Investment Vehicles/Securities Flashcards
C
What are Cash & Cash Equivalents (CCE)?
Firm’s Assets that are Cash or can be immediately converted into Cash
What’s an Insured Deposit?
Cash Deposits in a Financial Institution that are insured up to $250K by the FDIC
What’s the FDIC?
Federal Deposit Insurance Corporation
What are the 2 types of Insured Deposits?
Certificate of Deposit (CD)
Demand Deposit
What’s a CD?
Certificate of Deposit
An Insured Time Deposit issued by a Bank that may or may not be a negotiable instrument
What’s a Time Deposit?
Cash Deposits that can’t be withdrawn before an agreed upon Time Limit
What’s a Negotiable CD?
Certificate of Deposit
A Money Market Instrument traded on the Secondary Market
Jumbo CD
What are the 3 Characteristics of a Negotiable CD?
Certificate of Deposit
Min. $100,000 Denominations
Redeemed at Maturity (2 wks to 1 yr)
Typically traded by Institutional Investors
What’s a Demand Deposit?
Funds held within a Financial Institution that a Client may immediately liquidate
What are the 4 types of Demand Deposit Accounts?
Checking Account
Money Market Account
Negotiable Orders of Withdrawal (NOW) Accounts
Savings Account (one’s that aren’t Time Deposits)
What’s a Money Market Instrument?
A Short-Term (1- yr) Investment-Grade Debt Security traded on the Secondary Market
What are the 4 types of Money Market Instruments?
Banker’s Acceptances (BA’s)
Commercial Paper
Repurchase Agreements (Repos)
Treasury Bills (T-Bills)
What’s a Banker’s Acceptance (BA)?
Bills of Exchange
A post-dated Domestic or International payment guaranteed by a Bank
What’s Commercial Paper?
An Unsecured Discounted Promissory Note w/ a Maturity of 270- Days & is Exempt from SEC Registration
What’s a Repurchase Agreement (Repo)?
A Short-Term (Max 48 hrs) Agreement to sell Gov. Securities in order to buy them back at an ▲ Price
What’s a Reverse Repo?
Repurchase Agreement
A Short-Term (Max 48 hrs) Agreement to buy Gov. Securities in order to sell them back at an ▲ Price
What’s a Treasury Bill (T-Bill)?
A Treasury Security w/ a Maturity of 1- yr
What’s a Money Market Account (MMA)?
Money Market Deposit Account (MMDA)
An Interest bearing Checking or Savings Account offered by a Bank or Credit Union
Which Account generally pays ▲ I/R?
Money Market Account (MMA)
Savings Account
Money Market Account (MMA)
What’s a Money Market Fund?
A Mutual Fund that invests in Short-Term Debt Securities & CCE, SIPC Insured up to $500K
What’s a Fixed Income Security?
A Debt Instrument Issued by a Gov. or Corporation
What’s a Bond?
Fixed Income Security
Debt Instrument
Leverage Instrument
What’s the Face/Par Value of a Bond?
Nominal, Original, or Dollar Value
The Value of the Bond as stated by its Issuer
What are Investment-Grade Bonds?
Bonds Rated BBB- & Above
What’s a Callable Bond?
Redeemable
A Corporate Bond that the Issuer may Redeem before it reaches the stated Maturity Date
What’s the Benefit of a Callable Bond?
Firms can call (payoff) the Bond early if Market I/R ▼ allowing the Firm to re-borrow at a ▼ I/R
What’s a Redeemable Bond Catastrophe Clause?
A Bond Clause that allows an Issuer to Call Bonds before Maturity if certain specified events occur
What’s a Redeemable Bond Call Protection Period?
The period of time in which a Bond can’t be Called
What’s a Redeemable Bond Call Risk?
The Risk that a Bond may be called prior to Maturity
What’s Callable Bond Refunding?
The process of Calling Bonds when I/R ▼
What’s Redeemable Bond Reinvestment Risk?
The Risk that $$$ from a Called Bond can’t be Invested Favorably
What’s a Redeemable Bond Sinking Fund?
Issuer Funds that are set aside in advance of a Call
What’s a Discount Bond?
A Bond priced below Par Value
What’s a Zero-Coupon Bond?
A type of Discount Bond that pays 0 Interest
What’s a Coupon Bond?
Bearer Bond
A Bond that pays Semi-Annual I/R & is issued as a Book Entry Security or Paper Certificate
How are Coupon Bonds Issued in the US?
In Book Entry (Electronic) Form
What’s a Coupon Rate?
Nominal Yield
What’s a Debenture?
A Bond w/ no Collateral
What’s a type of Debenture?
Credit Card
What’s a Bond Maturity?
The Future Date in which a Bondholder receives the Principal
What’s a Bond Principal?
The value received when a Bond has Matured
What’s an Investment Principal?
The original value invested/borrowed
What’s a Bond Duration?
The measure of a Bond’s Expected Volatility in a changing I/R environment
What’s a Treasury Security?
An Exempt Debt Security issued by the U.S. Gov. & isn’t Callable
Where are Treasury Securities Purchased?
Treasury Direct or the Secondary Market via weekly/monthly Auctions of Competitive or Non-Competitive Bids
What’s a Bid?
The Highest Price at which a BD will buy Shares
What’s an Ask?
Offer
The Lowest Price at which a BD will sell Shares
What’s the Trading Spread Equation?
Bid - Ask
What’s a Treasury Security Competitive Bid?
When Investors specify the Yield they want, at the Risk that their Bid may not be approved
What’s a Treasury Security Non-Competitive Bid?
When Investors accept whatever Yield is determined at Auction
What are the 6 types of U.S. Treasury Securities?
Treasury Bills (T-Bills)
Treasury Notes (T-Notes)
Treasury Bonds (T-Bonds)
Treasury Inflation-Protected Securities (TIPS)
Separate Trading of Registered Interest & Principal of Securities (STRIPS)
Treasury Receipts (TR)
What’s a Treasury Note?
