Q Bank Stuff Flashcards
ADR
American Depository Receipt
-Give your money to a bank
-they invest that in foreign Securities
-Your money never technically leaves US Soil
HAS CURRENCY RISK
Facilitates Domestic Trading of Foreign Securities
Can Be Redeemed for the actual shares of Foreign Stock
ADS
American Depository Shares
—another word for ADR’s—
How much $ needs to be paid to Preferred Stock holders Before the Company can Pay Dividend to Common Stock Holders
All Dividends due to preferred Stock Holders for THAT YEAR.
As well as any Dividends due to Cumulative preferred Stock Holders that were missed in past years
Rules for qualifying as an Affiliate for relatives
Must be a direct relative and LIVE WITH the Affiliate
% ownership of company is the affiliate and all direct relatives % ownership combined
IE:
Husband 5% ownership
Wife 6% ownership
Means they are both affiliates becasue combined they have 11% ownership of company
Do Preferred Stock Holders get to receive Pre-Emptive Rights?
NO
Record Date
The Date you must be be shown as an owner on companies records
in order to participate in a specific vote or a specific dividends
Payment Date
The day on Which a Declared Dividend is paid to all stockholders
(must be marked as an owner by the record date in order to be paid on the payment date)
Employee Stock Options
Options Awarded usually to employees of a company to purchase their companies stock at a specific price and time
2 Types:
NSO - Non-Qualified Stock Option
ISO - Incentive Stock Option (Qualified Stock Option)
CMV - Strike Price(Excercise Price) = Employees Profit
NSO
Non-Qualified Stock Option
Most Common Employee Stock Option
Can be given to people other than employees IE: Board Memebers
CMV - Bargin Price => Profit
Profit is reported as wages for tax purposes (taxed as Ordinary Income)
ISO
Incentive Stock Option
Only given to Employees
CMV - Bargin Price => Profit
Profit is Reported as Either Long or Short Term Capital Gains
If Stock is Held for
2+ years from being given the ISO
and
1+ years from being exercised into Stock
= Long-term Capital Gain
if Less than that
= Taxed as Ordinary Income
MAX 10 YEARS UNTIL EXERCISED
Rule 144 Holding Period applies to what type of stock
Only Stock that was acquired through an unregistered means
(the stock was unregistered when the person acquired it)
Means they have to wait the 6 month waiting period before reselling it
Rule 144 Liquidation requirements apply to what type of stock
Stock acquired by an affiliate
Doesn’t matter if it was registered or unregistered stock when they got it
(But if registered they won’t have to wait the 6 month holding period but still have to follow the liquidation requirements)
Capital Risk
The Risk of Losing Capital
(What you initially spent to get that security)
Common stock has a greater capital risk than
Preferred Stock
Bond
because it has a lower claim if the company goes under
Deals with the losses you might incure on your Principle investment (the actual money you put down) NOT the Intrest you might receive (IE: bond coupon rates fluctuating)
THINK PRINCIPLE
NOT INTREST
The Indenture
the contract that sets forth the rules and promises of the Issuer of a bond
Eurodollars
American $ held in International Bank
especially ones in Europe
Difference Between a Dividend and a Stock Dividend
Dividend - pays money to Shareholder
Stock Dividend - pays stock to Shareholder
What’s the process of calculating the cost basis after a Stock Dividend has been paid
Find the value of the shareholders position
(This will not change after a stock dividend)
before the stock dividend:
Number of shares Owned x Price of Stock = Value of Position
After the Stock Dividend:
Value of Position / NEW # of shares owned = Cost Basis
Ex-Date
the first day a shareholder is not entitled to a specific Dividend
Should You Assume Riets are Listed or Unlisted
LISTED unless they specify its not
Are 12b-1 Fee’s high or low on A B and C Funds
A - Low or None
B - High
C - High
what effect does Redemptions and Purchase’s have on NAV of a Fund
NO EFFECT
Special Situtation Fund
Type of Mutual Fund
VERY RISKY
Not good for income or retirement
How to View Private Equity Funds
Think Private Sector
Invests in private (non public) companies
(they also do public but can focus on private aswell)
Avoid being an Investment Company because they are more private in who can be apart of it
(100 people or under within the fund)
NAV Calculation Formula
(Portfolio Assets - Portfolio Liabilities) / # of shares outstanding
Management Fee’s
and
Portfolio Debts
Both count toward portfolio Liabilities
Difference Between
Fixed Portfolio
and
Fixed Security
Fixed Portfolio - the portfolio cannot change its holdings
(Probably a UIT)
Fixed Security - securities Like Bonds, Money Market, Etc…
12B-1 Fee’s Must be approved by
Board of Directors
AND
Shareholders
Both also have to create and approve a
WRITTEN Distribution Plan
Do Changes in Interest Rate Affect Long Or Short Term Debt Security Prices More
LONG TERM DEBT PRICES
Asset Allocation Fund
A mutual fund whose portfolio managers have the flexibility to allocate between different investment classes
A Straddle
Betting on whether the market will move a lot or stay the same (ignoring if it moves up or down)
Buying a Call and a Put in the same security
Buyer - Wants Volatility (Lots of movement in the market)
Seller - Wants Stability (Little movement in the market)
When asked Future and forwards questions that want you to decide if someone should buy or sell a forwards/ Futures contract,
What’s the process?
