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Series 65 Flashcards

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Series 65 flashcards
1
Q

3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template.

A
  1. commissions;
  2. markups and markdowns; and
  3. advisory fees for those firms that are also registered as investment advisers.
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2
Q

Risk-adjusted return is calculated by

A

dividing the security’s return in excess of the risk-free rate by its standard deviation

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3
Q

Weak Form Market Efficiency

A

current stock prices already incorporated all historical market data so historical trends have not value in predicting future price changes.

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4
Q

Semi Strong Form Market Efficiency

A

current prices incorporate historical data and reflect data from analyzing financials, industry and current economic trends.

fundamental analysis has no value and only insider info can help.

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5
Q

Strong Form Market Efficiency

A

security prices fully reflects all information from both public and private sources (including insider trading).

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6
Q

Fundamental Analysis

A
  1. Study of a businesses prospects by looking at the surrounding industry and overall economy
  2. Like a full medical check-up
  3. Review P/E ratios
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7
Q

Technical Analysis

A
  1. Looks at overall market to measure risk.

2. Charts a stock’s price and volume over a period of time.

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8
Q

Value investors look for:

A
  1. Stock that are under-priced in the market

Ex. below book value; low P/E Ratios; high dividend yields

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9
Q

Examples of unsystematic risk (able to diversity away)

A
  1. Financial Risk
  2. Business Risk
  3. Political Risk
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10
Q

What is form CRS

A

Client/Customer Relationship Summary given to all new clients

Services offered, fees, conflict of interest, code of conduct

Changes must be communicated to clients within 60 days

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11
Q

Common Non-Qualified Plans

A

Deferred comp; exec bonus; split-dollar life ins.; group carve-out

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12
Q

Must send Brochure to clients upon request within ____ Days

A

7 day

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13
Q

What is a CMB?

A

Cash Management Bill - Short term securities - typically 30 day notes

Settle in 7 days

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14
Q

What is the Howey Test?

A

Defined a security as an investment of money; in a common enterprise; with the expectation of profits to be derived from the efforts of someone other than the investor.

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15
Q

What is a TRs

A

Treasury receipt

Issued by Broker Dealer; collateralized by underlying US securities; zero-coupon bonds purchased at discount for full value at maturity. No regular interest payments

*often called Strips or T-Strips

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16
Q

Customer Complaints

A

Given to supervisor and kept on file for 4 years

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17
Q

FOMC

A

Federal Open Market Committee

Purchase treasuries to add to the money supply which typically causes rates to increase

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18
Q

Security eligible for registrations by filing must have:

A

Net worth greater than 4 M
at least 400k shares
at least four market markers for at least 30 days of last three months
offering price of at least $5/share

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19
Q

IA requirement for custody of client assets:

A

Net worth of 35K
File audited balance sheet with Administrator

*Only need 10K for discretionary approval

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20
Q

What is Alpha

A

Measure of historical performance.

compared to benchmark to assess risk - positive is good, negative is bad - Neutral is 1

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21
Q

What is Modern Portfolio Theory

A
  • add non-correlated assets to diversity risk
  • efficient - right return with low risk
  • evaluate risk on a holistic level rather then focus on individual securities

A lower volatility means less risk

The portfolio should lie on the efficient frontier

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22
Q

What is CAPM

A

Capital Asset Pricing Model

Used to price high risk securities; developed by Sharp; two risks, some of which can’t be diversified away

only considers systematic risk as it utilizes beta as its risk variable

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23
Q

Reg BI

A

Due Diligence

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24
Q

What is Regulation T

A

Controls Margin Accounts

Requires 50% equity in account

Hypothecation Agreement - firm uses securities as collateral for margin loan

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25
Q

What is pure value style for a portfolio manager?