A Treasury Security w/ a Maturity of 1-10 yrs
What’s a Treasury Bond (T-Bond)?
A Treasury Security w/ a Maturity of 10-30 yrs
What are TIPS?
Treasury Inflation-Protected Securities
A Treasury Security that protects Investors from Inflation & has a Maturity of 5, 10, or 30 Yrs
How do TIPS work?
Treasury Inflation-Protected Securities
As Inflation ▲ the Principal & I/R Payments ▲
What’s Phantom Income as it relates to TIPS?
When the IRS Taxes TIPS on the Principal & I/R Payment ▲ Annually even before Maturity is reached
What’s a STRIP?
Separate Trading of Registered Interest & Principal of Securities
A Treasury Security where the Coupon is sold separately from the Bond
Stripped Bond or Z-Bond
What’s a Treasury Receipt?
A Zero-Coupon Treasury Security issued by a BD
What are Gov. Agency Securities?
Securities offered by the U.S. Gov. that are Exempt from Registration under the 33’ Act
What’s a Gov. Owned Organization?
A Gov. Organization that is backed by the full faith & credit of the U.S. Gov.
What’s a Gov. Sponsored Enterprise (GSE)?
A Quasi-Gov. Organization that has a line of credit from the U.S. Treasury, but not full backing
What are the 4 types of U.S. Mortgage Agencies?
Federal Home Loan Bank System (FHLBank System)
Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac)
Federal National Mortgage Association (FNMA) (Fannie Mae)
Government National Mortgage Association (GNMA) (Ginnie Mae)
What’s the Federal Home Loan Bank System (FHLBank System)?
FHLBank
A GSE that issues Loans to Participating Financial Institutions via Short-Term Bonds w/ Semi-Annual I/R & $10K+ Par Value
Government Sponsored Enterprise
What’s the Federal Home Loan Mortgage Corporation (FHLMC)
Freddie Mac
A GSE that buys Conventional Residential Mortgages from Financial Institutions & sells them as Participation Certificates or Pass-Through Securities w/ Semi-Annual I/R & $25K+ Par Value
Government Sponsored Enterprise
What’s the Federal National Mortgage Association (FNMA)
Fannie Mae
A GSE that buys Guaranteed, Insured, & Conventional Mortgages from Banks & sells them as Short-Term Discount Bonds w/ Semi-Annual I/R & $10K+ Par Value
Government Sponsored Enterprise
What’s the Government National Mortgage Association (GNMA)
Ginnie Mae
A Gov. Owned Organization that buys Farmers Home Administration (FHA) & VA Insured Mortgages & sells them via Modified Mortgage-Backed Pass-Through Securities w/ Monthly I/R & $25K+ Par Value
What’s the Student Loan Marketing Association (SLM)
Sallie Mae
A GSE owned by Shareholders that issues Private Education Loans
What’s a Book Entry Security?
A Security represented via Electronic Format & not a Physical Certificate
What’s a Convertible Bond?
A Corporate Bond that can be Converted into Equity
What’s the Bond Conversion Ratio Equation?
What’s Bond Conversion Parity?
The point at which there is neither Profit or Loss in a Bond Conversion
What’s a Corporate Bond?
A Bond issued by a Corporation that is typically BB+ Rated
How are Corporate Bonds Taxed?
The Bond Interest & Capital Gains are Taxed at every level (Federal, State, & Local Taxes)
What’s a Municipal Bond?
A Bond issued by a Municipality that is typically A Rating
Are Municipal Bonds Tax-Free?
Yes, if you live in the Municipality. If you live outside the Municipality, but in the same State, then the Interest is Tax-Free. If you live Out-of-State, then everything is Taxed.
What’s a General Obligation (GO) Bond?
A Municipal Bond backed by Full Faith & Credit of the Issuer
What does Full Faith & Credit in a GO Bond mean?
General Obligation
The Bond is paid for by Municipal Income, Sales, & Ad Valorem (Property) Taxes
What’s Double-Barrelled Debt in a GO Bond?
General Obligation
GO Debt that’s 1st backed by Revenue Collections, then Taxes
What’s a Revenue Bond?
A Municipal Bond backed by Fees, Revenues, or Special Assessments collected from a Facility or Project
What’s a Moral Obligation Bond?
A Revenue Bond where the State Legislative Authority has a moral (not Legal) obligation to appropriate $$$ to pay off the Bond
What’s an Industrial Revenue Bond?
A Revenue Bond that is instead backed by Corporations to pay for a Facility or Project
Are Industrial Revenue Bonds Tax-Exempt?
No, they Incur Federal Taxes & Alternative Min. Tax (AMT) since they are backed by a Corporation
What’s a Bond Indenture?
Trusted Indenture
A list of Covenants or Rules between the Issuer & the Trustee (who acts on behalf of the Bondholders)
What’s a Bond Indenture Rate Covenant?
The Issuer promises to provide competitive I/R
What’s a Bond Indenture Closed/Open-End Covenant?
Determines the Liquidation Seniority of new Bonds
What’s a Bond Indenture Maintenance Covenant?
The Issuer promises to maintain the Facility/Project so that Revenues continue to pay the Bondholder(s)
What’s a Bond Indenture Catastrophe Covenant?
The Issuer collects on an Insurance Policy to pay Bondholders if a Catastrophe strikes the Facility/Project
What’s a Bond Indenture Sinking Fund Covenant?
An Issuer Escrow Account that pays the Bond at Maturity or Calls the Bond early
What’s a Bond Indenture Net Revenue Pledge?
Operation & Maintenance Exp. of the Facility/Project are paid 1st, then the Bond I/R Payments & Principal
What’s a Bond Indenture Gross Revenue Pledge?