1) Determine if the person is a producer or buyer of the commodity
Producers - Worried about price going down - Sell’s contract
Buyers - Worried about prices going up - Buy’s the Contract
Difference Between European and American Style Option
American - Option can be exercised @ any time during the contract
European - Option can only be exercised @ Expiration Date
HAS NOTHING TO DO WITH GEOGRAPHY
Do Futures contracts have the buyer and seller exchanging the commodity at expiration?
No
there is NOT an actual exchange of the commodity for FUTURE’s contracts at expiration
BUT they must settle the contract (they took a bet and the looser needs to pay the winner)
therefore they both have an obligation
Do Buyers and Sellers have an obligation for Options, Futures and Forwards?
Options - Seller Only
(the seller is obligated to either buy or sell the security)
Futures and Forwards - Both Buyer and Seller
(the buyer is obligated to pay $ and the seller is obligated to exchange the commodity)
A very good Security for Funding College Education Is
Zero-Coupon Bonds
Because you know exactly what the growth will be
Definition of Antipodal
In opposition to
What Relationships work toward breakpoints
Family - Spouses and Kids
Incorporated/ Affiliated Entities
(includes qualified retirement funds)
NOT
friends
investment clubs
Are Hedge Funds Loosly or Heavily Regulated
Heavily Regulated
How do Convertible Securities Tend to sell in comparison to normal ones?
At a Slight Premium
Means you would expect their price to be a little above their parity price
When are Employee Stock Options Taxed
When the sale of the security happens
(not when the option is exercised)
(but ISO’s can sometimes have the profit on exercise be counted toward the AMT)
Important
RIET’s
%’s
75% - Assets must be invested in Real Estate cash and Government Securities
75% - AGI must be from Real Estate Related Assets and Intrest
90% - Taxable Income must be paid to investors as dividends
Class C shares usually have what type of Sales Charge
1% CDSC that goes away if held for at least 1 year
Options Clearing Company
Issues Standardized Equity Options
Structured Products
Funky “One of a Kind” Investments
Extremely Illiquid
Extremely Low Transparency
Unsecured Obligations
Very Low Interest Rate
Draw the Yield Curve
Draw it
Draw the Inverted Yield Curve
Draw it
What is Inverted Yield Curve caused By
Investors
Buying Long-term Bonds
and
Selling Short-term Bonds
Is an inverted yield curve usually Good or Bad
BAD
its a precursor for Recession
Yield Spreads
The Price Difference Between
Quality Debt Instruments
and
Lower Rating Debt Instruments
High Yield Spreads means
Risky Market Conditions
(the price of lower-rated bonds is low because everyone wants the safe stuff)
Low Yield Spreads means
Safe Market Conditions
(the price of lower-rated bonds is closer to that of Quality bonds because everyone feels its not that risky)
The Process of Creating a New US annual operating budget
Steps:
1) President submits a proposal to Congress
2) Congress creates an approved version of the proposal
3) President Signs the Approved Proposal
Do Preferred Stock Holders Get Voting Rights
No
they also DONT get Pre-emptive rights
CPI
Average Cost of Goods and Services (Market Basket) Compared to those same goods and services purchased during a base period
(a basket of what an average American buys)
Measures Inflation
Doesnt compare 1 country to another
Does CPI measure Retail or Wholesale prices
RETAIL
Core CPI
CPI excluding
-Energy
-Food
Many Economists believe it’s better at tracking Inflation
(because food and energy prices are too volatile)
GDP
Measure of all the production a country has in $
Constant Dollars
Used to remove Inflation from the equation
(most accurate way to measure GDP)
What is Gold good and Bad For
Good - Inflationary Times
Bad - Deflationary Times
Strengthening the Dollar Means
The Dollar is Worth More
Weakening the Dollar Means
The Dollar is Worth Less
When Hearing:
-Credit
-Debit
Think What?