A

Focus on stocks that are undervalued - Review BS

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26
Q

Extra question asked when opening an option account

A

investing knowledge and experience

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27
Q

Characteristics of Class A Share

A

Front Loading
Eligible for break-point purchases
Typically low or no charge 12b-1 fee

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28
Q

Characteristics of Class B Shares

A

Back End loaded with a declining contingent deferred sales charge and a high 12b-1 fee

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29
Q

Characteristics of Class C Shares

A

Level Load
No sales charge to purchase
Generally a 1% CDSC for one year
Continuous 12b fee (often high)

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30
Q

What is a Class I Share

A

Sold only to institutional investors

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31
Q

What is a Class R Share

A

Sold only to participants in a retirement plan

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32
Q

What is Beta

A

Measure of volatility vs the S&P500.
+1 - More volatile
1 - equal to index
-1 - Less volatile

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33
Q

Regulations regarding CONTRACTED solicitors

A

investment Advisor Act - Not required to be an IAR

USA Act - Must be an IAR

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34
Q

Correlation between NPV and IRR

A
  • NPV means low IRR
    + NPV means high IRR
    0 NPV means IRR is equal to the retired rate of return
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35
Q

Federal Registration exception for Private Fund Advisors

A

less then 150M

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36
Q

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that

A

the present value would be lower

if you need $100,000 in 18 years for your newborn’s college education and you expect to earn 4%, using the rule of 72, you’ll have to deposit $50,000 now (present value) to reach the goal. However, if it turns out that the earnings rate is higher than anticipated—say, 8%—you would only need to deposit half as much today ($25,000). Therefore, we answer this question by indicating that a higher rate of return will require a lower present value (deposit).

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37
Q

What is a 457 Plan

A

Deferred compensation plan

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38
Q

Unit Investment Trust

A

Registered investment company with a fixed portfolio. No ongoing management.

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39
Q

A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following?

A

State only - Pension funds managers don’t have to register with SEC until they have 200M in AUM

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40
Q

Investment strategy that focuses on appropriate allocation based on long term and risk tolerance of the client

A

Strategic Asset Allocation

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41
Q

What is a derivative

A

investment vehicle who value is based on another securities value.

Ex. forward contracts, future contracts and options

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42
Q

What is considered a nonissuer transaction

A

Issuer doesn’t receive proceeds from the sale.

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43
Q

Should Municipal Bond funds be included in an IRA

A

No - generally considered inappropriate to include tax-exempt securities in a tax deferred retirement plan.

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44
Q

Difference between Rule 506C and 506B

A

If limited exclusivity to accredited investors Rule 506C offerings may be publicly advertised; Rule 506B (nonaccredited) can never be advertised.

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45
Q

What qualifies as “discretionary authorization”

A

Representative choose the security, amount of shares and whether to buy or sell.

Time or price alone isn’t discretionary.

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46
Q

How are nonqualified tax-deferred annuities taxed

A

Grows tax-deferred and only earnings are taxed at distribution.

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47
Q

What is the liquidity ratio

A

current assets divided by current liabilities = current ratio (liquidity)

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48
Q

Ratio that measures the gross profitability of a firm

A

Gross profit / net sales

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49
Q

formula for stockholders equity

A

Net income / average total equity

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50
Q

Formula for measuring how much of a company’s earning are distributed to common stockholders

A

Dividend amount divided by earning per share

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51
Q

Warrent

A

Long term options to buy stock, considered equity securities and less safe than bonds

52
Q

Inverse and leveraged ETF’s

A

Typically held for less then a week by bearish investor.

Often called short funds.

Purchased for short-term capital gains - no income

53
Q

Best type of GAAP audit results

A

unqualified opinion

54
Q

How many share of common stock in a block trade

A

10,000

55
Q

5 constraints of a IPS

A

Investment Policy Statement - TTLLU

Time Horizon, taxes, liquidity, law, Unique

Also sets policy for the portfolio

56
Q

Indicative Value

A

Indicative value or closing indicative value for ETNs, is calculated and published at the end of each day by the ETN issuer.