Bond I/R Payments & Principal are paid 1st, then the Operation & Maintenance Exp. of the Facility/Project
What’s a Foreign Bond?
Bonds issued by Foreign Gov. or Firm
Sovereign Debt
What’s a Brady Bond?
A Bond issued in U.S. Dollars (USD) by 3rd World Nations that are collateralized by U.S. Treasury Zero-Coupon Bonds
What’s a Bond Rating?
The Riskiness of a Bond measured by Standard & Poor (S&P) or Moody
What’s a Municipal Bond Insurer?
An Insurance Firm that guarantees payment of a Municipal Bond Interest & Principal
Who are the 3 U.S. Municipal Bond Insurance Firms?
Assured Guaranty
Build America Mutual
National Public Finance Guarantee Corp.
What’s the Current Yield Equation of a Bond?
A Bond’s ROI
What’s a Bond’s Yield-to-Maturity (YTM)?
The Yield of a Bond held to Maturity
What’s the Bond YTM Equation?
What’s a Bond’s Yield-to-Call (YTC)?
The Yield of a Bond held to Call
Which Bond Yield is the highest for a Par Bond?
Current Yield, Nominal Yield, & YTM are the same
Which Bond Yield is the highest for a Discount Bond?
YTM, Current Yield, then Nominal Yield
If I/R ▲, what happens to Yields & Prices?
Yields ▲
Prices ▼
What’s Anti-Dilution?
When the # of Shares & Stock or Strike Price are adjusted to counteract the effect of Convertible Bonds & Options
What are Authorized Shares?
The # of Shares Authorized to be Issued in a Corporate Charter
What are Issued Shares?
The # of Authorized Shares sold to Investors
What are Unissued Shares?
The # of Authorized Shares that haven’t been sold to Investors
What’s Treasury Stock?
Issued Shares that have been repurchased by the Firm
What’s the Outstanding Shares Equation?
Issued Shares - Treasury Stock
What’s an Equity Security?
A Security that represents Ownership in a Firm
What’s Common Stock?
Junior Security
An Equity Security that grants Voting Rights, but has the lowest Liquidation Priority
What’s a Blue Chip Firm/Stock?
A large, matured Firm w/ ▲ Brand Recognition & Loyalty
What’s the Market Cap Equation?
Capitalization
What are the 6 Shareholder Rights?
Inspect Firm Financial Statements
Claim to Firm Assets during Liquidation
Preemptive Right
Receive Dividends once Declared
Transfer Ownership
Vote through Proxy
What’s a Shareholder Preemptive Right?
Anti-Dilution Right
The Right to maintain the same % of Ownership in a Firm when New Shares are Issued by purchasing New Shares at a Subscription Price
What’s a Stocks Subscription Price or Right?
A Short-Term Exercise Price that is less than the POP
Public Offering Price (POP)
What’s a Shareholder Right to Vote through Proxy?
Granting another Individual the Power of Attorney to Vote on your behalf
What are the 4 Voting Rights?
Decisions about changes in Firm Operations
Election of Board of Directors (BoD)
Issuance of Additional Securities
Stock Splits
What are the 2 Types of Voting Processes?
Cumulative Voting
Statutory Voting
What’s Cumulative Voting?
Shareholders are permitted 1 Vote per Share per Vacancy & can distribute the Shares however they want between the Vacancies
What’s Statutory Voting?
Shareholders are permitted 1 Vote per Share per Vacancy & must distribute the Shares evenly between the Vacancies
How do you calculate the Total Votes Permitted for Voting Rights?
What’s Preferred Stock?
An Equity Security that grants Superior Shareholder Rights, specifically ▲ Liquidation Priority, but no Voting Rights
What’s Adjustable Rate Preferred Stock?
Floating Rate or Variable Rate Preferred Stock
Preferred Stock in which the Dividend is reset at specified Intervals
What’s Convertible Preferred Stock?
Preferred Stock that can be Converted into Common Stock
What’s an American Depositary Receipt (ADR)?
Certificates issued by U.S. Commercial Banks representing Ownership in Foreign Firm Shares
What’s a Sponsored ADR?
American Depositary Receipt
An ADR where the Issuer provides all SEC mandated Stock info, Dividends are paid in USD, & the Investor is granted Voting Rights
What’s an Unsponsored ADR?
American Depositary Receipt
An ADR where the Issuer doesn’t provide SEC mandated Stock info, the Stock is traded OTC, & the Investor isn’t granted Voting Rights
What’s Restricted Stock?
Unregistered or Letter Stock
Unregistered Shares of Ownership in a Firm acquired through an ESOP or through Private Placement (Reg D Offering)
What are the 2 types of Restricted Stock?
Restricted Stock Awards
Restricted Stock Units (RSU)
What’s a Restricted Stock Award?
Restricted Stock that grants Employees immediate Shares upon meeting particular goals
What are Restricted Stock Units (RSU)
Restricted Stock that grants Employees Vested Shares or Cash upon meeting particular Goals
What’s SEC Rule 144?
A form that must be filed before selling Restricted Stock & reported after the Transaction is made
What’s an Investment Holding Period?
The Time an Investment is held by an Investor between the Trade Date of Purchase & Sale of a Security
What’s the Holding Period for Restricted Stock?
6+ Months:
Before Selling
Before an RIA can solicit business
How much Restricted Stock can you sell at a time?
1% of Outstanding Shares
Avg. 4wk Trading Volume
What’s an Employee Ownership Plan (EOP)?
A Qualified Defined Benefit Retirement Plan that provides Employees w/ Ownership of a Firm
What’s a Qualified Defined Benefit Plan?
A Qualified Retirement Plan where an Employer guarantees a set mthly payment for Life or a lump sum payment at Retirement
Federally Insured up to a Limit 🗸
What’s an Employee Stock Option (ESO)?