Credit -Money Going In
Debit -Money Going Out
Don’t think credit card
think “I’ve got to give you credit”
Inertial Inflation
Prices are steadily Increasing
UNTIL
a large economic shock that changes that
Yield Curves Most Often Chart out which securities?
Treasury Securities
But
some yield curves use corporate bonds aswell
The Usual Change In Interest Rates That’s Associated With:
-Expansion
-Contraction
-Trough
-Peak
-Expansion - Rising Intrest Rates
-Contraction - Falling Intrest Rates
-Trough - Bottomed Out Intrest Rates
-Peak - Peaking Interest Rates
(they follow the business cycle up and down)
Advisor is told
Insider Information
By Client
What should Advisor do
Tell their Supervisor
(there is not requirement to tell the State Admin)
Penalty for Insider Information
3X the persons gain or avoided Loss from the use of that info
and 20 years Imprisonment
What is Fraud
-Saying something False
OR
-Not saying something True (that you should have)
OR
-Not following clients instructions ON PURPOSE
How Many Of Each Indicator:
Leading
Coincident
Lagging
Leading - 10
Coincident - 4
Lagging - 7
List all 10
Leading Indicators
1 - Money Supply
2 - Building Permits (Housing starts)
3 - Initial Claims for Unemployment
4 - hours, of manufacturing
5 - Manufactures new Orders - Consumer Goods
6 - Manufactures new Order - Nondefensive capital goods
7 - Index of supplier deliveries - vendor performance
8 - Interest rate spread - from 10 yr treasury bonds to Federal Funds Rate
9 - Stock Prices
10 - Consumer Expectations
List all 4
Coincident Indicators
1 - Non-Agricultural Employment
2 - Personal income (minus SS, veteran benefits, and welfare payments)
3 - Industrial Production
4 - Manufacturing and Trade Sales in Constant Dollars
List all 7
Lagging Indicators
1 - Duration of Unemployment
2 - Ratio of consumer installment credit to personal income
3 - Ratio of manufacturing and Trade Inventories to sales
4 - Prime Rate
5 - CPI
6 - Commercial and Industrial Loans Outstanding
7 - Labor cost per unit of output (manufacturing)
Dividend Discount Model
Assumes all dividends payments will be the same amount
Dividend Growth Model
Assumes All dividends payments will be growing over time
LEAPS
stands for
“Long-term Equity Anticipation Securities”
an options contract that has a long time until expiration
(most options contracts are for up to 9 months)
Discount rate
Another word for
Current Interest Rate In the Market
Also the rate FED charges Banks on loans
How does Each of the following change the Balance Sheet:
-Purchase Equipment
-Depreciation
-Declaring a Dividend
-Paying a Dividend
-Issuing Company Bonds
-Issuing Company Stock
-Purchase Equipment - Current assets Decrease / Long Term Assets Increase
-Depreciation - Value of Long Term Assets Fall (also decreases Tax Liability because they get tax write off for depreciation)
-Declaring a Dividend - Current Liabilities Increase
-Paying a Dividend - Current Assets and Current Liabilities decrease
-Issuing Company Bonds - Current Assets Go Up and Long Term Liabilities Go Up Equally (means Net Worth doesn’t change)
-Issuing Company Stock - Current Assets Go Up Net Worth Goes Up (But Book value per share remains the same because there are more Shares Outstanding equal to the increase in Net Worth)
Interest Rate Risk
The Risk That the PRICE of the security will change because of changes to the Interest Rate’s
In order for something to have interest rate risk it must have…
The ability to be traded.