57
Q

POP vs. NAV

A

POP - Public offering price

58
Q

Dividend Payout Ratio Formula

A

Dividend / earning

59
Q

Exchange-Traded Fund

A

Inv. act of 1940 - as a unit inv. trust or an open ended ETF

60
Q

Difference between an ETF and Index Mutual Fund

A

ETF trades like a stock (like a close-ended company); can also be purchased on margin and sold short. tend to have lower expenses

61
Q

What is a Unit Investment Trust (UIT)

A

Unmanaged investment company organized under a trust indenture

Issues redeemable securities called units or shares of beneficial interest

Must maintain secondary markets so unit holders can redeem at NAV

62
Q

Closed End Fund

A

No sales charges; investor pays a commission in agency transactions or pays a markdown or markup in principal transactions

It is only the closed-end investment company where shares trade at a premium or discount to the NAV per share.

63
Q

Open ended fund

A

Sales commission is paid from the various sales charges like Front-end, bank-end or 12-1 fees

64
Q

Front End Load

A

Charges are reflected in funds POP; charges are added to NAV at purchase.

65
Q

Back End Load

A

Contingent deferred sales charge - done when mutual fund shares are redeemed. Typically drops to 0 after 6-8 years. Typically Class B Shares

66
Q

Exchange traded Note

A

Made up of debt instruments - returns are linked to market index rather then traditional interest payments
Securities act of 1933

67
Q

Asset Correlation

A

From +1 to -1; higher correlation securities move together which lessons diversification.

68
Q

Standard Deviation

A

Higher number = higher volatility and risk

69
Q

How does correlation work in choosing securities

A

negative correlation means securities are moving in opposite directions which increases diversification.

70
Q

Mean, mode, median

A

Mean - average
Mode - Most frequent
Median - Middle point

71
Q

Form 8 - K

A

report newsworthy events to SEC; must file within 4 days of event

72
Q

Working capital formula

A

Current assets - current liabilities

73
Q

Unsystematic Risk

A

eliminated when the investor builds a well-diversified portfolio

74
Q

Supply Side theory

A

economic growth results from lower taxes and government spending

Authored by Arthur Laffer

75
Q

Tax rate on dividends

20% if upper two tax brackets

A

15% tax

76
Q

Short Term gains tax rate

A

Current income tax rate

77
Q

Bond that is federal tax free

A

Municipal issue

78
Q

US Treasury securities tax status?

A

exempt from state taxation, but not federal

79
Q

Tactical Asset allocation

A

actively trading your portfolio

typically higher costs

80
Q

Tax Ramifications of ATM

A

Loss of tax benefits on tax preferred items like municipal bonds, accelerated depreciation.

81
Q

Stages of the business cycle

A

Expansion; peak; contraction; trough

82
Q

Annuities Distribution Rules

A

LIFO Basis at ordinary income levels; 10% penalty if under 59 1/2.

83
Q

Monte Carlo Simulation

A

The statistical method used to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values based on the risk and return characteristics of the securities themselves is known as

84
Q

TIC

A

Tenants in common - Upon death shares transfer to estate rather then the surviving member.

Undivided interest and either cotenant can withdraw funds.

85
Q

Monetarists beliefs

A

economy and inflation are best controlled by management of the money supply rather then fiscal policy stimulation; fed reserve should control money supply.

86
Q

What do discretionary accounts require

A

POA if the rep is choosing the security, order size or action (buy/sell); Rep must place order by end of day if there is not one.

87
Q

Qualified investor

A
  1. 2M net worth (excluding home)

1. 1M with advisor

88
Q

Precious metal investments

A

tend to negatively correlate with the stock market

Positive correlation with inflation

89
Q

Strategic asset allocation

A

set long term goals for mix (ie. 70/30) and rebalance occasionally

90
Q

Tactical asset allocation

A

Deviating from long term asset allocation (like strategic) and take advantage of short term opps.