An EOP that provides Employees the opportunity to buy Vested Shares at a Fixed Price for a Set Period
What are the 2 types of ESOs?
Employee Stock Options
Incentive Stock Options (ISO)
Non-Qualified Stock Options (NSO)
What’s an Incentive Stock Option (ISO)?
Statutory or Qualified Stock Options
ESOs offered to Top Management & Key Employees that are Taxed when Sold & may incur Alternative Min. Tax (AMT)
Employee Stock Option
What’s a Non-Qualified Stock Option (NSO)?
Non-Statutory Stock Option
An ESO offered to any Employee (incl. Board Members & Consultants) that are Taxed when the Options are Exercised
Employee Stock Option
What’s a Dividend?
The distribution of a Firm’s earnings to its Shareholders as determined by the BoD, but approved by Shareholders via Voting Rights
What are the 2 types of Dividends?
Ordinary Dividends
Qualified Dividends
What are Ordinary Dividends?
Non-Qualified Dividends
Dividends Taxed as Ordinary Income
What’s a Qualified Dividend?
Dividends reported to the IRS that are Taxed as a Capital Gain (▼ Rate) rather than Income
What format are Dividends Issued?
Cash
Stock Shares
What are the 4 Dividend Dates?
Declaration Date
Ex-Dividend Date
Record Date
Payment Date
What’s a Dividend Declaration Date?
Announcement Date
The Date in which a Firm’s Management Announces/Declares the distribution of a Dividend
What’s an Ex-Dividend Date?
Ex-Date
The date in which the Dividend eligibility expires
Typically 1 Day before the Record Date
What’s a Dividend Record Date?
Cutoff Date
The Date in which Shareholders are eligible to receive a Dividend or Distribution
What’s a Dividend Payment Date?
The Date in which the Firm distributes the Dividend payments
What’s the required Holding Period to qualify for Common Stock Dividends?
You must have Owned the Stock for 60+ days before the Ex-Dividend Date
What’s the required Holding Period to qualify for Preferred Stock Dividends?
You must have Owned the Stock for 90+ days before the Ex-Dividend Date
What’s the required Holding Period to qualify for Mutual Fund Dividends?
You must have Owned the Stock for 60+ days before the Ex-Dividend Date
Does a Dividend Record Date come 1 day before or after the Ex-Dividend date for a Mutual Fund?
1 day before
Unlike Common & Preferred Stock, in which it is after
What’s Fundamental Analysis?
The measurement of the Value of a Firm
What’s Technical Analysis?
The measurement of the changes in Prices & Timing of Investments
What’s a Dividend Model?
The measurement of the Value of an Equity Position based on Present & Future Dividend Payments
What are the 2 types of Dividend Models?
Dividend Discount Model (DDM)
Dividend Growth Model (DGM)
What’s the Dividend Discount Model (DDM)?
The Price of a Stock is worth the sum of all its future Dividend Payments when discounted back to their PV
What’s the Dividend Growth Model (DGM)?
Gordon Growth Model (GGM)
Applying a Growth Rate to the present Dividend to predict future Income
What’s a Pooled Investment?
A Financial Instrument that pools Shareholder Assets together to invest in Securities
What are the 2 categories of Pooled Investment Funds?
Closed-End Fund
Open-End Fund
What’s a Closed-End Fund?
A Pooled Investment Fund that Issues a limited # of Shares onetime via an IPO & trades on the Secondary Market
How is a Closed-End Fund Traded?
At Market Price, which is a Premium or Discount to NAV
Net Asset Value
What’s an Open-End Fund?
A Pooled Investment Fund that issues an unlimited # of Redeemable Shares
How is an Open-End Fund Traded?
Shares are Redeemable w/ the Issuer at NAV & Purchased at POP
Net Asset Value & Public Offering Price
What’s a Mutual Fund?
A Pooled Investment operated by Professional Money Managers that only Trades Once a Day after the Market Closes
What are the 9 types of Mutual Funds?
Balanced Funds
Bond Funds
Income Funds
Index Funds
International/Global Funds
Money Market Funds
Real Estate Mutual Funds
Specialty Funds
Stock Funds
What’s a Balanced Fund?
Asset Allocation Fund
A Mutual Fund that invests in a Hybrid of Asset Classes
What’s a Bond Fund?
Fixed-Income Mutual Fund
A Mutual Fund that invests in Securities that pay a set RoR
What’s an Income Fund?
A Mutual Fund that provides Income to Investors on a steady basis
What’s an Index Fund?
A Mutual Fund that invests in Stocks corresponding to a major market Index (e.g. S&P 500 or DJIA)
What’s an International Fund
Foreign Fund
A Mutual Fund that invests in Assets located outside an Investor’s home Country
What’s a Global Fund?
A Mutual Fund that invests anywhere around the world
What’s a Money Market Fund?
A Mutual Fund that invests in Short-Term Debt Securities & CCE, SIPC Insured up to $500K
What’s a Real Estate Mutual Fund?
A Mutual Fund that invests in REITs & Real Estate Firms
What are the 3 types of Specialty Funds?
Regional Fund
Sector Fund
Socially-Responsible Fund
What’s a Regional Fund?
A Mutual Fund that invests in a specific geographical area of the world
What’s a Sector Fund?
A Mutual Fund that invests in specific Sectors of the Economy
What’s a Socially-Responsible Fund?
Ethical Funds
A Mutual Fund that invests in Firms that meet the Socially-Responsible Guidelines or Beliefs of the Fund
What’s a Stock Fund?
Equity Fund
A Mutual Fund that invests in Equity or Stocks
What are the 3 types of Stock Funds?
Blend Fund
Growth Fund
Value Fund
What’s a Blend Fund?
A Mutual Fund that invests in a combination of Growth & Value Stocks
What’s a Growth Fund?
