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Series 65 flashcards
1
Q

Alternative Minimum Tax (AMT)

A

To ensure that high-income taxpayers do not escape federal income taxes

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2
Q

When a couple sells their primary residence, you can exclude how much capital gains from your income if you are single, and married jointly

A

$250k if you are single

$500k if you are married

criteria: primary residence for at least 2 of the past 5 years

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3
Q

If adviser solicitor is getting paid, they have to do what?

A

provide adv

provide solicitor disclosure which must be signed by the client

when they get paid, they have to be registered

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4
Q

Can a business property be placed into IRA?

A

Yes. Like a rental house … that income goes into IRA

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5
Q

Straddles

A

You don’t know if the price is gonna go up or down, so you buy both call and put to profit from the volatility.

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6
Q

What are 1, 2, and 3 standard deviations?

A

68%, 95%, 99.7%

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7
Q

Warrants

A

Warrants: option to buy shares at a slightly premium price, but with a long period (10 years). They are not sent to shareholders. They are usually attached as a sweetener.

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8
Q

Options vs Warrants/Rights

A

Options originate from exchanges, rights/warrants originate from issuer

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9
Q

US vs European Options

A

US: can exercise option at any time
European: last trading day before the expiration

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10
Q

Workers’ compensation

A

a government-mandated program that pays benefits to workers who become injured on the job

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11
Q

Credit spread

A

difference between yields of bonds with similar maturities but different ratings

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12
Q

Alimony tax

A

Before 1/1/2019: alimony is income to the recipient and tax deduction for the payor

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13
Q

Inflation risk vs Interest risk vs Purchasing power risk

A

Interest risk is related to changes in principal due to interest. But if a security can’t be traded, then there is no impact on the principal. So CD has no interest risk.

Inflation risk = purchasing power risk

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14
Q

Margin accounts and its minimums

A

You borrow money to trade

25% long
30% short

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15
Q

Commingling

A

securities that are held in a customer’s name must not be mixed with securities of the firm

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16
Q

When can you take money out of IRA without the 10% penalty?

A

A distribution from an IRA taken in equal annual amounts over the owner’s life is not subject to the 10% premature distribution penalty even if started before age 59½.

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17
Q

What happens to your IRA when you die?

A

Spouse: can roll it into their own or continue

Non Spouse:
Withdraw all the funds immediately
Open a separate inherited IRA
Withdraw over a 10 year period

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18
Q

Muni bonds are best fit for whom?

A

High tax bracket people

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19
Q

What type of security is best for inflation protection?

A

TIPS

Mid cap stocks

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20
Q

What do books/records mean? The two numbers …

A

maintained in readily accessible place for 5 years. 5 year period will run from the end of the fiscal year during which the last entry was made on the record. During the first two of the first 5 years, records be maintained in the principal office of the adviser.

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21
Q

How much of your capital loss can you apply against ordinary income?

A

$3k

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22
Q

Cumulative preferred

A

you continue to accumulate dividends even if the company stops for a while due to some difficulties. When it starts paying again, yours is accumulated.

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23
Q

Entanglement vs Adoption

A

Entanglement: material posted to social media by a 3rd party but the securities pro has helped prep for

Adoption: firm has endorsed it but played no part in its prep

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24
Q

Strategies: Bullet vs Ladders vs Barbells

A

Bullet: aiming at a target
kid ‘s fund: kid’s 8 today, target is 18, so 10 years
Today you buy a bond that matures in 10 yrs
Next year you buy one that matures in 9

Ladders
Bonds are bought at the same time but mature at different times

Barbells:
Some mature in 1 year, some mature in 10, nothing in between

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25
Q

ESG

A

environmental, social, corporate governmence

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26
Q

Financial leverage

A

A company’s ability to use long term debt to increase its return on equity. Like buying a house or borrowing money to buy a larger house. Use debt to equity ratio … if it’s 50% or higher then it’s highly leveraged.

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27
Q

REITS needs to have X% of its assets in real estate assets?