If it cant be traded, its price doesn’t change with interest rates
Do the Following have Interest Rate Risk:
-Bank CD’s
-Jumbo CD’s
-Bank CD’s - NO (because they cant be traded)
-Jumbo CD’s - Yes
Fiscal Year Accounting
Any 12 month Period that doesn’t end on Dec 31st
lots of companies like to use Fiscal Year Accounting
Difference between Cash Flow From
-Investing Activities
-Financing Activities
-Investing Activities
deals with the company buying/selling Investments (other than their own), Equipment, Assets etc
-Financing Activities
deals with the cash flow that involves Owners (shareholders) and Creditors (ie: bond holders) of the company
Deals with THEIR COMPANY SECURITIES
Difference Between
Eurobonds
Yankie Bonds
Eurobonds - Issued By an Entity in a foreign country that Issues the bonds to a country other than the Issuers Home Country
Yankie Bonds - a Type of EuroBonds where the Issuer is from a foreign Country and Issues to the UNITED STATES
What is a good way of looking at:
Warrant’s
They are Basically:
Long-Term Call Options
With a Strike Price that is ALWAYS above CMV of security at the time of Issue
At the time of Issue do warrants have:
-Intrinsic Value
-Time Value
-Intrinsic Value
NO (because they are always issued with a strike price above CMV)
-Time Value
YES
Explain Each Part of this Order:
5M RAN 6.5s of 32 @ 67
5M - Means its 5 Bonds with a par value of $1000 each
RAN - Company Name
6.5s - “s” means “%” => 6.5% Coupon
of 32 - Matures in 2032
@ 67 - “@” means the following # is the Price they were bought at => $670 each
(not $67 because its a bond quoted in basis points)
IA/IAR must register in a state if:
-They have an office in the state
OR
-They have 5 or more NON-INSTITUTIONAL clients in the state in the past 12 months
(Investment Companies and BDs technically are institutions but for this rule count as non-institutional -and if you have a single one in state then you need to register-)
BD/Agents of BD
must register in a state if:
-They have an office in the state
OR
-They have ANY NON-Institutional Clients in the state
How to determine if IA needs State or Federal Registration
If they have an Investment Company as a client
= Federal
OR
If they are required to Register in +15 states
=Federal (THEY CAN BE A FEDERAL IA BUT DOESNT HAVE TO BE ONE)
if not:
Their AUM
-Under $100 million = State
-Over $110 million = Federal
-In-between 100-110 = IA gets to choose
If federally Registered IA’s AUM drops below $100 million
They dont have to file with states unless it drops to under
$90 million
(rule only applies for IA’s who are federally registered)
IA’s AUM for purposes of determining Federal or State Registration is reported when
It’s Reported 1/year
and it doesn’t matter what happens to their AUM in between that time just where its at at the time of reporting
Tax Exemption from
Capital Gains derived from the Sale of a Home
$250k - if single
$500k - if married
to qualify you must have lived in the home for 2 of the past 5 years
Is BD considered an IA when they sell research for a fee?
YES
Even if it’s being sold to an Institution
(If the advice is Incidental to selling of securities and their is no actual compensation coming directly from the advise then it doesn’t count)
Rules on
Variable Life Policies
Swapping to
Permanent Life
All VL Policies give the Owner the RIGHT
to swap
for the 1st 2 yrs of policy
and
without any further Insurability testing
On the test do Life Policies have any sort of living benefits
NO
they only pay out upon death
Methods of determining the Amount to be credited in a Life Insurance Policy
Annual Reset
Point to Point
High Watermark
A component of a life insurance crediting method
Participation Rates
(its not a method in and of itself but a component in the computation)
Rules for S Corps to maintain their Tax benefits
Must have all the following
-No more than 100 stockholders
-Each stock holder must be a US resident
-S Corp Can only have 1 class of stock
-S corp can only have up to 25% of its income come from Passive Activities
Does Holding Period Return include any Interest or Dividends payments
YES
All return formulas do
When ISO is exercised is there a taxable event
No
BUT
the profit COULD be considered income for AMT purposes
ISO Long Term Capital Gains Requirements
To Get LTCG ISO must be held for at least
1yr from Exercise
and
2yrs from Grant
(dont mix them up)
Compare Muni and Corporate Bonds in the following areas:
-Safety
-Amount of Income it pays
-Tax Benefits
When should you recommend a Muni bond instead of a Corporate
-Safety - Muni Safer
-Amount of Income it pays - Corp Pays More
-Tax Benefits - Muni has them Corp Doesnt
Recommend Muni’s instead of corporate when taxes is a priority
(or MAYBE if safety is but that’s a pretty close call)
Variable Annuity
Who Bears the following Risks:
-Mortality
-Inflation
-Interest Rate
-Market
-Mortality - Company
-Inflation - Owner
-Interest Rate - Owner
-Market - Owner
Ancoring
Making Irrational Decisions Based upon Unimportant Info
Herd Mentality
Following the actions of a group whether rational or not
Confirmation Bias
Pay Attention to Info that supports their opinion more than info that doesnt support their opinion
Overconfidence
Investor considers their abilities to be better than they are
Does AMT calculation use
Accelerated Depreciation
or
Straightline Depreciation
Accelerated Depreciation
Difference between Market Maker and Specialist
Market Maker - Helps with Over The Counter (OTC) trades
(imagine them literally standing behind a counter)
Specialist - Helps with trades on the trading floor, not OTC
Do Return Folmula’s include Dividends and Interest Payments
YES
Return and Yield are the same thing!!