A Mutual Fund that invests in Growth Stocks
What’s a Value Fund?
A Mutual Fund that invests in Stocks that appear to be trading for less than their Instrinsic or Book Value
What’s the Net Asset Value Equation of a Mutual Fund?
Bid Price
Mutual Fund Assets - Liabilities
What’s the NAVPS Equation of a Mutual Fund?
Net Asset Value Per Share
What’s the POP Equation of a Mutual Fund?
Public Offering Price or Ask Price
NAV + SC
Net Asset Value + Sales Charge
What’s Mutual Fund Forward Pricing?
The fact that the Investor’s Bid or Ask Price for a Mutual Fund is calculated at the end of each Trading day (thus it can change)
What are the 4 types of Shareholder Fees charged by a Mutual Fund?
12b-1 Fees
Annual Fees
Commissions
Expense Ratios
What’s a typical Mutual Fund Commission?
Sales Charge or Load
8.5% of the POP & not an Expense
What’s a Mutual Fund Commission Breakpoint?
Bracket
The Commissions determined for each Investment Bracket (Amount)
What’s a Mutual Fund Letter of Intent (LOI)?
When an Investor Qualifies for a ▲ Breakpoint by promising (non-binding) to Invest more $$$ within 13 mths
What’s a Mutual Fund Contingent Deferred Sales Charge (CDSC)?
An ▲ Commission charged if Shares are Redeemed early
What’s the Expense Ratio Equation for a Mutual Fund?
What are the 2 types of 12b-1 Mutual Fund Fees?
Management Fees
Ongoing Distribution Fees
How much can a 12b-1 Mutual Fund Fee charge?
0.75%- of Assets Annually & 0.25%- of Assets Annually if a No-Load Fund
What are the 4 Loads/Points of Sale for Mutual Fund Shareholder Fees?
Back-End Load
Front-End Load
Level-Load
No-Load
What’s a Mutual Fund Back-End Load?
Shareholder Fees charged when an Investor Sells Shares
What’s a Mutual Fund Front-End Load?
Shareholder Fees charged when an Investor Buys Shares
What’s a Mutual Fund Level-Load?
Shareholder Fees charged Quarterly throughout the Investment Lifetime typically for Class C Shares
What’s a Mutual Fund No-Load?
When Shares are originally provided to an Investor at NAV w/out a Commission
What’s the Composition of a Mutual Funds BoD?
Board of Directors
40% External Directors
60% Internal Employees, Underwriters, or IA’s
What are the 3 Responsibilities of a Mutual Fund BoD?
Board of Directors
Appoint & Oversee IA’s, Transfer Agents, & Custodians
Establish Dividend & Capital Gains Policy
Establish Investment Policy
What are the 7 Shareholder Rights for a Mutual Fund?
Approving changes in Investment Objectives & Policies
Approving IA Agreements
Approving changes in Fees
Electing Directors
Ratifying Selection of Independent Auditors
Right of Accumulation
Voting Rights/Proxies
What’s a Shareholder Right of Accumulation?
When an Investor Qualifies for a ▼ Fee since their Investment Amount reaches an ▲ Investment Breakpoint
Family Members, Dependents, & Businesses Qualify
What’s the Function of an IA for a Mutual Fund?
Investment Advisor
To Manage the Fund
The Management Fee is the Largest Operating Expense
What are the 3 Functions of a Custodian for a Mutual Fund?
Performs Payable & Receivable Functions for Securities Transactions
Registers the Receipt of Interest & Dividends for the Fund
Safeguards the Physical Assets of the Fund
What are the 4 Functions of a Transfer Agent for a Mutual Fund?
Customer Name & Address Changes
Deliverance & Redemption of Shares
Disbursement of Dividends & Capital Gains
Investor Mailings
What’s the Function of an Underwriter for a Mutual Fund?
Sponsor, Distributor, or Wholesaler
To Purchase a Funds Shares at NAV & Sell them to a Dealer or directly to Investors
What are Class A Mutual Fund Shares?
Large, Long-Term Investments w/ Front-End Load
What are Class B Mutual Fund Shares?
Small, Long-Term Investments w/ Back-End Load & ▲ Expense Ratio
What are Class C Mutual Fund Shares?
Small or Large, Short-Term Investments w/ Level-Load & ▲ Expense Ratio
How many Days does a Mutual Fund have to deliver $$$ to an Investor who Sells Shares?
7 Calendar Days
How often is a Mutual Fund NAVPS calculated?
Net Asset Value per Share
Once per Day at 4PM EST
What’s Dollar-Cost Averaging?
Costant Dollar Plan
Systematically investing equal amounts of $$$ in a Security at regular intervals regardless of Stock Price
What are the 3 Benefits of Dollar-Cost Averaging?
May ▼ Avg. Cost/Share
May ▼ Portfolio Volatility
▼ Reliance on Market Timing of Lump-Sum Investments
What’s IRS Regulation M?
Subchapter M (Title 26 §851)
Allows Regulated Investment Firms to pass Taxes from Capital Gains, Dividend, & Interest Distributions to Investors if 90%+ of that Income is Distributed
What’s the Net Investment Income Equation of a Mutual Fund?
What Income is Taxed to a Mutual Fund Firm if less than 90% of the Net Investment Income is Distributed to the Investors?
100% of the Income is Taxed to the Mutual Fund
What Income is Taxed to a Mutual Fund Firm if more than 90% of the Net Investment Income is Distributed to the Investors?
Only the remaining Undistributed Net Investment income is Taxed to the Mutual Fund. So 10% or less.
What’s a Unit Investment Trust (UIT)?
A Registered Investment Company (RIC) or Trust that offers Fixed Portfolios (of Stocks & Bonds) as Redeemable Units to Investors for a specific period of time
What’s a Regulated Investment Corporation (RIC)?
A Corporation where Investors are Joint Owners
What happens to the Redeemable Units of a UIT?