A

75%

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28
Q

Junk bonds

A

high yield bonds offered by those with low credit ratings

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29
Q

Wash sale – how many days?

A

if you sell and then buy a security within 30 days, the loss can’t be used as realized loss

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30
Q

What are 3 items on cash flow statement?

A

operating activities, investing activities, and financing activities

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31
Q

On the cash flow statement, what is income from interest/dividend considered as?

A

Operating activities

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32
Q

On the cash flow statement, what is purchase/sale of land/buildings considered as?

A

Investing activities

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33
Q

On the cash flow statement, what is issuing bonds or repurchase stock considered as?

A

Financing activities

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34
Q

QDRO only applies to what kind of retirement fund?

A

401k, not IRA

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35
Q

Books/records: apply for BD/IA, or Agents/IARs?

A

BD/IA

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36
Q

IA: what are the rules regarding maintaining record for website?

A

3 yrs. If you make a change, it restarts

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37
Q

Market risk = ?
Business risk = ?
Reinvestment risk = ?

A

Market risk = systematic risk
Business risk = single company
Reinvestment risk: a variable of interest rate risk … i buy a bond w/10% coupon, reinvest my interest at 5%

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38
Q

Investment Company Act of 1940

A

all investment companies to register w/SEC

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39
Q

Are wills, estates, and trusts not securities?

A

no

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40
Q

Name 2 ways to get a discount on mutual fund sales charges

A

Breakpoints: tiers, you get a discount

LOI: sign LOI that you’ll reach the breakpoint in a time frame

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41
Q

What is a minus beta?

A

+1.2: if SP500 moves up by 10%, this will move up by 12%
-1.2: if SP500 moves up by 10%, this will move down by 12%

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42
Q

Formula for alpha

A

[actual portfolio return - risk free rate] - [portfolio beta * (market return-risk free rate)]

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43
Q

Can IA registration fee be prorated?

A

No

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44
Q

What does SIPC cover?

A

If you own cash, they cover up to $250k cash.

If you own securities, they insure assets, not value.

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45
Q

Rule 144

A

if a married couple (individually or jointly) owns a combined 10% or more of a corporation’s voting shares, they are considered affiliates and have to file form 144 to sell

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46
Q

What’s great about money market fund?

A

Liquidity – you can write checks

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47
Q

Margin accounts: what happens if the client can’t be reached to satisfy the margin maintenance?

A

The only way to satisfy the margin maintenance call is through the liquidation of shares in the account. The broker-dealer determines which securities are to be liquidated.

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48
Q

What is churning?

A

conducting excessive transactions in a customer’s account for the purpose of generating commissions and is prohibited

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49
Q

Formula for working capital

A

working capital = CA - CL

Key here is current!

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50
Q

Formula for expected return

A

Expected return = [return of the market - risk free rate]*beta + risk free rate

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51
Q

In order for an individual to receive Social Security benefits based on the earnings of the ex-spouse, the couple must have been married for at least X years?

A

10

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52
Q

How are dividends taxed?

A

Ordinary dividends: income tax

Qualified dividends: as capital gains, max rate of 15%

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53
Q

Options: draw the 2 graphs for selling a call and selling a put to show max loss/gain

A
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54
Q

How do variable annuity units work?

A

When you buy variable annuity, you buy a fixed number of annuity units. During payout, the number of these units don’t change. The value changes.

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55
Q

Variable to whole life, how do you exchange?

A

You can exchange it, for up to 2 years after getting VLI

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56
Q

What does discretionary cover and don’t cover?

A

Covers: # of shares, what securities

Don’t cover: time and place

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57
Q

Covered accounts

A

bank accounts for personal stuff, like checking. Covered to prevent you from id theft/fraud.

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58
Q

What’s not allowed in IRA

A

Collectibles (minus some treasury coins)
Life insurance
Bonds

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59
Q

Who can give UTMA?

A

Any custodian

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60
Q

What does Customer Identification Program ask?

A

name
address
DOB
ssn

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61
Q

Is REITS an investment company?