91
Q

Sharpe Formula

A

Actual Return - risk free rate / Standard deviation

92
Q

Dealer Transactions

A
  • principal
  • markup/downs
  • buying into or selling from inventory
  • Trading for their own account
93
Q

Broker Transactions

A
  • Agency
  • Commission
  • middleman between buyer and seller
  • trading for others
94
Q

Federally covered securities as defined by National Securities Market Improvement Act (NSMIA)

A
  • Securities listed on national exchanges
  • Investment company securities
  • Reg D Securities
  • Certain Fed. exempt securities
95
Q

Investment company securities include

A
  • open-ended management companies (mutual funds)
  • closed-ended (publicly traded)
  • Face amount certificates
  • Unit investment trusts (UIT)
96
Q

Conversion Price formula

A

Conversion price = par / conversion ratio

97
Q

Form 8k

A

disclose significant events

98
Q

Form 10Q

A

Quarterly unaudited statements

99
Q

Form 10K

A

Annual audited financials

100
Q

Form 13-D

A

More than 5% shareholder in publically traded stock

101
Q

Elastic goods

A
  • unnecessary or considerable amount of competition

- when prices rise demand falls sharply (IE TV)

102
Q

Max life of a standard option contract

A

9 months

103
Q

What does inside market reflect

A

highest bid and the lowest available ask.

68.25/68.30 (7x9) Highest/lowest (shares by 100 with each price)

104
Q

Tax status of bond issuers

A
  • Government - Federal; exempt from local and state
  • Municipal - state and local; exempt from federal
  • Corporate - subject to all
105
Q

Revocable Trusts

A
  • subject to estate tax

- income taxable to the grantor

106
Q

Irrevocable Trust

A
  • No estate tax

- taxable to beneficiary or the trust depending on distribution

107
Q

Dividend tax rate

A

15 unless in the higher brackets over 35% then it is 20%

108
Q

Alpha formula

A

alpha = (portfolio return - risk free rate) - (Beta x (Market return - risk free rate))

Risk free = 91 day Treasury Bill

109
Q

Current Yield Formula

A

Current Yield = Annual income / Market Price

110
Q

What to look for in choosing bonds

A

Highest volatility is going to be longest time and lowest coupon/interest rate.

111
Q

GRAT

A

Grantor Retained Annuity Trust - used to pass assets to children to minimize gift and estate taxes.

  • income taxed to grantor
112
Q

specialist

A

Designed market maker - on the floor of the stock exchange

113
Q

Market Maker

A

purchases on the OTC market

114
Q

Present Value Formula

A

PV = FV / (1+DR)N

DR - Discount Rate (average rate of return)
N - years

115
Q

Options fundaments

A
  • two side with both being obligated
  • typically expire after 9 months
  • buyer can execute up until the option expires
116
Q

What is a LEAP

A

Long Term Equity Anticipation Security

options that can last up to 3 years

117
Q

Long

A

= buying a stock

*going long on an option gives you a specific right

118
Q

Cost of an option

A

Premium

The more valuable the option the more expensive the premium

119
Q

“out of the money”

A

Options without intrinsic value. No money to be made

120
Q

“In the money”

A

Option has intrinsic value and will be exercised.

121
Q

NAV

A

Closed in company - ask is lower then NAV; shares are sold at ask price.

122
Q

Resistance and Support

A

Downward - support

Upwards - resistance

123
Q

REIT Requirements

A

Must distribute a minimum of 90% of their taxable income and 75 of their money must be in RE.

124
Q

Standard Deviation

A
  • how far a securities deviates from it average price
  • higher volatility means more risk
  • called “pure risk”

*Beta measure volatility compared to the market

125
Q

Value of dollar increases

A
  • increases prices of exports which makes them less competitive
  • imported products are cheaper and become more competitive
126
Q

How are treasury notes quoted

A

1/32

ex. .21 is 21/32 - 6.56

Series 65 (1 decks)

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