Unit Investment Trust
The Units are Sold back to the UIT
Unit Investment Trust
What are the 3 Benefits of a UIT?
Unit Investment Trust
Investors can Redeem Units at anytime
No Management Fees 🗸 The Portfolio is typically Supervised, not Managed
Pass-Through Taxes 🗸
What 2 SEC Regulations apply specifically to UITs?
Unit Investment Trust
Security Substitutions can only be made w/ written notice to the SEC & Investors must be notified within 5 Days
SEC can Liquidate the UIT at Anytime; If the UIT is Ineffective or it’s in the Best Interest of the Investors
What’s an Exchange Traded Fund (ETF)?
A Pooled Investment that can be Traded throughout the Day
What are the 3 Benefits of an ETF?
Exchange Traded Fund
▼ Broker Commissions Compared to Individual Stock Purchases
▼ Expense Ratios
▲ Liquidity Compared to Mutual Funds
What’s an Inverse ETF?
Exchange Traded Fund
ETFs that attempt to earn Gains by Shorting Stocks
What’s a Leveraged ETF?
Exchange Traded Fund
ETFs that utilize Derivative Securities to achieve Earnings
What’s a Real Estate Investment Trust (REIT)?
A Pooled Investment Trust in a Firm that owns, operates, or finances income-generating Real Estate
What are the 3 Classifications of REITS?
Real Estate Investment Trust
Public
Non-Public
Private
What’s a Public REIT?
Real Estate Investment Trust
Publicly Traded REITs registered w/ the SEC
What’s a Non-Public REIT?
Real Estate Investment Trust
Privately Traded REITs registered w/ the SEC
What’s a Private REIT?
Real Estate Investment Trust
Privately Traded REITs not registered w/ the SEC & typically only sold to Institutional Investors
How does a Trust Qualify as a REIT? (7 Qualifications)
Must be an Entity that’s Taxable as a Corporation
Must be managed by a Board of Directors or Trustees
Have 100+ Shareholders after the 1st Year of Existence
Have no more than 50% of Shares held by 5- Individuals
Invest 75%+ of Total Assets in Real Estate, Cash, or U.S. Treasuries
Derive 75%+ of Gross Income from Rent, Interest on Mortgages that Finance Real Property, or Real Estate Sales
Pay 90%+ of Taxable Income through Shareholder Dividends annually
What are the 3 Types of REITS?
Real Estate Investment Trust
Equity REIT
Mortgage REIT
Hybrid REIT
What’s an Equity REIT?
Real Estate Investment Trust
A REIT that owns & manages income-generating Real Estate typically through Rents
What’s a Mortgage REIT?
Real Estate Investment Trust
A REIT that lends $$$ to Real Estate Owners & Operators directly or indirectly
What’s a Hybrid REIT?
Real Estate Investment Trust
REITs that’re a combination of an Equity & Mortgage REIT
What’s a Derivative Security?
A Contract between 2+ Parties that can Trade on an Exchange or Over-the-Counter (OTC) whose value is dependent on an underlying Asset(s) or Benchmark
Why are Derivative Securities utilized?
Hedging — To mitigate Risk
Speculation — Assuming Risk w/ the expectation of Reward
What are the 5 types of Derivative Securities?
Forwards
Futures
Options
Swaps
Warrants
What’s an Option?
A Derivative Contract to buy or sell Stocks at a Preset Price (Strike Price) prior to or on the Expiration Date
Define an Option Buyer.
A Person w/ the Right, but not the Obligation to buy or sell a Security at the Strike Price
Define an Option Seller.
Writer
A Person w/ the Obligation to Transact their side of the Trade if a Buyer decides to Execute the Option
What are the 2 types of Options?
Call
Put
What’s a Call Option?
Buying an Option from a Seller at a Premium as a Leveraged Bet on the Appreciation of a Security
What’s a Put Option?
Buying an Option from a Seller at a Premium as a Leveraged Bet on the Depreciation of a Security
What’s Hedging?
A Short-Term Strategy employed to take an offsetting position in an Asset or Investment that ▼ the Price Risk of an existing position
What’s an Options Straddle Strategy?
Buying or Selling a Call & a Put on the same Security w/ the same Strike Price & Expiration Date
What’s an Options Horizontal Spread Strategy?
Time or Calendar Spread
Buying or Selling 2 Calls or 2 Puts on the same Security w/ different Strike Prices, but the same Expiration Date
What’s an Options Vertical Spread Strategy?
Price Spread
Buying or Selling 2 Calls or 2 Puts on the same Security w/ the same Strike Price, but different Expiration Dates
What’s a Futures Contract?
A Derivative Standardized Contract to buy or sell an Asset (that isn’t Stock) at a Preset Price (Strike Price) prior to or on the Expiration Date
What’s a Forward Contract?
A Derivative OTC Contract to buy or sell an Asset (that isn’t Stock) at a Preset Price (Strike Price) prior to or on the Expiration Date
What’s a Warrant?
A Derivative OTC Contract between a Firm & an Investor to buy or sell the Firm’s Asset(s) at a Preset Price (Strike Price) prior to or on the Expiration Date
What are the 5 types of Warrants?
Traditional
Covered
Detachable
Naked
Wedded
What’s a Traditional Warrant?
Warrant-Linked Security
Warrants issued in conjunction w/ New Shares of Bonds or Preferred Stock
What’s a Covered Warrant?
Warrants issued by a Financial Institution that already own existing Shares
What are Detachable Warrants?
Warrants that can be separated from the Bond & sold on Secondary Markets before Expiration
What’s a Naked Warrant?
A Warrant issued w/out accompanying Bonds or Preferred Stock
What’s a Structured Product?
An Alternative Investment (typically unsecured Debt) w/ payoffs linked to a variety of Assets
What’s a Hedge Fund?