A

no

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62
Q

Matched orders

A

manipulation – when one or more broker-dealers engage in buying and selling between themselves for the purpose of creating the misleading appearance of increased activity in a security – it’s volume manipulation

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63
Q

Wash trades

A

manipulation – manipulate a security’s price by creating an apparent interest in the security that really does not exist !!! wash sale is different from wash trades!!! Volume and price manipulation

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64
Q

Dividend Payout Ratio

A

(dividend per share) / (earnings per share)

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65
Q

Futures vs Forwards

A

Forwards are used by producers. Futures are used by speculators. That explains why such as a small percentage of futures contracts ever end with delivery.

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66
Q

Keogh plans

A

retirement plan for self-employed and owner/employees of unincorporated

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67
Q

Qualified plan

A

refers to employer sponsored plan such as 401k, pension plan, or Keogh plan. Not IRA

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68
Q

Direct Participation Program (DPP)

A

is a type of alternative investment: limited partnerships … all the economic consequences of a business to flow through to investors.

Film partnerships is an example

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69
Q

Can an IA can charge both advisory fee and commission?

A

Yes

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70
Q

Sell stop-limit order at 60: trades occur at 62.12, 60, 59.95, 60.06, 61

A

60.06

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71
Q

Name 3 investment objectives

A

Growth
Income
Preservation

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72
Q

Investment constraints

A

Time horizon
Liquidity
Taxes
Law/regs
Preferences

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73
Q

Comprehensive plan

A

a comprehensive always includes securities. So anyone advising them, whether it’s a financial planner or insurance agent, needs to be registered as IAR.

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74
Q

Why is S-corp not ideal for fundraising?

A

because it’s limited to 100 US residents

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75
Q

Commercial paper vs bonds

A

Commercial paper is short term, purpose is to meet short term liquidity needs

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76
Q

What exactly is Money market?

A

high quality, short term debt security with maturity of 1 year or less

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77
Q

Tactical vs Strategic

A

Tactical: short-term adjustments in consideration of current market conditions
Strategic: proportions of investments composing a long term investment portfolio.

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78
Q

Can agents register as IAR with other firms?

A

Yes

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79
Q

Wrap accounts

A

firm provides a group of services (asset allocation, management, executions) for a single fee

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80
Q

What happens to your estate if you die without a will?

A

state will appoint someone as admin of the estate

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81
Q

What’s safe harbor?

A

The trustee of 401k can reduce her ERISA fiduciary exposure and meet the safe harbor if the plan includes a broad index fund, bond, and cash equivalents.

82
Q

Can IAR or Agents share gains/losses in a customer account?

A

Agents yes

IARs no

83
Q

Front running

A

unethical practice of placing a personal order ahead of a previously received customer order

84
Q

SEC suspending trades

A

all trades: must notify POTUS

individual security: 10 days w/o notification

85
Q

Equity REIT vs Mortgage REIT

A

stock vs bonds … Equity REIT gives both income and growth

86
Q

Price to book ratio

A

market price of a stock / book value of a stock

low ratio = value stock

87
Q

Prime rate

A

“friendly” interest offered by banks

88
Q

Nonqualified stock options (NSO) vs Incentive Stock Options (ISO)

A

Nonqualified Stock Options (NSO)
Profit you earn shares*(market price - exercise price) is treated as income

Incentive Stock Options (ISO)
When you exercise, no income is recognized
If held for more than 2 years after grand and 1 year after exercise: taxed as capital gains
Otherwise it’s taxed as ordinary income

89
Q

Can you sell muni bond from State Y to a resident in State X?

A

Yes

90
Q

Name 6 types of investment companies

A

Open ended
Close ended
UIT
ETF
Money Market
Hedge funds

91
Q

Can an investment company hire an outside firm to manage its portfolio?

A

Yes.

The contract is for 2 years and must be renewed every year, and must state the adviser’s compensation.

92
Q

Can an investment company own another investment company’s shares?

A

Yes, max 3%

93
Q

GNMA

A

Kinda like a CMO but offered by US government, provides monthly income

94
Q

GNMA vs Treasury/Corporate bonds

A

GNMA pays monthly

Treasury/Corporate bonds pay semiannually

95
Q

Can 2 agents from the same BD share commissions?

