party to another in return for a fee

35
Q

Tax preference items subject to AMT (Alternative Minimum Tax) are

Memory Tool: D E E M

A
  • Depreciation in excess of straight line (accelerated depreciation)
  • Excess intangible drill cost
  • Excess of percentage depletion
  • Municipal bonds that are for “Private Purpose”
36
Q

What are the 3 ways to measure equity linked annuities

Memory Tool: Annual High Point

A

Annual Reset - Return of each year added to annuity

High Water Mark - Get the highest point index reached during time

Point to Point - Compares starting point to ending point

37
Q

Types of Life Insurance Policies

A

Term Life
Whole Life
Universal Life
Variable Life

38
Q

Term Life Insurance characteristics

A

No investment feature

Covers you for a specified amount of time

39
Q

Whole Life Insurance characteristics

A

Permanent protection - Premium does not change

Cash value - Invested in the General Account earning interest

40
Q

Universal Life Insurance characteristics

A

Flexible - Changes are allowed

Permanent - But you can pay more than the minimum to build cash value

41
Q

Variable Life Insurance characteristics

A

Whole life policy

Difference is that the excess is invested in separate account

Invested in the market, which adds risk

42
Q

Characteristics of a corporation

A
  • Continuity of life
  • Free transferability of shares
  • Limited liability
  • Centralization of management
43
Q

How many of the characteristics of a corporation are needed to be consider a corporation

A

3 of the 4

44
Q

How many of the characteristics of a corporation are needed to be consider a partnership

A

2 of the 4

Normally Centralization of Management and Limited Liability

45
Q

Types of Real Estate LP’s

A
  • Existing housing
  • New construction
  • Government assisted housing
  • Raw land (cannot depreciate raw land)
46
Q

Types of Oil and Gas participation Units

A
  • Income Well (Stripper well)
  • Developmental Well (Step out well)
  • Exploratory Well (Wildcat wells)
47
Q

Non-deductible items in AMT

A
  • Personal Exemptions
  • Standard deductions
  • State and local tax deductions
  • Miscellaneous deductions (i.e. tax prep fees)

Series 66 Flash Cards (2 decks)

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