Series 65 Flashcards
1
Q
3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template.
A
- commissions;
- markups and markdowns; and
- advisory fees for those firms that are also registered as investment advisers.
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
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.
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.
5
Q
Strong Form Market Efficiency
A
security prices fully reflects all information from both public and private sources (including insider trading).
6
Q
Fundamental Analysis
A
- Study of a businesses prospects by looking at the surrounding industry and overall economy
- Like a full medical check-up
- Review P/E ratios
7
Q
Technical Analysis
A
- Looks at overall market to measure risk.
2. Charts a stock’s price and volume over a period of time.
8
Q
Value investors look for:
A
- Stock that are under-priced in the market
Ex. below book value; low P/E Ratios; high dividend yields
9
Q
Examples of unsystematic risk (able to diversity away)
A
- Financial Risk
- Business Risk
- Political Risk
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
11
Q
Common Non-Qualified Plans
A
Deferred comp; exec bonus; split-dollar life ins.; group carve-out
12
Q
Must send Brochure to clients upon request within ____ Days
A
7 day
13
Q
What is a CMB?
A
Cash Management Bill - Short term securities - typically 30 day notes
Settle in 7 days
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.
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
16
Q
Customer Complaints
A
Given to supervisor and kept on file for 4 years
17
Q
FOMC
A
Federal Open Market Committee
Purchase treasuries to add to the money supply which typically causes rates to increase
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
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
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
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
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
23
Q
Reg BI
A
Due Diligence
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
25
What is pure value style for a portfolio manager?
Focus on stocks that are undervalued - Review BS
26
Extra question asked when opening an option account
investing knowledge and experience
27
Characteristics of Class A Share
Front Loading
Eligible for break-point purchases
Typically low or no charge 12b-1 fee
28
Characteristics of Class B Shares
Back End loaded with a declining contingent deferred sales charge and a high 12b-1 fee
29
Characteristics of Class C Shares
Level Load
No sales charge to purchase
Generally a 1% CDSC for one year
Continuous 12b fee (often high)
30
What is a Class I Share
Sold only to institutional investors
31
What is a Class R Share
Sold only to participants in a retirement plan
32
What is Beta
Measure of volatility vs the S&P500.
+1 - More volatile
1 - equal to index
-1 - Less volatile
33
Regulations regarding CONTRACTED solicitors
investment Advisor Act - Not required to be an IAR
| USA Act - Must be an IAR
34
Correlation between NPV and IRR
- NPV means low IRR
+ NPV means high IRR
0 NPV means IRR is equal to the retired rate of return
35
Federal Registration exception for Private Fund Advisors
less then 150M
36
If the required rate of return is higher than anticipated in a present value calculation, the effect would be that
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).
37
What is a 457 Plan
Deferred compensation plan
38
Unit Investment Trust
Registered investment company with a fixed portfolio. No ongoing management.
39
A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following?
State only - Pension funds managers don't have to register with SEC until they have 200M in AUM
40
Investment strategy that focuses on appropriate allocation based on long term and risk tolerance of the client
Strategic Asset Allocation
41
What is a derivative
investment vehicle who value is based on another securities value.
Ex. forward contracts, future contracts and options
42
What is considered a nonissuer transaction
Issuer doesn't receive proceeds from the sale.
43
Should Municipal Bond funds be included in an IRA
No - generally considered inappropriate to include tax-exempt securities in a tax deferred retirement plan.
44
Difference between Rule 506C and 506B
If limited exclusivity to accredited investors Rule 506C offerings may be publicly advertised; Rule 506B (nonaccredited) can never be advertised.
45
What qualifies as "discretionary authorization"
Representative choose the security, amount of shares and whether to buy or sell.
Time or price alone isn't discretionary.
46
How are nonqualified tax-deferred annuities taxed
Grows tax-deferred and only earnings are taxed at distribution.
47
What is the liquidity ratio
current assets divided by current liabilities = current ratio (liquidity)
48
Ratio that measures the gross profitability of a firm
Gross profit / net sales
49
formula for stockholders equity
Net income / average total equity
50
Formula for measuring how much of a company's earning are distributed to common stockholders
Dividend amount divided by earning per share
51
Warrent
Long term options to buy stock, considered equity securities and less safe than bonds
52
Inverse and leveraged ETF’s
Typically held for less then a week by bearish investor.
Often called short funds.
Purchased for short-term capital gains - no income
53
Best type of GAAP audit results
unqualified opinion
54
How many share of common stock in a block trade
10,000
55
5 constraints of a IPS
Investment Policy Statement - TTLLU
Time Horizon, taxes, liquidity, law, Unique
Also sets policy for the portfolio
56
Indicative Value
Indicative value or closing indicative value for ETNs, is calculated and published at the end of each day by the ETN issuer.
57
POP vs. NAV
POP - Public offering price
58
Dividend Payout Ratio Formula
Dividend / earning
59
Exchange-Traded Fund
Inv. act of 1940 - as a unit inv. trust or an open ended ETF
60
Difference between an ETF and Index Mutual Fund
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
What is a Unit Investment Trust (UIT)
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
Closed End Fund
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
Open ended fund
Sales commission is paid from the various sales charges like Front-end, bank-end or 12-1 fees
64
Front End Load
Charges are reflected in funds POP; charges are added to NAV at purchase.