A

Yes

96
Q

Can you be an IAR and an agent?

A

Yes, but you have to disclose to customers and get consent

97
Q

What part of the ADV form can you use as a brochure?

A

Part 2

98
Q

How are nonqualified annuities taxed?

A

Income tax on the gains + 10% penalty on the gains (if you withdraw before 59.5)

99
Q

Sharpe Ratio

A

Sharpe ratio = (actual return - risk free return)/sd
It provides risk-adjusted returns
Higher the better

100
Q

Custody

A

Adviser must send quarterly report to the client
And arrange annual audit and forward that to the SEC
And be named as agent/trustee for a client’s account

101
Q

Dividend Growth Model

A

It’s like dividend discount model, but assuming that dividends grows at a rate

102
Q

Discretion of time and day

A

Only good for that day!

103
Q

401k loans, repay period?

A

5 yrs

104
Q

Constant dollar

A

inflation adjusted dollar to measure true GDP

105
Q

Efficient frontier vs optimal portfolio

A

frontier is a graph, optimal portfolio lies on the graph

106
Q

Government agency bonds

A

they are not direct obligation of the US government (except for GNMA)

107
Q

Distributable Net Income (DNI)

A

when it comes to a trust or estate, the taxable income is DNI
= all minus reinvested capital gains - fees

Ex:
Taxable interest = 1.5k
Dividends = 2k
Tax exempt interest = 3k
Reinvested cap gains = 3.5
So DNI = 6.5k, … when distributed, only 3.5k is taxable

108
Q

Block trade

A

10,000 shares or $200k, whichever is less

109
Q

Annual operating budget for the US - how does it get approved?

A

The president submits a proposed budget to Congress. Once Congress comes up with an approved version, it is sent to the president. Once signed by the president, we have an approved budget.

110
Q

Private placements

A

can be offered to no more than 10 non institutional investors in 12 consecutive months

111
Q

Is depreciation/amortization on the cash flow statement? If so, where?

A

Yes, operating activities

112
Q

Must an IA disclose if his personal securities are inconsistent with the advice given to clients

A

Yes

113
Q

$ Limits for Roth and Traditional IRA

A

6.5K (if older than 50, you can add 1k)

114
Q

Age Limits for Roth and Traditional IRA

A

None. As long as you have income.

115
Q

There is no way that a waiver of legal rights is ever enforceable? Is that right? Even if I sign a waiver?

A

Yes

116
Q

Anytime there is an incentive involved in a security offering, the potential conflict of interest shall be disclosed to the potential investor?

A

Yes

117
Q

Negotiable CDs

A

jumbo cds that have a face amount of $100k. Usually institutions buy them

118
Q

Supervised vs Associated Person at IA

A

Supervised: every employee

Associated: exclude admin people

119
Q

Capital goods

A

tools and equipment that businesses use to make other goods and services

120
Q

Bond duration

A

measure of sensitivity of bond to interest rates. So a bond duration of 5 is less sensitive to a bond duration of 10

121
Q

Brady bond’s collateral

A

US treasury zero coupon bonds

122
Q

Supply side theory

A

heavy taxing and government intervention have a negative effect on the economy

123
Q

How do you get the risk free rate?

A

91-day T-bill

124
Q

Segment rotation

A

portfolio management that rotates between sectors based on business cycles

125
Q

Hypothecation Agreement

A

this document allows the firm to pledge the customers’ margin securities as collateral

126
Q

Anchoring

A

base expectations upon the first information received

127
Q

Regret aversion

A

preparing yourself in such a way as to avoid distress over a bad outcome

128
Q

Gift tax limit

A

an individual can gift up to $16k per person in one year w/o gift tax liability

129
Q

Whose job is it to supervise IARs?

A

IA

130
Q

Liquidy priority

A

Secured creditors / senior debt like mortgage bonds
Unsecured creditors (debenture)
Subordinated debt holders
Preferred stockholders
Common stockholders

131
Q

Warrants and Rights can be traded in the secondary market?