Income Tax Filing Due Dates for:
-C Corp
-S Corp
-LLC
-Partnership
-Sole Proprietorships
-C Corp - 15th day of the 4t month following the close of their year (April 15th if they use calendar year not Fiscal Year)
-S Corp - March 15th
-Partnership - March 15th
-LLC
if more than 1 member (owner) - March 15th
if only 1 member (owner) - April 15th
-Sole Proprietorships - April 15th
Is Being a Federally Registered Advisor and Registering Via Coordination the same thing?
NO
they both have to register with SEC but Coordination is registering with the SEC as a STATE registered advisor not a Federally Registered one.
(they do this so that every other state who needs to be registered with can easily do a notice filing instead of a through Qualification Filing in each state. IMAGE it as the SEC is only the one holding the documents and any state can come to verify them when they need to.)
List All State Excluded/Exempt Persons from the Definition of IA
Banks
Savings & Loan
Trust Companies
LATE Exemptions Persons
(Advice must be Incidental and no Compensation)
BD’s
(Advice must be Incidental and no Compensation)
Publishers/Writers of newspapers/magazines
(if Regularly Circulated -even if compensated-)
IAR’s
Federally Covered IA’s
Anyone The State Admin Chooses to Exclude
What Persons are Exempt from the Definition of IA
only if the Advice given is Incidental and No Compensation for advice is received
LATE
Lawyers
Accountants
Teachers
Engineers
THEY ARE EXEMPT only if the Advise given is Incidental and No Compensation for advice is received
(NOT ECONOMISTS)
Are Pension Consultants Considered an IA
YES
Are CFP’s Exempt/ Excluded from the Definition of an IA
NO
they qualify for a waiver from the series 65 exam BUT still need to register as IA
What Securities Exempt You from the Definition of IA
if they are the ONLY type of securities you give advice on
Commodities
and
US Government Securities
If you give advice to an employee benefit plan are you Exempt/Excluded from the Definition of an IA
If compensated for the advice = No (you’re then considered a pension consultant and therefore also an IA)
If NOT compensated = Yes
When Determining if someone meets the definition of IA
Does the Term “Compensation” include:
-Direct Compensation
-Indirect Compensation
-Direct Compensation - YES
-Indirect Compensation - YES
Both are considered compensation and for LATE exemption persons means they are considered an IA
If IA Changes its Name, address, telephone number, organization type changes (corporation, sole proprietorship, and partnership), degree of control over clients’ funds, sources of funding, management organization, or any information relating to disclosure to clients…
When does it need to update Form ADV
Promptly
When does a Pension Consultant Register With
-State
-SEC
under $200 million AUM = State
Over $200 million AUM = They Get To Decide State or Federal
(THEY DONT HAVE TO REGISTER SEC THEY CAN IF THEY WANT!!!!)
When Is IA’s Registration Need to be renewed?