65
Back End Load
Contingent deferred sales charge - done when mutual fund shares are redeemed. Typically drops to 0 after 6-8 years. Typically Class B Shares
66
Exchange traded Note
Made up of debt instruments - returns are linked to market index rather then traditional interest payments
Securities act of 1933
67
Asset Correlation
From +1 to -1; higher correlation securities move together which lessons diversification.
68
Standard Deviation
Higher number = higher volatility and risk
69
How does correlation work in choosing securities
negative correlation means securities are moving in opposite directions which increases diversification.
70
Mean, mode, median
Mean - average
Mode - Most frequent
Median - Middle point
71
Form 8 - K
report newsworthy events to SEC; must file within 4 days of event
72
Working capital formula
Current assets - current liabilities
73
Unsystematic Risk
eliminated when the investor builds a well-diversified portfolio
74
Supply Side theory
economic growth results from lower taxes and government spending
Authored by Arthur Laffer
75
Tax rate on dividends
20% if upper two tax brackets
15% tax
76
Short Term gains tax rate
Current income tax rate
77
Bond that is federal tax free
Municipal issue
78
US Treasury securities tax status?
exempt from state taxation, but not federal
79
Tactical Asset allocation
actively trading your portfolio
typically higher costs
80
Tax Ramifications of ATM
Loss of tax benefits on tax preferred items like municipal bonds, accelerated depreciation.
81
Stages of the business cycle
Expansion; peak; contraction; trough
82
Annuities Distribution Rules
LIFO Basis at ordinary income levels; 10% penalty if under 59 1/2.
83
Monte Carlo Simulation
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
TIC
Tenants in common - Upon death shares transfer to estate rather then the surviving member.
Undivided interest and either cotenant can withdraw funds.
85
Monetarists beliefs
economy and inflation are best controlled by management of the money supply rather then fiscal policy stimulation; fed reserve should control money supply.
86
What do discretionary accounts require
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
Qualified investor
2. 2M net worth (excluding home)
| 1. 1M with advisor
88
Precious metal investments
tend to negatively correlate with the stock market
| Positive correlation with inflation
89
Strategic asset allocation
set long term goals for mix (ie. 70/30) and rebalance occasionally
90
Tactical asset allocation
Deviating from long term asset allocation (like strategic) and take advantage of short term opps.
91
Sharpe Formula
Actual Return - risk free rate / Standard deviation
92
Dealer Transactions
- principal
- markup/downs
- buying into or selling from inventory
- Trading for their own account
93
Broker Transactions
- Agency
- Commission
- middleman between buyer and seller
- trading for others
94
Federally covered securities as defined by National Securities Market Improvement Act (NSMIA)
- Securities listed on national exchanges
- Investment company securities
- Reg D Securities
- Certain Fed. exempt securities
95
Investment company securities include
- open-ended management companies (mutual funds)
- closed-ended (publicly traded)
- Face amount certificates
- Unit investment trusts (UIT)
96
Conversion Price formula
Conversion price = par / conversion ratio
97
Form 8k
disclose significant events
98
Form 10Q
Quarterly unaudited statements
99
Form 10K
Annual audited financials
100
Form 13-D
More than 5% shareholder in publically traded stock
101
Elastic goods
- unnecessary or considerable amount of competition
| - when prices rise demand falls sharply (IE TV)
102
Max life of a standard option contract
9 months
103
What does inside market reflect
highest bid and the lowest available ask.
68.25/68.30 (7x9) Highest/lowest (shares by 100 with each price)
104
Tax status of bond issuers
- Government - Federal; exempt from local and state
- Municipal - state and local; exempt from federal
- Corporate - subject to all
105
Revocable Trusts
- subject to estate tax
| - income taxable to the grantor
106
Irrevocable Trust
- No estate tax
| - taxable to beneficiary or the trust depending on distribution
107
Dividend tax rate
15 unless in the higher brackets over 35% then it is 20%
108
Alpha formula
alpha = (portfolio return - risk free rate) - (Beta x (Market return - risk free rate))
Risk free = 91 day Treasury Bill
109
Current Yield Formula
Current Yield = Annual income / Market Price
110
What to look for in choosing bonds
Highest volatility is going to be longest time and lowest coupon/interest rate.
111
GRAT
Grantor Retained Annuity Trust - used to pass assets to children to minimize gift and estate taxes.
- income taxed to grantor
112
specialist
Designed market maker - on the floor of the stock exchange
113
Market Maker
purchases on the OTC market
114
Present Value Formula
PV = FV / (1+DR)N
DR - Discount Rate (average rate of return)
N - years
115
Options fundaments
- two side with both being obligated
- typically expire after 9 months
- buyer can execute up until the option expires
116
What is a LEAP
Long Term Equity Anticipation Security
options that can last up to 3 years
117
Long
= buying a stock
*going long on an option gives you a specific right
118
Cost of an option
Premium
The more valuable the option the more expensive the premium
119
"out of the money"
Options without intrinsic value. No money to be made
120
"In the money"
Option has intrinsic value and will be exercised.
121
NAV
Closed in company - ask is lower then NAV; shares are sold at ask price.
122
Resistance and Support
Downward - support
| Upwards - resistance
123
REIT Requirements
Must distribute a minimum of 90% of their taxable income and 75 of their money must be in RE.
124
Standard Deviation
- 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
Value of dollar increases
- increases prices of exports which makes them less competitive
- imported products are cheaper and become more competitive
126
How are treasury notes quoted
1/32
ex. .21 is 21/32 - 6.56