A

Yes

132
Q

Mutual funds: what’s the price?

A

The NEXT NAV

133
Q

Currency Transaction Report

A

any cash transaction >$10k within 15 days

134
Q

What’s another leading indicator?

A

Money supply

135
Q

Breakpoints (limited to whom?)

A

unaffiliated groups (like investment clubs) can’t pool their money to receive a breakpoint. Spouses for example can.

136
Q

Mutual funds: Class A, B, C?

A

Class A: pay upfront fees (most common)
B: pay at the end
C: ongoing charge

137
Q

Admins or anyone appointed by the admin have the power to subpoena records/testimony without court approval?

A

Yes

138
Q

Coverdell vs 529 vs UTMA

A

Coverdell:
Pro: earnings are tax deferred
Pro: can do k-12, whereas 529 is only for higher education
Con: limit to $2k per child per year
Pro: broad option of investments

529
Pro: earnings are not subject to federal tax
Pro: parents can use it too
Con: limited choices of mutual funds

UTMA
Earnings taxed to the child in the year earned

139
Q

Limited partners: their involvement and liability

A

Do not have the option to manage the business ops
Their liability is limited to the amount they invested or commit to invest

140
Q

ISOs vs NSOs: can non employees get those?

A

ISOs can be granted only to employees, but NSOs can be granted to anyone.

141
Q

The only time an agent can use the word guarantee is …

A

guarantee of interest, principal, or dividends by a party other than the issuer

142
Q

Highly leveraged means what?

A

long term debt > 50% of total capital

143
Q

Principal transaction

A

Either the BD buys securities from customers and takes them into own inventory or sells securities to customers from its inventory

144
Q

When an IAR acts as an agent (or principal), what happens?

A

BOTH disclosure AND consent are required

145
Q

Bankruptcy priority

A

secured debt is also called senior debt (commercial paper is unsecured debt)

146
Q

To be fully eligible for Social Security:

A

Min of 40 covered quarters of employment

147
Q

Agents must be registered w/a state where

A

he solicit/place orders

148
Q

coordination/qualification apply to securities that

A

are not federal covered

149
Q

ROTH IRA distribution rules

A

No minimum distribution rules unless the person dies
Tax free if you have contributed for 5 years and you are older than 59.5

150
Q

Widening yield spread signals recession … why?

A

because maybe corporate feels that people are getting nervous, and that they need to increase their interest rate to attract you

151
Q

When selling a security to a public customer, the broker-dealer adds his markup to

A

ask price

152
Q

Custody … how to notify?

A

notify the admin through form ADV

153
Q

Investment constraints: Name all 5

A

Liquidity
Time horizon
Regulatory
Unique needs
Taxes

154
Q

When the rate of inflation slows, the Fed increase or decrease interest rate?

A

decrease

155
Q

CAPM

A

Expected Return = Risk-Free Rate + Beta × (Market Risk Premium)

156
Q

Deferred tax credits

A

liability, tax that you owe

157
Q

What makes the yield of a bond go up?

A

when the price of a bond falls

158
Q

What causes the bond prices to fall

A

supply/demand

159
Q

If your BD’s registration is revoked, the agent’s registration is

A

in suspense

160
Q

Closed-end investment price

A

price based on supply and demand, not by NAV

161
Q

The contract between an investment company and its adviser - can’t be terminated with more than X days’ written notice.

A

60

162
Q

All IARs are registered w/their state, not SEC.

A
163
Q

Prepayment rules for Fed vs State

A

Fed IA: $1200, 6 months or more in advance
State IA: $500, 6 months or more in advance

164
Q

TIPS calculation

A

Payment is made every 6 months
That period payment = original principal * (inflation adjustment, which is made very 6 months) * (annual nominal yield / 2)

165
Q

Unsolicited orders on unregistered, nonexempt security: is it an exempt transaction?