The General Partner of a Limited Partnership (LP) that deploys Leveraging & Trading of Non-Traditional Assets to earn above-average Investment Returns
What’s a Blank Check Firm?
A developing Firm that has no specific Business Plan
What’s a Special Purpose Acquisition Company (SPAC)?
A Blank Check Firm that generates Funds (via IPOs) to Finance Mergers & Acquisitions (M&A)
What’s an Exchange Traded Note (ETN)?
A Bond that tracks an underlying Index of Securities, pays the Return of the Index it tracks at Maturity (less Fees) & doesn’t pay Interest
What are the 2 Limitations of ETNs?
Exchange Traded Note
Earnings are only realized if the Index Return (-Fees) is Positive
▲ Default/Credit Risk since they are backed by the Credit of the Issuing Bank
What’s a Reverse Convertible?
A Short-Term, High-Yield Bond that’s associated w/ the performance of a Stock
What’s an Annuity?
A Hedged Insurance Contract that provides Fixed, Indexed, or Variable Income Immediately or Deferred for the Life of a Client
Who’s an Annuitant within an Annuity?
The Client
What’s a Fixed Annuity?
An Annuity that provides Guaranteed Fixed Periodic I/R Payments to a Client Funded by a General Account w/ Tax-Deferred Earnings
Are Fixed Annuities an Exempt Security?
No, they aren’t a Security at all
What’s an Indexed Annuity
An Annuity that provides Periodic Payments to a Client based on a Fixed or Indexed RoR Funded by a General Account & Tax-Deferred Earnings
What’s a General Account for an Insurance Product?
A Firm’s Primary Investment Account that the Firm holds all of the Investment Risk in
How are General Accounts for Insurance Products Regulated?
They require only a State Insurance License to sell & don’t need to accompany a Prospectus
What’s a Variable Annuity?
An Annuity that provides Variable Periodic I/R Payments to a Client Funded by a Separated Account w/ Tax-Deferred Earnings
Are Annuity Earnings Guaranteed?
No
What’s a Separated Account for an Insurance Product?
A Pooled Investment Account that a Client holds all of the Investment Risk in
How are Separated Accounts for Insurance Products Regulated?
They require a State Insurance License & Securities License to sell, along w/ a Prospectus
How do Fixed & Variable Annuities react to Inflation?
Fixed Annuities are Vulnerable to Inflation
Variable Annuities are Resistant to Inflation
What Expenses does the Pooled Investment Account within a Variable Annuity charge?
All of the same Shareholder Fees as a Mutual Fund & More:
Expense Risk Fee
Mortality Risk Fee
Premium Taxes
What are Accumulation Units for a Variable Annuity?
The # of Units of Interest a Client has in the Pooled Investment Account
What’s an Immediate Annuity?
An Annuity that begins Immediately (1 period) after a Lump-Sum Deposit from the Client
What’s a Deferred Annuity?
An Annuity where the Client specifies an Age at which they’ll begin receiving disbursements
How is a Deferred Annuity Taxed?
Deferred Gains are Taxed as Ordinary Income using LIFO
What’s an Annuity Settlement Option?
How an Annuity pays the Client, which is determined at the beginning of the Payout Period & can’t be changed
What are the 4 types of Annuity Settlement Options?
Fixed Period Life Annuity
Joint & Last Survivor Life Annuity
Straight-Life Annuity
Unit Refund Life Annuity
What’s a Fixed Period Life Annuity?
An Annuity w/ Periodic Payments for a specified # of Years (typically 10-15) where a Beneficiary can be named & payments continue after the Clients death
What’s a Joint & Last Survivor Life Annuity?
An Annuity that pays 2 Individuals periodically & ends when both Individuals die
What’s a Straight-Life Annuity?
An Annuity w/ the Highest Periodic Payment, but a Beneficiary can’t be named
What’s a Unit Refund Life Annuity?
An Annuity w/ Periodic Payments, where a Beneficiary can be named & payments continue after the Clients death
What are the 2 Phases of Annuities?
Accumulation Phase
Annuitization Phase
What’s the Annuity Accumulation Phase?
When an Annuity is being Funded
What’s the Annuity Annuitization Phase?
When Annuity Payments commence
What are the 5 Contractual Guarantees in an Annuity?
1035 Exchange
Death Benefit
Expense Guarantee
Mortality Guarantee
Surrender Value
What’s a 1035 Exchange for an Annuity?
Allows a Client to Rollover the Value of an Insurance Product (- Surrender Charges) to Another
What are Qualifying Rollovers in a 1035 Exchange for an Annuity?
Annuity to Annuity
Endowment Contract to Annuity
Life Insurance Contract to Life Insurance Contract
Life Insurance Contract to Annuity
What’s a Death Benefit in an Annuity?
A Guarantee that if the Client dies during the Accumulation Phase the Accumulation Units will be paid to a Beneficiary
What’s an Exchange Guarantee in an Annuity?
A Guarantee of the Max the Contract can charge for an Operating Expense Risk Fee
What’s a Mortality Guarantee in an Annuity?
A Guarantee of Payments for the Life of the Client at the expense of a Mortality Risk Fee
What’s a Surrender Guarantee in an Annuity?
A Guarantee that the Annuity can be Terminated during the Accumulation Phase for its Surrender Value
What’s Life Insurance?
A Contract where a Policyholder pays Premiums to an Insurer to guarantee a Death Benefit for a Beneficiary(s)
What are the 2 types of Life Insurance?
Permanent Life Insurance
Term Life Insurance
What’s Permanent Life Insurance?
Life Insurance Policies that remain Active until the Policyholder dies, stops paying Premiums, or surrenders the policy
What’s Term Life Insurance?
Life Insurance Policies that remain Active for a set period of time that don’t accumulate a Cash Value
What are the 3 types of Term Life Insurance?