Dec 31st every year
(even the 1st year and even if you registered in November. If you registered in December the 30 day waiting period -or 45 for SEC- would be pushing you into the new year anyway)
2 types of Private Funds that are Exempt from Registration
and their requirements for being exempt from registration
(basically how can they remain Private not Public)
Requirements for Both:
-No Felonies (usually)
-AUM under $150 million
3(C)1:
-No More Than 100 Investors
-Each Investor Must Have either
+1.1 million AUM or
2.2 million Net Worth (Excluding Home)
3(C)7:
-No More Than 2000 Investors
-Each Investor Must Have +$5 million AUM
What is the Definition of an IA (not the Exclusions/Exemptions but the actual definition)
A Person Who:
-Holds themselves out (advertises) that they are an IA
-Provides advice on a frequent basis
-receives Compensation for advice given (directly or indirectly)
(doesn’t count advice that is incidental to the services a L.A.T.E. Person or BD gives unless DIRECT compensation is recieved)
How long is a right subscription period
(usually)
30-45 days
(usually)
To be considered a Foreign Private Advisor what criteria must be met
All the Following
-No office in the US
-less than 15 clients/investors in the US
-less than $25 million AUM in the US
-Doesn’t act as an IA in the US
If you only Advising a Government Agency/ Organization do you need to register as IA
Yes
Is an Estate considered a person
Yes
When Net Capital Requirement is not met by when must you:
-Notify the Admin
-Meet the Requirement
-Notify the Admin - End of the next business day
-Meet the Requirement - End of the Business Day After that
If BD/ Agent of BD is providing Investment Advice are they considered an IA
Yes
Unless Advice is Incedental and there is no compensation for advice
(then they are still considered an IA but Exempt from registration)
Whats the benchmark for if Advice is Incidental to a professionals daily business
If they provide the advice to 10 or less Client contracts
Are Trustee’s Allowed to sell Securities on behalf of the trust
NO - the hire a financial professional to do it
if they do they are considered an IA
The offering of securities to ___AMOUNT___ persons is considered a private placement
10 or fewer
Preorganization Certificate
Basically a Go Fund Me For a Business
(Company isn’t created yet but is gathering funds to get up and running)
Is the selling of Preorganization Certificate’s Exempt Transactions
Only if there is no compensation paid to the seller
IPO cooling-off period
20 business days from the time they file registration
after the 20 days they can then sell the new securities
What are companies allowed to do during the cooling-off period
Give out the Preliminary Prospectus
and
get an indication of interest
THAT IS IT
Do TIPS Principle or Coupon Rate get adjusted with Inflation
The Principle. And its compounding
Once at maturity it only pays the Par Value though ($1000)
When IA registers what persons are automatically registered as IAR’s
(State Law)
Partner
Officer,
Director,
or a person occupying a similar status or performing similar functions.
(even if they do not have that title)
(Partners => Includes Sole Owners of the IA)
Required Rate of Return
The return that is expected
Also sometimes considered the Expected Return
Which is more volatile:
-Short-Term Interest Rates
-Long-Term Interest Rates
-Short-Term Interest Rates
Which is more volatile:
-Short-Term Bond Prices
-Long-Term Bond Prices
-Long-Term Bond Prices
How do distributions work in an IRA when
some contributions were Deductable and some were not
All Distributions will be split by % of funds that were Deductable and % that were Non-Deducatable
Tax Exclusion if
A company receives a Dividend from another Company
Only 50% of the Dividend received considered Taxable
Who has the power to close a Stock exchange for 90 days?
and what is required to do so?
The SEC
Must give the President of the United States Notice
(Thats all that is required)
4 times where something is not considered
An Offer or a Sale
-A issuer’s securities change Class
-A pledge/loan
-A court-approved reorganization of security (the new security is given out to former shareholders)
-A stock dividend of stock other than the issuer’s for which nothing of value was given
(also im pretty sure a stock dividend that pay stock of the issuer aswell)
Dont be confused with Agnet of Issuers Rules on not being considered an offer
If a
fiduciary participates in a transaction on the plan’s behalf that involves a party with interests adverse to those of the plan in order to ensure favorable terms for the plan.
a Conflict of Interest?
Yes
The total of:
cash from operations, investing, and financing
(The sum total, or the net change in cash)
is reported on which report
-Income Statement
-Balance Sheet
-Statement of Cash Flows
-Statement of Cash Flows
(not either of the other 2)
When one wishes to refuse the receipt of an IRA, the procedure is known as
disclaiming the IRA
What does abjure mean?
to reject
Interest Rates Increasing would affect which industry the most and how?
The utilities industry
The clothing industry
The electronics industry
The food industry
The utilities industry
Utilities are generally very heavily funded with debt.
If interest rates go up, their new debt will be at higher interest rates, causing lower earnings available for common stocks.
Difference Between
Front Running
and
Trading Ahead
Front Running - placing your orders before your clients
and
Trading Ahead - placing orders right before private info becomes public
(and you know the info)
Which provisions of the Uniform Securities Act deal with using insider information
antifraud provisions
Which Organizations were partnered with the US to create
Brady Bonds
International Monetary Fund (IMF)
World Bank
What is One thing the State Admin is NOT Allowed to do
Issue Injunctions
only a court can issue injunctions.
