Series 6 Terminology Flashcards
Capital
Accumulated money or good that are available for producing more money or goods.
Liquidity
The ease with which an asset can be converted to cash in the marketplace.
Cap
A measure of a stock’s market capitalization.
- Large market = $10 Billion +
- Mid market = $2 - $10 Billion
- Small market = 300 Million - $ 2 Billion (volatile)
Money Market
Open-ended mutual fund that invests in short-term debt securities. The NAV is set at $1 per share. - Certificates of deposit (CDs) - Commercial paper - U.S. Treasuries - Bankers' acceptances - Repurchase agreements
Income Funds
Mutual funds, ETFs or any other type of fund that seek to generate an income stream for shareholders by investing in securities that offer dividends or interest payments. The funds can hold bonds, preferred stock, common stock or even real estate investment trusts (REITs).
ETF
Exchange Traded Fund
Municipal Bond
A debt security issued by a state, municipality or county to finance its capital expenditures.
- Construction of highways, bridges or schools.
- They are exempt from federal taxes and from most state and local taxes, making them especially attractive to people in high income tax brackets.
General Obligation Bond - GO
A municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project.
GO Bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects. No assets are used as collateral.
Treasury Bonds
A bond issued by the US Treasury.
- Fixed-interest
- Make interest payments semi-annually, and the income received is only taxed at the federal level.
Investor Objective:
Preservation of capital and safety
Recommendation:
Government securities or Ginnie Maes
Investor Objective:
Growth
Recommendation:
Common stock or common stock mutual funds
Investor Objective:
Balanced or moderate growth
Recommendation: Blue Chip (Large cap) stocks
Investor Objective:
Aggressive growth/speculation
Recommendation:
Technology stocks or sector funds
Investor Objective:
Income
Recommendation:
Bonds - but not Zero coupons
Investor Objective:
Tax-free income
Recommendation:
Municipal bonds or municipal bonds funds
Investor Objective:
High-yield income
Recommendation:
Corporate bonds or corporate bond funds
Investor Objective:
Equity income
Recommendation:
Preferred stock and utility stocks
Investor Objective:
Liquidity
Recommendation:
Money market funds
Investor Objective:
Keep pace with inflation
Recommendation:
Stock portfolio
Investor Objective:
Recommendation:
What factors are included in calculating a Mutual Funds Expense Ratio?
- BOD Stipend
- Investment Advisor Fee
- Custodian Fee
- 12b-1 Fee
- Transfer Agent Fee
- Legal and accounting fees
Note: This does not include the Sales Load.
What is the largest part of a mutual funds expense ratio?
The Investment Advisory Fee
What are the 2 types of Annuities
Variable and Life
What is an Annuity
An Annuitant makes periodic payments to the insurance company which invest the money tax deferred.
At retirement, the money becomes available for withdrawal.
Lump sum or periodic monthly payments for life.
What is NAV
Net Asset Value
Which is the Mutual Funds share value.
How do you calculate the NAV
Assets - liabilities / outstanding shares
What is the 12b-1 fee
These are asset based fees used to cover the costs of marketing and distributing funds to investors. (This is not a sales fee).
Margin
Money borrowed from a bank through a brokerage to purchase securities
Short Selling
Selling shares that are not owned.
Who are the parties in a Mutual Fund
- BOD Stipend
- Custodian
- Transfer Agent
- Investment Advisor
- UW
Mutual Fund: All the parties are paid from income from the fund except who?
The UW which is paid from Sales charges
Define POP
The Purchase of Price
The purchase price of a fund share
What is a load and name the types
The Sales charge.
- Front end
- Back end
- No load
What is sold at a discount and mature in 4, 13, 26, or 52 weeks and does not make interim interest payments.
Treasury Bills (T Bills)
A customer purchases $50,000 worth of 10% corporate bonds at par. At the end of the day, the bonds close down a half point. The customer has a loss of:
The customer holds 50, $1,000 bonds. One bond point equals $10. Therefore, if each bond decreases by a half-point, the loss is $5 per bond; multiplied by 50 bonds, this equals $250.
A customer bought a bond that yields 6.5% with a 5% coupon. If the bond matures at this point, the customer will receive
Upon redemption of a bond, whatever current interest rates may be, the investor receives par ($1,000) plus the final semiannual interest payment ($25 in this case), for a total of $1,025.
Which instrument is allows financial institution-sponsored mortgage pools and are not backed by the US government?
Collateralized Mortgage Obligations (CMOs)