Convertible Term Life Insurance
Decreasing Term Life Insurance
Renewable Term Life Insurance
What’s Convertible Term Life Insurance?
Term Life Insurance that can be converted into a Permanent Life Insurance Policy
What’s Decreasing Term Life Insurance?
Renewable Term Life Insurance w/ coverage decreasing over the Life of the Policy at a predetermined rate
What’s Renewable Term Life Insurance?
Term Life Insurance that provides a Quote for the Year the Policy is purchased and can be Renewed annually
What are the 2 types of Permanent Life Insurance?
Variable Life Insurance
Whole Life Insurance
What’s Variable Life Insurance?
Permanent Life Insurance that accumulates a Cash Value to last the Lifetime of the Policyholder within a Separated Account
What’s Whole Life Insurance?
Cash-Value Life Insurance
Permanent Life Insurance that accumulates a Cash Value to last the Lifetime of the Policyholder within a General Account
What’s UL Insurance?
Universal Life
A combination of Renewable Term Life Insurance & Whole Life Insurance
What are the 2 types of UL Insurance?
Universal Life
Indexed UL insurance
Variable UL Insurance
What are the 2 Benefits of a UL Insurance Policy?
Universal Life
Flexible Premiums Adjusted over Time
▲ Death Benefit
What Life Insurance is the most Expensive for Young Policyholders?
Permanent Life Insurance
What Life Insurance is the most Expensive for Older Policyholders?
Permanent & Term Life Insurance are roughly the same price once you get Older
What’s a Life Settlement?
When an Individual sells their Life Insurance Policy at a Discount from its Face Value for Cash
What’s a Viatical Life Settlement?
A Life Settlement, but for Terminally or Chronically Ill Individual Policyholders w/ 2- Years to live
What are the 4 types of Persons involved in a Viatical Life Settlement?
Seller (Viator)
Provider — Any Person, other than a Viator, that enters into a Viatical Life Settlement Contract
Producer — The Firm that represents the Provider
Broker — The Firm that represents the Viator
What does the Seller of a Life Settlement Receive & Relinquish?
They receive Cash for the Life Insurance Policy they are Selling
They Relinquish the entire Death Benefit & the Obligation to pay the remaining Premiums
What does the Buyer of a Life Settlement Receive & Pay?
They receive the entire Death Benefit of the Life Insurance Policy
They must pay the Sale Price + all Future Premiums
What are the Risks of a Life Settlement?
Legal Challenge — The Settlement may be challenged by the Insurance Company
Liquidity Risk — Each Contract is Unique, which means illiquid
Mortality Risk — The Death of the Seller can be difficult to predict
What are Commodities?
Raw Materials that are used for Living, Trading, & Storing
What are the 3 Classes of Commodities?
Agricultural Goods
Energy
Metals
What are Precious Metals?
Rare Metals that have an ▲ Economic Value
What are the 8 Precious Metals?
Gold (#1)
Iridium
Osmium
Palladium
Platinum (#3)
Rhodium
Ruthenium
Silver (#2)
What’s a Digital Asset?
Any Asset that exists entirely in a Digital Form that you can acquire the Right to use
What are the 3 types of Digital Assets?
Cryptocurrency
Non-Fungible Token (NFT)
Stablecoin
What’s Cryptocurrency?
A Digital Currency that uses Cryptography to secure its Transactions
How does Cryptocurrency utilize Cryptography?
It uses a sophisticated Encryption Technique to Anonymously Store & Share Info on a Decentralized Network
What’s a Non-Fungible Token (NFT)?
A Unique Digital Certificate created by Blockchain Technology that represents Ownership in a Digital Collectible
What does Non-Fungible mean for an NFT?
An Item that can’t be Traded, Replaced, or Exchanged for one another
What’s a Stablecoin?
A Digital Currency that matches the Value of a Non-Digital Currency or Commodity
What are the Risks of Digital Assets?
▲ Cybersecurity Threat
▲ Fraud
▼ Liquidity
▲ Volatility
What’s an Investment Order?
The Execution & Actual Purchase/Sale of a Security
What are Day Orders?
The Default Order type in which Orders are placed during a Day & can be Executed
What happens if an Order is placed during a Day, but isn’t Executed?
It’s Automatically Cancelled
What’s a Good Till Canceled (GTC) Order?
An Order that will be Executed at a specific time or earliest convenience, unless it is Cancelled
What’s a Not-Held Order?
Orders that grant a Floor Broker the ability to fill the Order at any time during the Day that they think is best
What are the 4 types of Orders?
Market Order
Limit Order
Stop Order
Stop Limit Order
What’s a Market Order?
A live Order to immediately execute a purchase/sale of a Security
What’s a Limit Order?
A live Order to buy/sell a Security at a given Price or beyond
What’s a Stop Order?
A suspended Order that becomes a live Order when a Security reaches a Target Price, and then executes a purchase/sale of a Security at the Current Market Price
What’s a Stop Limit Order?
A suspended Order that becomes a live Order when a Security reaches a Target Price, and then purchases/sells the Security at a specific Price
What’s a Short-Sale?
Shorting or Selling Short
Borrowing $$$ within a Margin Account to Sell a Security that the Investor doesn’t own but is committed to Repurchasing
What Order Type is used to limit losses on a Short-Sale?
Buy Stop
Which 3 Order types are place Above the Current Market Price?
Buy Stop
Buy Stop Limit
Sell Limit
Which 3 Order types are place Below the Current Market Price?
Buy Limit
Sell Stop
Sell Stop Limit
What happens to a Stock Price when a Dividend is Paid?
It’s ▼ by the amount of the Dividend on the Ex-Dividend Date
Which 3 Order Types are Adjusted for a Dividend Payment?
Buy Limit
Sell Stop
Sell Stop Limit
What’s the Total Return Equation?
What’s the RoR Equation?