If a security is Exempt if thats all that you sell do you have to register in the state as an
Agent of BD
Yes
the security does not have to register in the state but the BD still does
Risk-adjusted Return
Expected Return - Risk Free rate (the 90 day T Bill)
The return you can get ABOVE
the risk free return
(the return you can get without taking any risk)
For the Test…
Do Annuitized Variable Annuities
-Pay fixed $ each month
and
do they
-Guarantee a Rate of Return
-Considered Liquid Investments
-Pay a fixed ____% but not a dollar amount
-Guarantee a Rate of Return => No only that payment will never be below the AIR
-Considered Liquid Investments => NO!!!
The ONLY business entity that limits the amount of Investors is…
S Corp
no more than 100 investors
Whats the single most distinguishing characteristic of a universal life plan
premiums are flexible and not fixed
Difference between a callable and convertible bond
callable - Issuer can redeem the bond before it matures if they want
convertible - Shareholder can exchange the bond for stock in the company
Form ADV Parts are for what:
-Part 1
-Part 1B
-Part 2A
-Part 2B
Part 1 - for registration purposes
Part 1B - only used by state-registered advisers
Part 2A - used for IA (or you can give client brochure instead)
(given to client by time of sale)
Part 2B - used for IAR
(given to client by time of sale)
Portfolio rebalancing is a strategy
-Explanation
-When they sell stock
-When they buy stock
-a strategy that seeks to maintain a constant % of its original investment allocation
-When they sell stock => When a Stock they hold increases in value
-When they buy stock => When a stock they hold decreases in value
The hypothecation agreement
Gives permission to the BD to pledge a customer’s margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer.
(done during margin account investing with a BD)
Reg T % Equity Requirements for:
(What % equity you are required to have)
a Long Account
a Short Account
Initial Margin Requirement
a Long Account - 25%
a Short Account - 30%
Initial Marin Requirement - 50%
What type of security would you not use IRR to analyze
Common stock
(DPP would be better than common stock)
Can the State Administrator
Compel individuals to give a testimony?
Yes
Do the following have to be completed BEFORE a customer enters their first options Trade?
-receipt of a completed options agreement
-approval by a designated options supervisor
-delivery of the options disclosure document (ODD)
-completion of the new account form
-receipt of a completed options agreement - NO
(it just has to be returned by the customer within 15 days of account approval)
-approval by a designated options supervisor - YES
-delivery of the options disclosure document (ODD) - YES
-completion of the new account form - YES
Which of the following is considered a speculative investment and not generally an element in retirement planning?
Life insurance
Commodities
Commodities
What can an Administrator require from a federally covered adviser?
-Copy of the IA’s Form ADV
-Filing of the IA’s advertising in the state
-A listing of the IA’s fee schedule
-A filing fee
Copy of the IA’s Form ADV
A filing fee
Sharpe Ratio
Risk-Adjusted Return —- (Expected Return - Risk-Free rate (the 90 day T Bill))
/
Standard Deviation
It compares how much return you get to what level of risk it took to get it.
Higher number = Higher performance
(getting a higher return without taking on more risk)
Is Financial Insolvency Grounds for Revocation of Registration in Federal / State Laws?
(assets less than liabilities)
Federal - No
State - Yes
Brady Bonds
Foreign Government-Issued Bonds
Backed By US Treasury Bonds
Denominated in US Dollars
Helps support foreign governments
Convictions of
-Felonies?
-Misdemeanors?
within the past ____Time_____?
maybe grounds for denying a registration
if a state has a different definition of Penalty/Misdemeanor could that change it?
-Felonies - YES
-Misdemeanors - NO
within the past ____10 years_____
Different State - NO Doesnt Matter
(all that matters is what the conviction shows up as on the persons record)
Can states enforce more-stringent recordkeeping rules than those of the SEC
No
but they could still investigate
(only the principle office state could enforce their rules though)
If SEC convicts a BD of a rule breach
can specific states also go after the BD
Only the state where the principle office is located
Admin cannot enter a final order without what
-Prior notice to the applicant as well as the employer
-An opportunity for a hearing
-Findings of fact and conclusions of law
(the individual is not required to provide written acknowledgment before an order is issued)