A

Yes

166
Q

Form 13(f)

A

if you manage a discretionary account of $100M or more in equity securities, you have to file this

167
Q

AMT vs regular tax

A

you compute both your regular tax and AMT, and pay whichever is the higher amount

168
Q

If you had a misdemeanor in one state, and want to apply for IAR in another state where they consider that misdemeanor a felony, you can still apply.

A

yes

169
Q

US Treasury quotes

A

they are quoted in 32nds. So a price of 96.18 is 96 and (18/32) percent of par, or 96.5625% of par value of $1000.

170
Q

Promoter: 2 requirements

A

Can’t be statutorily disqualified from registration
Written agreement if >$1k in 12 months
Doesn’t have to deliver a solicitor’s brochure anymore

171
Q

Coverdell - is there an income limit?

A

yes

172
Q

BD fee disclosure template

A

Not on there are commissions, markups/downs, advisory fees

173
Q

Who are exempt from Investment Adviser Brochure Rules

A

registered investment companies (both open and closed) and impersonal advice costing less than $500/year

174
Q

Yield curve: what moves them

A

buy → price goes up → yield comes down

175
Q

Securities that are nonexempt must register unless sold in exempt transactions — what are these exempt transactions?

A

Unsolicited brokerage transactions
Nonissuer transaction that occur infrequently
Underwriter transactions
bankruptcy/sheriff
Institutional
Private places (no more than 10 persons in 12 months)

176
Q

2x leverage

A

this means the return/loss is amplified by 2

An investor purchased a 2x leveraged ETF at a price of $100 per share. So if the index goes up by 10%, your return is actually 20%.

177
Q

Flexible Premium Variable

A

aka variable universal

178
Q

advance/decline theory

A

advance (# of stocks that went up in value that day), decline (went down in value) … measures the breadth of the market.

179
Q

name 4 precious metals

A

gold, silver, platinum, palladium

180
Q

range for mirco, small, mid, large cap

A

300m
2b
10b

181
Q

Par value

A

the price when it’s issued

182
Q

Time horizon

A

length of time the plan is designed to serve. So for someone in their 50s, the time horizon is 30 years.

183
Q

GNMA vs REITS

A

REITS pays via dividends, GNMA pays via a pass through of principal and interest.

184
Q

REITS must pay out at least X% of its taxable income in the form of dividends in order to receive favorable tax benefits.

A

90

185
Q

Nonqualified plan

A

is permitted to discriminate in favor of highly compensated employees

186
Q

UGMA vs UTMA

A

UGMA permits only cash/securities, UTMA can hold other stuff like real estate and limited partnership interests

187
Q

Keogh

A

unincorporated business, like independent contractors, consultants, freelancers, etc.

188
Q

Insured bank CDs

A

have no interest risk because they can’t be traded

189
Q

Zero-coupon bonds

A

can be traded, and have the highest interest risk because they have long maturity

190
Q

Systematic risks

A

market: measured by a security’s beta … if a war break out, stock market could decline.

interest

reinvestment

inflation/purchasing power

exchange/currency

191
Q

An IA must meet the capita requirement of its home state only

A
192
Q

Giving a security as a bonus is considered a sales

A
193
Q

Agent must register wherever they have retail clients or have an office

A
194
Q

The internal rate of return is the required return to determine the time value of your money

A
195
Q

Tangible goods are a hedge against inflation

A
196
Q

Federally covered advisers must make
a notice filing with the state if they have a place of business in the state or have six or more clients in that state in a twelve-month period, regardless of place of business

A
197
Q

After the assets have been liquidated, any remaining secured creditors then become general
creditors

A
198
Q

TheCEOofXYZ,INC. offers securities of his companytothepublicandtoitsemployeesand receivesremunerationsforthesale.AccordingtotheUniformSecuritiesAct,theCEOA.must register as an agent of theIssuer

A
199
Q

Value stocks are characterized by high dividends and stable earnings with low PE ratio

A
200
Q

1041 form is to report estates/trusts

A
201
Q

529: after tax dollars

A
202
Q

There is no limit on gifts between spouses

A

Series 65 (6 decks)

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